Posts Tagged ‘MOG-A’

  • Moog Plunges Then Rallies
    , April 27th, 2012 at 1:10 pm

    Check out the action in Moog ($MOG-A) today. I thought this morning’s earnings report was pretty good. The market, however, disagreed as the stock opened down 10.44%.

    Since then, the market suddenly had a change of heart. Moog has rallied to as high as $42.79 which is a gain on the day of 4.2%. From trough to peak, that’s a gain of exactly $6 or 16.3%.

  • Moog Earns 77 Cents Per Share
    , April 27th, 2012 at 9:12 am

    Moog ($MOG-A) just reported fiscal Q2 earnings of 77 cents per share which was two cents more than expectations. Sales rose by 9% to $625 million. Moog reaffirmed its previous full-year guidance for sales of $2.47 billion and earnings-per-share of $3.31.

    “The Company delivered another good result in the second quarter,” said John Scannell, CEO. “We saw sales growth in all five of our segments, with the biggest increase in our Aircraft segment. In general, the defense business is holding its own, our industrial markets are healthy and our commercial aircraft business is powering ahead. With six months gone, fiscal 2012 is coming together nicely and we continue to forecast a 12% growth in earnings per share over our fiscal 2011 result.”

  • Good Earnings from Moog, Not So Good from Ford
    , January 27th, 2012 at 8:53 am

    More earnings news for our Buy List. This morning, Moog ($MOG-A) reported earnings of 80 cents per share. That’s six cents more than estimates. Moog reiterated its full-year guidance of $3.31 per share. Note that Moog’s fiscal year ends in September.

    “We are off to a great start for fiscal 2012,” said John Scannell, CEO. “Our first quarter sales are up nicely and earnings per share were better than our forecast. Sales in four of our five segments were up in the quarter as were profits. It is a great foundation for a year in which we anticipate we will deliver record sales and a 12% increase in earnings per share over fiscal 2011.”

    Ford ($F) reported earnings of 20 cents per share which was five cents below estimates.

    Ford earned $13.6 billion in the fourth quarter, due to a decision to move deferred tax assets back onto its books. Without that change, the company’s pretax operating profit totaled $1.1 billion, or 20 cents per share, missing analysts’ forecasts of 25 cents.

    The company lost money in Europe and Asia in the fourth quarter. But its North American operating profit rose 33 percent to $889 million.
    “The quarter was really driven by North America,” Chief Financial Officer Lewis Booth said.

    Booth also said November flooding in Thailand, which affected its parts suppliers, had a greater impact than the company expected. Ford lost 34,000 units of production in Thailand and in South Africa, which relies on Thai-made parts. He said the company also saw higher costs for steel and other commodities. Ford spent $2.3 billion more on commodities in 2011 than the prior year, or $100 million more than it had forecast.

    Europe’s debt crisis weighed on car sales in that region.

    For the full year, the U.S.-based company made $20.2 billion, or $4.94 per share. Without the accounting gain, it earned $8.76 billion, or $1.51 per share, its highest operating profit since 1999. Full year revenue rose 13 percent to $136.3 billion.

    The shares look like they’re going to open about 5% lower this morning.

  • CWS Market Review – November 18, 2011
    , November 18th, 2011 at 9:06 am

    Despite coming off a record earnings season, the stock market is still in a sour mood. On Thursday, the S&P 500 closed at 1,216.13 which was its lowest close in nearly one month. Since October 28th, we’re down 5.3%.

    The S&P 500 fell by more than 1.6% on both Wednesday and Thursday this week and it’s now hovering just above its 50-day moving average (the NASDAQ Composite is already below it). The index has closed above its 50-DMA every day since October 10th. I try to avoid “timing” the market but I’ll note that the 50-DMA is often an important demarcation line separating bull markets from bear markets.

    In this week’s CWS Market Review, I want to discuss a major change that’s happening in the market that’s not getting much attention. More importantly, I’ll tell about some of the best places to invest your money right now.

    For the last several weeks, the U.S. stock market has been heavily dependent on what’s been happening in Europe. This is hardly surprising but it’s also been very frustrating because…well, Europe’s economy is massively screwed up. On top of that, the political situation seems to favor ignoring the issues rather than solving them. However, my biggest fear is that we’ll never see a rally here until the mess is over over there.

    Lately, however, we’re starting to see the first signs that our market is disentangling itself from the European malaise. This is very important. Let me explain: Over the last few months, the U.S. stock market has been unusually highly correlated with the euro-to-dollar trade. Whenever the euro has rallied, stocks here have been very likely to rise, and when the euro has sunk, U.S. stocks have gone south. These two lines have moved together like waltzing partners.

