Posts Tagged ‘nick’

• CWS Market Review – August 9, 2013
  Eddy Elfenbein, August 9th, 2013 at 7:28 am

  “I made my money by selling too soon.” – Bernard Baruch

  As I expected, this was a quiet week on Wall Street. Consider this: Tuesday was the S&P 500’s worst day since June 24th, but the more arresting fact is that that terrible, awful plunge was a loss of a mere -0.57%. Yes, that was our worst loss in a span of 30 trading days! Sheesh, going by recent history, -0.57% doesn’t even scratch the paint. In 2008, the S&P 500 lost more than -0.57% in a single day 38% of the time. How times have changed.

  Much of the calmness is certainly due to the wrapping up of Q2 earnings season. I’m happy to say that this earnings season was a good one. So far, 443 stocks in the S&P 500 have reported earnings; 72% have beaten earnings expectations, and 55% have beaten their sales expectations. We had two very good earnings reports this past week. Cognizant Technology Solutions ($CTSH) smashed analysts’ estimates by 10 cents per share, and they guided higher for the year. Also, Nicholas Financial ($NICK) churned out another stellar quarter. I’ll have more on these two in a bit, plus higher Buy Below prices.

  

  I was pleased to see a strong trade report this week. Exports are at a record high, and the U.S. trade deficit is the narrowest it’s been since 2009. The trade report will probably cause the number crunchers to revise the Q2 GDP report higher by 0.5% to 1.0%. That’s also more in line with the earnings reports we’ve seen from the private sector. Also, the ISM Non-Manufacturing Index from earlier this week was particularly strong.

  In this week’s CWS Market Review, I want to bring you up to speed on several of our Buy List stocks. It turns out that Ford ($F) is having trouble keeping up with demand. The automaker literally can’t build its cars fast enough! But first, let’s look at the outstanding earnings report from Cognizant Technology.

  Cognizant Technology Is a Buy up to $78 Per Share

  In April, shares of Cognizant Technology Solutions ($CTSH) got treated to a first-class beat-down. The stock, which had cracked $81 in March, was wallowing below $62 by late April. Of course, one of the benefits of our set-and-forget Buy List is that we don’t get scared out of plunging stocks. We stand firm and watch the storm clouds pass us by.

  What freaked out the market was poor earnings by Cognizant’s competitors. There were also concerns that Congress’s pending immigration legislation would be bad for the outsourcing business. The good news came in May, when Cognizant beat earnings by eight cents per share and delivered positive guidance for Q2.

  Despite the impressive outlook, the stock didn’t do much. I knew it was time to strike. In the June 28th issue of CWS Market Review, I highlighted Cognizant as being “particularly attractive at the moment.” Sure enough, the stock started to rally in July, and it soon broke $74 per share.

  This past Tuesday, we got another solid earnings report from Cognizant, plus strong guidance. For Q2, CTSH earned $1.07 per share, which was ten cents better than estimates. Quarterly revenue rose 20.4% to $2.16 billion, which was $30 million better than expectations.

  Cognizant now sees full-year earnings of at least $4.32 per share on revenue of $8.74 billion. That’s revenue growth of 19%. For Q3, CTSH sees earnings of $1.09 per share. Wall Street had been expecting $1.03 per share. The stock gapped up over $76 on Tuesday, although it later gave back much of those gains. Don’t think you’re too late to party. I’m raising Cognizant’s Buy Below to $78. CTSH remains a very good buy.

  I’m Raising NICK’s Buy Below to $17 Per Share

  Also on Tuesday, Nicholas Financial ($NICK) reported fiscal first-quarter earnings of 46 cents per share. That’s basically in line with what I was expecting. As things stand now, the used-car lender can keep churning out profits of 40 to 45 cents per share for a long time. The economy continues to improve, and this means their loan portfolio is getting stronger. We also have the Fed’s commitment to keep short-term rates low for an extended time. That’s good for NICK.

  Looking at the numbers, it appears that NICK benefited from about four cents per share after taxes, thanks to the interest-rate-swap agreement. I can’t find the details yet, because it looks like there’s been an accounting change which adds about $3 million to quarterly revenues. NICK’s stock didn’t react strongly to the earnings news, which is fine by me. With smaller-cap stocks, there’s often a delayed reaction of a few days after a good earnings report.

  One thing I’d like to see NICK do is raise its quarterly dividend. The current dividend is 12 cents per share, or 48 cents for the year. At Thursday’s closing price, that works out to 3.1%. I think NICK can raise its dividend as high as 15 cents per share. The company has previously announced its dividend after the conclusion of the shareholder meeting, which is usually in August. This year, the meeting will be held in December. I’m going to raise my Buy Below on NICK to $17 per share. Nicholas Financial is an excellent buy.

  Updates on Our Buy List Stocks

  I want to add a few updates on some Buy List stocks.

  After its great earnings report, Fiserv ($FISV) keeps on rallying. The shares got as high as $101.85 on Thursday. The company just announced a new share-repurchase authorization for 10 million shares, which is about 8% of their outstanding shares. This is a very strong company.