    About 18% of the profits for the S&P 500 comes from Europe. Yet at the end of October, the 30-day correlation between the Dow and the EURUSD hit an incredible 0.958. By the end of last week, it slipped to 0.834 and lately, it’s been as low as 0.498. That’s a big turnaround and I think there’s a very good chance it will continue.

    The reason is that the U.S. economy is starting to show signs of life. Make no mistake, we’re not ripping along, but the recent news is somewhat optimistic. For example, this week’s report on industrial production showed a 0.7% gain last month. That was much better than Wall Street’s forecast of 0.4%. The inflation news continues to look good. We also had a decent report on retail sales which is often a glimpse at the confidence of consumers. Jobless claims fell to the lowest level since May. There’s clearly no Double Dip at hand.

    Economists up and down Wall Street have been revising their economic growth estimates higher. JPMorgan Chase ($JPM) just raised its estimate for Q4 GDP growth from 2.5% to 3%. Morgan Stanley ($MS) thinks it will be 3.5%. Joe LaVorgna, the chief economist at Deutsche Bank ($DB), said that he wouldn’t be surprised if Q4 growth topped 4%. Bespoke notes that this earnings season showed the highest “beat rate” this year. What we’re seeing is a fundamentally healthy economy that’s fighting off a housing sector mired in a depression—and as bad as housing is, even that’s showing some slight glimmers of hope.

    If the U.S. stock market can finally shake off the daily gyrations caused by our friends across the pond, I think we can see a nice year-end rally. Consider how fearful the market is right now. Shares of Microsoft ($MSFT) are trading at just over eight times next year’s earnings estimate. Wall Street currently thinks the S&P 500 can earn $109.30 next year which means the index is going for just over 11 times earnings. The yield on the 30-year Treasury is back below 3% and the yield on the 10-year is below 2%. In other words, the risk trade continues to be swamped with folks afraid to put their money to work in stocks.

    Now let’s turn our attention to the Buy List which continues to lead the overall market this year. I especially want to highlight some of our higher-yield stocks because they’re the best way to protect yourself in a fragile market like this.

    In last week’s CWS Market Review, I said that I expected to see Sysco ($SYY) raise its quarterly dividend for the 42nd year in a row, but only by one penny per share. On Wednesday, the company proved me right. Going by the new dividend, Sysco currently yields 3.95%. The stock is a good buy up to $30 per share.

    Our only Buy List stock to fall short of its earnings expectation this past earnings season was Reynolds American ($RAI). I told investors not to worry since the quarterly earnings game doesn’t matter so much to a conservative stock like Reynolds. Sure enough, the stock broke out to a fresh 52-week high this week. I wasn’t thrilled by the company’s recent share buyback announcement but it’s clearly given a lift to the stock. Reynolds is now our second-best performer on the year; only Jos. A Bank Clothiers ($JOSB) has done better. At the current price, Reynolds yields 5.27%. The shares are a strong buy below $42.

    Some other stocks on the Buy List that look particularly good right now include AFLAC ($AFL), Moog ($MOG-A), Ford ($F), Fiserv ($FISV) and Oracle ($ORCL).

    Next Tuesday, Medtronic ($MDT) will report its fiscal second-quarter earnings. The company has said to expect earnings for this fiscal year (which ends in May) to range between $3.43 and $3.50 per share. Wall Street expects a quarterly report of 82 cents per share which seems about right to me. I think they can beat by a penny or two, but not by much more. Either way, Medtronic is cheap. The stock is currently going for less than 10 times the company’s own earnings forecast.

    That’s all for now. The stock market will be closed next Thursday for Thanksgiving. For reasons I’ll never understand, the stock market is open on the Friday after Thanksgiving but it will close at 1 p.m. This completely pointless session is usually one of the lowest volume days of the year. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Moog Earns 83 Cents Per Share
    , November 4th, 2011 at 7:01 am

    Moog ($MOG-A) just reported earnings for its fiscal fourth quarter of 83 cents per share, ten cents more than Wall Street’s forecast.

    For all of 2011, Moog earned $2.95 per share. For 2012, the company sees sales increasing by 8% to $2.52 billion and EPS rising 12% to $3.31. Wall Street had been expecting $3.25 per share.

    Moog Inc. announced today fiscal year 2011 sales of $2.33 billion, up 10%. Net earnings were $136 million and earnings per share of $2.95 were up 26% and 25%, respectively compared to last year.

    For the fourth quarter, sales of $619 million were up 8% from last year. Net earnings were $38 million, up 18%, and earnings per share of $.83 were 17% higher than last year.

    Aircraft sales for the year were $851 million, up 12% from the year previous, driven by very strong military and commercial aftermarket sales. Military sales were $498 million with sales on the F-35 Joint Strike Fighter, V-22 tilt rotor and the Blackhawk helicopter mostly unchanged. Military aftermarket sales were $204 million, a Company record. Commercial aircraft sales for the year of $314 million were 20% higher on stronger sales to Boeing and Airbus. Sales to business jet manufacturers were $33 million, a 24% improvement. Commercial aftermarket revenues of $100 million were 21% higher than a year ago. The Company’s navigation aids product line had sales of $38 million.

    In the fourth quarter, Aircraft sales of $228 million were up 13% from the same quarter last year. Military aircraft sales were up 13%, once again the result of higher sales in the aftermarket. Commercial aircraft revenues in the quarter of $81 million were 10% higher. Boeing Commercial revenues were flat while revenues for products sold to business jet manufacturers were slightly higher. Sales to Airbus increased 36% as production increased on existing Airbus programs.

    The Space and Defense segment had another strong year. Sales of $356 million were up 9%. Sales of controls on tactical missiles, at $66 million, were up 39% and offset lower sales on satellites. Deliveries for the Driver’s Vision Enhancer (DVE) system were about equal to last year. Security and surveillance product sales were up $21 million, helped by the 2010 Pieper acquisition. Sales to NASA on the Space Launch System and Crew Launch Vehicle development programs were up $10 million to a total of $28 million.

    Space and Defense fourth quarter sales were up only slightly from a year ago at $93 million. The growth was mainly driven by NASA programs and security and surveillance products.

    Sales for the year in the Industrial Systems segment were $629 million, a 15% increase. Capital equipment market sales were higher, reflecting strong demand for plastics machine controls, metal forming press controls and specialized test equipment. Sales of simulator motion systems were $69 million, up 43%. Wind energy sales, at $132 million, were lower than last year reflecting reduced demand from turbine manufacturers in China.

    Industrial sales in the fourth quarter of $173 million were up 8%. Capital equipment sales were up 28% to $52 million and wind energy sales were $39 million.

    Components Group sales for the year of $353 million, and for the fourth quarter of $89 million, were slightly lower than last year. Growth in marine, medical and industrial markets offset the weaker military aircraft and space and defense markets. Animatics, a third quarter 2011 acquisition, added $5 million in sales to the year.

    The Medical Devices segment generated sales of $142 million, up 12% from last year. The segment showed significantly improved sales in the second half of the year. For the quarter, sales in Medical Devices of $37 million were up 18% from a year ago.

    Year-end backlog of $1.3 billion was up $144 million, or 12%, from a year ago.

    The Company updated its guidance for fiscal 2012. The current forecast has sales increasing 8% to $2.52 billion, net earnings of $152 million and earnings per share of $3.31, a 12% increase over fiscal 2011.

    “Fiscal 2011 was another great year for our company,” said R.T. Brady, Chairman and CEO. “Strong sales growth produced even stronger earnings growth. Many good things are happening. Airplanes that we’ve worked on for years are moving into production. NASA now has a plan. The recovery in our industrial markets continues and our medical business is back on track. We look forward to an even stronger 2012.”

  • CWS Market Review – November 4, 2011
    , November 4th, 2011 at 6:23 am

    Even though October was the eighth-best month for the S&P 500 of the last 70 years, the market has taken back some of those gains thanks to the recent political chaos in Greece. Here’s what happened: George Papandreou, the Greek Prime Minister, surprised everyone on Monday by putting the euro zone bailout plan up for a referendum. Simply put, that freaked out everyone—and I mean everyone.

    For a few hours it looked like Greece was really honestly going to default. Monsieur Sarkozy said that the Greeks wouldn’t get a single cent in aid if they didn’t adhere to the original terms of the bailout. It got so bad that the European bailout fund had to cancel a bond offering. Yields on two-year notes in Greece jumped to 112%.

    Yes, 112%.

    The ECB, under its new head Mario Draghi, stepped in and cut rates by 0.25% which seemed to calm folks down. At least for a little while. Only after his party revolted against the idea did Papandreou decide to ditch the referendum. That’s what traders wanted to hear. On Thursday, the S&P 500 jumped 1.88%, and the index is now up barely for the year.

    So we dodged a bullet for the time being, but we’re not yet out of the woods. I think it’s obvious that Greece will get the aid although the details are still unclear. My fear is that this latest cure only addresses the symptoms and not the underlying problem.

    The issue isn’t that Greece mismanaged its finances (which it did) but rather that the euro zone as currently constructed is inherently unworkable. As it now stands, the countries on the periphery of Europe have to run massive trade deficits with the heart of Europe (Germany, mostly), and without the ability to downgrade their currencies, they’re forced to run large public-sector deficits.

    The equation boils down to this: The euro zone needs fiscal union or the euro dies. Perhaps a smaller euro zone could make it. If the EU was just a trading club for the rich nations of Western Europe, fine—that might work. But what’s happening now, I fear, is just delaying a problem that can’t be avoided.

    The problems in Europe are having an unusual side effect on the stock market here. What we’re seeing is an unusually high correlation among stocks. In other words, nearly every stock is moving in the same direction, whether it’s up or down. It’s important for investors to understand this. The last time correlation was this high was in October 1987 when the market crashed.

    Bespoke Investment Group, one of my favorite sites, tracks what it calls “all or nothing days” which is when the advance/decline line for the S&P 500 exceeds plus or minus 400. Since the start of August, more than half of the trading days have been “all or nothing days” which is a rate far greater than seen in previous years. The current market divide has energy, industrial, material and most importantly, financial stocks, soaring on up days, while volatility, gold and bonds rally on down days. The market is behaving like a legislature that has only extremists and no moderates.

    I don’t believe the high correlation portends any ugliness for the U.S. market. Instead, I think it reflects the dominance of geo-political events over the market. Though one important side effect is that when everyone moves the same way, it becomes much harder for hedge fund managers to stand out from the crowd. That’s why we’ve seen crazy action in stocks like Amazon.com ($AMZN) and Netflix ($NFLX).

    As depressing as the news is from Europe, there’s been more cause for optimism here in the U.S. While the economy is far from strong, it appears that the threat of a Double Dip recession in the near-term has fizzled. Last week, we learned that the economy grew by 2.5% for the third quarter. Job growth, of course, has been distressingly poor.

    I’m writing this early Friday morning ahead of the big jobs report. Economists expect that the jobless rate will remain unchanged at 9.1% and that 100,000 new jobs were created last month. Even if we hit that expectation, that’s still pretty poor.

    The good news is that this has been a decent earnings season for the market and especially for our Buy List. The S&P 500 is on track to post record quarterly earnings. The latest numbers show that of the 415 S&P 500 stocks that have reported so far, 288 have beaten expectations, 89 have missed and 38 were in line with estimates. Outside the S&P 500, 64.5% of companies have beaten estimates and that’s better than the previous two quarters. Our Buy List has done even better. Of the 12 Buy List stocks that have reported so far, ten have beaten earnings estimates, one missed and one was inline.

    On Tuesday, Fiserv ($FISV) reported third-quarter earnings of $1.16 per share which was two cents better than estimates. The company also raised its full-year guidance (man, I love typing those words) from $4.42 – $4.54 per share to $4.54 – $4.60 per share. Shortly before the earnings report, Fiserv’s stock gapped up to over $61 but then pulled back after the earnings report came out. Fiserv is a good buy up to $62 per share.

    Our star for the week and perhaps for the entire earnings season was Wright Express ($WXS). The stock soared 12% on Wednesday after its blowout earnings report. The company, which helps firms track their expenses for their vehicle fleets, reported third-quarter earnings of 99 cents per share which was six cents better than Wall Street’s consensus. That’s a 38% jump over last year. The company also said that it expects between 88 cents and 94 cents per share for the fourth quarter (the Street was expecting 94 cents per share). I was happy to see Wright extend its gain on Thursday as well. I rate Wright Express a buy up to $53.

    The big disappointment this week came from Becton, Dickinson ($BDX). For their fiscal fourth quarter, Becton reported earnings of $1.39 per share which was inline with Wall Street’s estimate. The problem was their guidance for the coming year. Becton said that they expect earnings to range between $5.75 and $5.85 per share. That’s far below Wall Street’s forecast of $6.19 per share. I’m disappointed by this news but Becton is still a solid company. Sometime later this month the company will likely raise its dividend for the 39th year in a row. Investors shouldn’t chase this one but if the shares pull back below $65, I think Becton will be a good buy.

    I also need to explain what happened to Leucadia National ($LUK) this week. A ratings company downgraded Jefferies ($JEF) in the wake of the immolation of MF Global. Leucadia owns about one-quarter of Jefferies so that impacted their stock as well. However, it’s not clear that Jefferies’s health is anywhere as dire as MF Global’s. Actually, the facts indicate that it’s almost certainly not.

    At one point on Thursday, shares of Jefferies were off by more than 20% but cooler heads prevailed and the stock finished the session down by just 2.1%. Leucadia took advantage of the panic and picked up one million shares of JEF. At the end of the day, Leucadia’s stock managed to close six cents higher. The stock remains an excellent buy. By the way, this a good lesson on why you should be careful with stop-losses. Panic can set in and bust you out of good trades.

    That’s all for now. In addition to tomorrow’s big jobs report, Moog ($MOG-A) is due to report earnings. Then on Monday, Sysco ($SYY) is scheduled to report. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • CWS Market Review – October 7, 2011
    , October 7th, 2011 at 9:27 am

    On Monday, the S&P 500 finally broke out of its 100-point trading range. For 41 sessions in a row, the index had closed between 1,119 and 1,219. But on Monday, the S&P 500 dropped down to close at 1,099.23. That was our first close below 1,100 in over a year.

    Since then, the market has raced higher. On Thursday, the S&P 500 closed at 1,167.97 which is a 5.98% surge in just three days. Naturally, we shouldn’t get too excited by this recent uptick. For the last several weeks, the stock market has bounced up and down in high-volatility spikes, but ultimately, we haven’t moved very far. However, with earnings season upon us, this time could be different.

    As usual, the hurdle has been Europe, and more specifically, Greece. For a few months now, investors have been jerked around as we wait to hear something (anything!) promising from the Old World. Unfortunately, European officials seem firmly committed to doing a series of half-steps—and after each one, they seem puzzled that things aren’t getting any better. The good news is that it appears as if some folks in Europe are starting to understand what needs to be done.

    In this issue of CWS Market Review, I want to give you a preview of the third-quarter earnings season. While the overall market continues to spin its wheels, I think several of our Buy List stocks are poised to surge higher. In fact a few of our stocks, like Deluxe ($DLX) and Ford ($F), have already started to turn the corner.

    I’m writing you in the wee hours of Friday morning. Later today, we’ll get the crucial jobs report for September. Wall Street has been dreading this report for several days now, and it’s easy to understand why. Frankly, nearly every jobs report for the last few years has been dismal. I’m afraid I’m not expecting much better for September’s report. Wall Street is expecting a gain of 60,000 nonfarm payroll jobs, and as low as that estimate is, it might be too high.

    If the news is better than expected, it may take some of the pressure off the Federal Reserve to get the economy going again. But bear in mind that the economy needs to create, on average, 200,000 net new jobs every month for a few years to get back to anywhere near normal. Truthfully, I think many of our economic problems are beyond the scope of the Fed’s repair kit, but I’ll save that for another time. If Friday’s jobs report is worse than expected, well…we’re already down so much that it may not hurt equities (although the political fallout could be dramatic).

    The truth is that the U.S. economy isn’t doing nearly as badly as is generally perceived. Of course, I’m not saying that the economy is humming along. I’m just saying that its performance is far better than the febrile commentary I see every day. Consider that earlier this week Bespoke Investment Group noted that 17 of the last 21 economic reports have come in better than expected. Just this week, the ISM Manufacturing index topped expectations. The ADP jobs report beat consensus and the construction spending report was surprisingly strong. On October 27th, the government will release its first estimate of Q3 GDP growth and I think it’s possible that growth will come in over 2%. That’s not great, but it’s a far cry from a Double Dip.

    Another promising note is that bond yields are finally beginning to creep higher. This is an early signal that investors may be willing to take on more risk. What’s interesting is how orderly the increase in risk is turning out to be. Yields for the one-, two- and three-year Treasuries all bottomed out on September 19th. Three days later, the yields for the five-, seven-, ten-, twenty- and thirty-year Treasuries hit their lows. Since then, the yield on the ten-year note has jumped 29 basis points. The five-year yield just closed above 1% for the first time in six weeks. The takeaway is that this orderly exodus out of low-risk investments may provide fuel for a sustained stock rally. Capital always goes where it’s treated best. If Friday’s jobs report comes in strong, Treasuries will continue to fall.

    I’m pleased to see that many of our Buy List stocks continue to do well. In the last two weeks, the Buy List has gained 2.11% while the S&P 500 is down by 0.15%. On Thursday, shares of AFLAC ($AFL) got as high as $38.40. That’s the highest price since mid-August and it’s a 22% bounce off the low from two weeks ago. I’ve been flabbergasted by AFLAC’s recent plunge. The company is clearly doing well. I expect to see another strong earnings report on October 26th. I also wouldn’t be surprised to see another upward revision to next year’s earnings guidance. Still, investors seem convinced that AFLAC is taking a bath on its European investments. They’re not. AFLAC is well protected. The stock is a very good buy up to $40 per share.

    Another big gainer recently has been JPMorgan Chase ($JPM). Over the last three days, the shares have gapped up by 14%. Next Thursday, JPM is due to report its third-quarter earnings. This will be the first of our stocks to report this season. Due to the problems in Europe and in our economy, Wall Street has been ratcheting down estimates for JPM. The Street currently expects JPM to report 98 cents per share which is 23 cents less than what they were expecting just one month ago.

    I have to admit that I don’t have a good feel for what JPM should report next week. In previous quarters, I had a pretty good idea but there are too many unknowns to give you a precise forecast. However, I wouldn’t be surprised to see JPM miss estimates this time around; but I’ll be far more interested to hear what they have to say about their business. JPM continues to be the healthiest of the major banks. Thanks to the lower share price, the stock currently yields 3.2%. I also expect that the bank will bump up that dividend early next year. In fact, they could easily raise the dividend by 30% to 50%. If next week’s earnings report is positive, JPM would be a good buy up to $34 per share.

    I’ve been very frustrated by the performance of Ford ($F) but I have to admit that the stock is well below a reasonable valuation for the company. Ford has turned itself around very impressively. I don’t like many cyclical stocks but Ford looks very good here. Sales continue to do well. The shares are currently going for about one-third of its sales. If you’re able to get shares of Ford below $11, you’ve gotten a very good deal.

    There are a few other stocks I want to highlight. Over the last three sessions, shares of Deluxe ($DLX) are up nearly 18%. Even after that rally, the shares still yield 4.7%. Jos. A Bank Clothiers ($JOSB) is up over 10% since Monday and Wright Express ($WXS) has tacked on 13%. Last week, I highlighted Moog ($MOG-A), one of our quieter buys, and the stock has rallied nicely since then.

    That’s all for now. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • CWS Market Review – September 30, 2011
    , September 30th, 2011 at 7:35 am

    I’m happy to see this ugly third quarter end. This will be the market’s worst quarter for stocks since 2008. For the last several weeks, the stock market has been stuck in a tight trading range. The S&P 500 has now closed inside a 100-point gap—between 1,119 and 1,219—for 40-straight trading sessions.

    Frankly, being caught in a trading range is frustrating. Every rally is quickly met with a sell-off, and every sell-off is quickly turned around. Thursday, in fact, was a microcosm of the last two months. The S&P 500 soared as high as the level of a 2.16% gain early in the session. Then stocks delivered a collapse worthy of the Red Sox. By 3 p.m., the market was down nearly 1%. That’s a peak-to-trough drop of more than 3%. Yet in the last hour, we rallied to close higher for the day by 0.81%.

    In this issue, I’ll explain the dynamic driving this back-and-forth market. Fortunately, this may soon come to an end. By mid-October, the third quarter earnings season will be ramping up and we’ll get a chance to see how well corporate America did during the third three months of the year. This could be what the market needs to finally break out of its trading range. One historical note is that since 1945, whenever the market has tanked by 10% or more in the third quarter, the fourth quarter has gained an average of 7.2%.

    I should warn you that since early June, Wall Street analysts have been paring back their earnings estimates for the third quarter. At one point, the consensus estimate was as high as $25.03 but it’s now down to $24.64 which is still a pretty good number. That’s not a huge downgrade, but analysts are clearly becoming more cautious and they’re lowering their forecast for Q4 and for 2012 as well. Analysts have a tendency to trim their numbers right before earnings season starts. The good news is that earnings have topped expectations for the last 10 quarters in a row. I’m not certain that this will be the 11th, but it may be close.

    As an aside, I should say that I don’t place a great deal of faith in Wall Street’s forecasts. Some people like to dismiss these forecasts out of hand which I think is a mistake. Here’s the key: In the short-term, analysts’ forecasts really aren’t so bad.

    As a general rule, analysts move in two modes. They either slightly underestimate earnings or they vastly overestimate earnings. The former is the rule of thumb during an expansion and the latter happens when the economy falls apart. Where analysts are horrible is in seeing the turning points. As such, I don’t rely on them for that. The analysts are very good at predicting that the trend will continue, which sounds harsher than I mean it to sound.

    For last year’s third quarter, the S&P 500 earned $21.56 so the current estimate translates to having a growth rate of 14.3%. For the fourth quarter, Wall Street sees earnings of $25.98 which would be earnings growth of 18.5% over last year. That strikes me as being too high, so I’ll expect earnings to be cut back over the next several weeks. Either way, the Q3 results will be the determining factor in setting expectations for Q4. I’ll feel a lot better when the S&P 500 breaks above its 50-day moving average which is currently at 1,200.

    Unfortunately, the stock market has been held captive lately by events in Europe—more specifically, the prospects for the Greek economy. The good news is that the German parliament just approved an expanded bailout fund. The bad news is that the fund has to be approved by all 17 countries that use the euro and that’s not going to be easy. Markets around the world have been severely rattled recently. Worldwide, initial public offerings are being shelved at a record pace.

    We’re currently in an “all or nothing market.” Each day, the market tends to shoot up a lot or get hammered hard. Whenever there’s good news out of Europe or from the U.S. Fed, we see all the sectors of the market rally strongly. Usually, financials do the best while gold and bonds do poorly and volatility rises. When the news is bad, the exact opposite happens. It’s as if all the passengers on a boat rush frantically from one side to the next. There’s little in between.

    Look at some of these numbers: In August and September, the S&P 500 closed up or down by more than 2% 17 times. In the 12 months before that, it happened just nine times. In the last two months, stocks and bonds have moved in opposite directions nearly 75% of the time. Only recently has gold broken from bonds and moved downward in a serious way.

    I’ll give you a good example of the irrationality of the “all or nothing market”: Shares of AFLAC, ($AFL) soared 6% on Thursday. I love AFLAC, but I’m sorry: their business is just too boring to move around that much in one day. The problem isn’t the business. The problem is the mindless traders trying to use AFL as a proxy bet on Europe. (AFLAC’s finances are fine as we’ll see when they report next month.)

    Volatility is a topic that causes confusion among many investors and it’s misunderstood by many professionals as well. Increased volatility isn’t necessarily bad for stocks. In this case, the increase in volatility is a reflection of two warring theses for the economy’s future. The market is trying to decide whether investors will rotate out of Treasuries and take on greater risk in stocks or whether stocks will continue to languish as investors seek protection in bonds. It’s this tug-of-war that has kept the S&P 500 locked in its trading range. Given the absurd prices for bonds and depressed earnings multiples for stocks, the smart money is on higher stocks, lower bonds and decreased volatility. Consider that right now, there’s currently over $2.6 trillion sitting in money market funds earning an average of 0.02% per year.

    We’re already seeing signs that one side is starting give way. Gold, for example, has been crushed over the past three weeks. Also, previous “can’t-lose” stocks like Netflix ($NFLX) are feeling the pain. They key is that the trends that were consistently winning no longer are. As a result, investors will start to key in on overlooked trades. I can’t say when this will happen, but earnings season seems like a prime catalyst.

    The Volatility Index ($VIX) closed Thursday at 38.84. That means that the market believes the S&P 500 will swing by an average of plus or minus 11.23% over the next month. Let’s compare that with the recent auction for seven-year Treasuries which went for a record-low yield of 1.496%. That means that the zero-risk return for the next seven years in Treasury debt is roughly equal to the one-month volatility—not return, just average expected swing—of stocks.

    It’s like the old saying that “a bird in the hand is worth two in the bush.” If that saying were revised for today’s market it would be “a bird in the hand is worth 30,000 in the bush!”

    In last week’s CWS Market Review, I highlighted some high-yielding stocks on our Buy List like Abbott Labs ($ABT), Johnson & Johnson ($JNJ) and Reynolds American ($RAI). I still like those stocks a lot. Interestingly, shares of Nicholas Financial ($NICK) have been weak lately. The stock is normally a very strong buy, but it’s exceptionally good if you can get it below $10 per share.

    One of the few cyclical stocks on the Buy List is Moog ($MOG-A). The stock has been trashed along with most other cyclicals, but don’t make the mistake of lumping Moog in with everybody else. This is a very good company. Last quarter, Moog beat earnings and raised guidance. The stock is now going for about 10 times’ guidance. Moog is a very good buy up to $36 per share.

    That’s all for now. Be sure to keep checking the blog for daily updates. Next week, Wall Street will be focused on Friday’s jobs report. Expect more bad news, I’m afraid. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Moog Earns 73 Cents Per Share
    , July 29th, 2011 at 11:38 am

    Moog ($MOG-A) beat by three cents and they raised guidance. They see earnings coming in for this year (ending September 2011) at $2.85 per share, and at $3.25 per share for next year.

    Moog Inc.bizWatch Moog Inc. Latest from The Business Journals M&T, Moog, Try-It juiced by NYPATripathi, Zemsky to head area economic panelMoog set to work on Boeing project Follow this company reported third-quarter earnings improved 14 percent as the space and defense manufacturer upped its guidance for 2011.

    Net income climbed to $33.8 million, or 73 cents per share, compared to $29.2 million, or 64 cents per share, last year.

    Third-quarter sales rose 9 percent to $583 million from last year’s $537 million.

    Analysts had anticipated EPS of 70 cents on revenue of $569.4 million.

    East Aurora-based Moog (NYSE: MOG.A, MOG.B), which operates segments in commercial aircraft, space and defense, industrial systems, components and medical devices, adjusted its annual sales to $2.3 billion, with net earnings of $132 million and earnings per share of $2.85, up 21 percent from last year.

  • CWS Market Review – May 6, 2011
    , May 6th, 2011 at 9:01 am

    What an odd, bizarre and exciting week! Osama Bin Laden was killed, silver plunged and the stock market fell every day this week!

    Our Buy List continues to do much better than the overall market. Through Thursday, we’re up 10.21% for the year compared with 6.16% for the S&P 500. That’s a spread of 4.05% which is nearly the highest all year.

    Once again, by focusing on high-quality stocks and holding them through rough patches, we’ve been able to outperform the market and the vast majority of actively-managed mutual funds. This week had a theme: our stocks beating earnings followed by higher full-year guidance.

    On Monday, Moog ($MOG-A) reported fiscal Q2 earnings of 66 cents per share. That topped Wall Street’s consensus by two cents per share. As I’ve said often, what I really like to see from our stocks is a raising of full-year guidance—and that’s exactly what we got from Moog.

    This is the second time that Moog has increased their full-year guidance. In January, they raised it from $2.70 per share to $2.75 per share. On Monday, Moog raised this year’s guidance to $2.80 per share.

    So how did the shares react to this good news? By going down, of course! For the first four days of the week, Moog lost a total of 7%. Going by Thursday’s close, Moog is currently trading for 14.66 times this year’s estimate. That’s not a screaming buy, but it’s not a bad deal either. Moog is a solid stock and I think it would be an excellent buy if it dropped below $40 per share.

    On Wednesday, it was Wright Express’ ($WXS) turn for the beat-and-guide-higher dance. For Q1, WXS earned 75 cents per share which was six cents more than estimates. Wright raised its 2011 guidance by 23 cents per share! The old EPS range was $3.17 to $3.37. The new EPS range is $3.40 to $3.60. That’s a huge increase. Wright also raised its revenue guidance from $497 million to $517 million to a new range of $533 million to $553 million.

    Much like Moog, Wright Express didn’t react well to the good news, although Wright’s reaction wasn’t nearly as bad as Moog’s was. The issue is probably that Wright said that it’s looking to issue debt to fund some future acquisitions. I’m not terribly wild about growth through acquisition. I strongly prefer organic growth.

    Shares of WXS mostly scattered between $54 and $55 on Wednesday and Thursday. I suppose we shouldn’t be too disappointed since WXS has had a great rally over the last six months. Ever since the earnings report from last November, WXS is up over 40% for us. Perhaps a bit of a rest is needed. My take is that Wright Express is a good buy below $53 per share.

    In last week’s CWS Market Review, I said Nicholas Financial ($NICK) could “earn as much as 40 cents per share.” It turns out, I got that exactly right. Make no mistake–this was an outstanding quarter for NICK. A little over two years ago, the shares got down as low as $1.64. That means the stock was going for four times quarterly earnings that were just two years away.

    I continue to believe that Nicholas Financial is a great bargain. As I see it, the company can earn between $1.60 and $1.70 per share this fiscal year (which ends in March). I think it’s very reasonable that NICK could trade as high as $17 per share. Obviously, the stock isn’t there just yet (Thursday’s close was $12.98).

    If you’re not familiar with Nicholas Financial, they make used-car loans. This is a great business to be in. What’s different about NICK is that they hold their funds to maturity and their accounting tends to be very conservative. What impresses me is that NICK’s loan portfolio has improved dramatically over the last several quarters. Nicholas Financial is a great buy below $14.

    This Monday, Sysco ($SYY) will be the final stock on our Buy List to report Q1 earnings. I’m very curious to find out how much money Sysco earned last quarter. The company had a poor earnings report three months ago and the stock hasn’t performed very well this year. Sysco tends to be a very steady stock, so the market was a bit rattled by the weak earnings report.

    Wall Street currently expects Sysco to report earnings on Monday of 41 cents per share. My numbers say Sysco will earn 43 cents per share. I also like that the dividend currently yields 3.63%. Since bonds have done well lately, Sysco now yields 0.46% more than a 10-year Treasury bond. Sysco is a good buy up to $30 per share.

    A few other stocks have been doing well for us. Jos. A Bank ($JOSB) just hit a new 52-week high. Oracle ($ORCL) got as high as $36.50 before pulling back the past few days. Johnson & Johnson ($JNJ) also started to show some strength (finally!) after raising its dividend.

    One of the recent positives for the stock market is the decline in bond yields. So many people have been expecting yields to rise. Every down tick is seen as the beginning of the end, but bonds keep holding up well. I think this is good for us for two reasons. One is that bonds provide tougher competition for investors’ money than stocks do, and that should lead to higher stock prices. Also, lower bond yields means that it’s less expensive for companies to borrow money, and that helps profit margins.

    This is a very good market for patient investors. Our Buy List just had another great earnings season. As always, I urge you to be patient and well-diversified. The stock market is definitely swinging our way!

    That’s all for now. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!