  Our healthcare stocks like Stryker ($SYK), Medtronic ($MDT) and CR Bard ($BCR) have been doing quite well lately. MDT nearly got to $56 this week. A judge just ordered Zimmer Holdings to pay Stryker $228 million to settle a patent suit. That’s nice to hear. CR Bard seems to go up every day. The stock just hit another 52-week high. BCR is up nearly 20% since April 24th.

  Ted Reed at TheStreet.com had an interesting article on Ford ($F). It turns out that Ford is actually having trouble making its cars fast enough to meet demand. Ford’s inventory is running dangerously low. Reed says, “Ford’s Fusion supply is down to 30 days, about half the industry average, while the Escape supply is around 40 days.” The good news is that Ford is expanding to meet demand.

  JPMorgan ($JPM) revealed this week that the bank faces civil and criminal charges over sales of its mortgage-backed securities between 2005 and 2007. The stock slumped a bit on the news. For now, I don’t want to comment on the potential impact of this, since it’s too early to say. I don’t have any reason to believe it will impact the long-term profitability of JPM. But now is a good time to reiterate my belief that Jamie Dimon should step aside.

  We’re now done with earnings reports for Buy List stocks that have a June reporting period. We have two Buy List stocks, Ross Stores ($ROST) and Medtronic ($MDT), that ended their quarters in July. Those two should be reporting their earnings in two weeks.

  Through Thursday, our Buy List is up 24.13% for the year, compared with 19.02% for the S&P 500 (not including dividends). That’s our biggest lead of the year. If all goes well, this will be our seventh straight year of beating the S&P 500.

  That’s all for now. Next week, we’ll get some important economic reports. On Tuesday, the Census Bureau reports on retail sales. This will give us a look at how strong the consumer is. Then on Thursday, we’ll get the inflation report for July. Also on Thursday, the Federal Reserve reports on Industrial Production. 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

• NICK Earns 40 Cents Per Share for Q4
  Eddy Elfenbein, May 9th, 2013 at 4:31 pm

  Here are the latest results:

  Nicholas Financial, Inc. announced that for the three months ended March 31, 2013, net earnings decreased 20% to $4,865,000 as compared to $6,045,000 for the three months ended March 31, 2012. Per share diluted net earnings decreased 20% to $0.40 as compared to $0.50 for the three months ended March 31, 2012. Revenue increased 3% to $17,688,000 for the three months ended March 31, 2013 as compared to $17,182,000 for the three months ended March 31, 2012.

  For the year ended March 31, 2013, net earnings decreased 10% to $19,966,000 as compared to $22,230,000 for the year ended March 31, 2012. Per share diluted net earnings decreased 12% to $1.63 as compared to $1.85 for the year ended March 31, 2012. Revenue increased 4% to $70,628,000 for the year ended March 31, 2013 as compared to $68,167,000 for the year ended March 31, 2012.

  “During the three months ended March 31, 2013, our results were affected by an increase in the net charge-off rate, an increase in operating expenses and an increase in interest expense,” stated Peter L. Vosotas, Chairman and CEO. “Subject to market conditions, we intend to continue expanding our branch network during the coming year.”

  On May 7th the Board of Directors declared a cash dividend of $0.12 per share on its common stock, to be paid on June 28, 2013 to shareholders of record as of June 21, 2013. Subject to market conditions and profitability targets, the Company anticipates it will continue to declare quarterly cash dividends in the future, however no assurances can be given.

  This was another good report for NICK. They can keep churning out 40 cents per share without much difficulty. For the fiscal year, NICK earned $1.63 per share.

  All of the fundamental ratios are still very solid. The net earnings yield is over 22%. Costs are a bit on the high side but still within the historical range. Credit losses came in just over 1%. That’s down from last quarter.

  I’m most impressed by how much debt NICK has paid off since the big dividend last year. They borrowed all that money they paid out to shareholders. From the fiscal second to third quarter, NICK’s indebtedness rose by $32.1 million. But last quarter, indebtedness dropped by more than $14.3 million. That’s pretty impressive.

  The simplest way I can put it is that NICK’s business is almost like an 11% bond whose quality seems to improve every quarter. The company can easily raise their dividend another 20%.

  Here’s a spreadsheet detailing some of NICK’s performance stats.

• CWS Market Review – March 22, 2013
  Eddy Elfenbein, March 22nd, 2013 at 7:24 am

  “There are two kinds of people who lose money: those who know
  nothing and those who know everything.” – Henry Kaufman

  What a long, strange week it’s been on Wall Street. Last Friday, the Dow’s amazing 10-day winning streak came to an end. Since then, the financial world’s attention has been focused on the little island nation of Cyprus, of all places. Despite all the attention, I doubt the problems in Cyprus will amount to a hill of beans for us.

  From our perspective, the biggest news of the week came late Wednesday, when Buy List member Nicholas Financial ($NICK) reported that it had received an unsolicited buyout offer. The shares promptly vaulted 12.1% on Thursday on 12 times the normal trading volume. It’s about time the big boys noticed NICK. This is great news for those of us who have been in NICK for the long haul (check out the chart below). In this week’s CWS Market Review, I’ll give you my thoughts on the offer.

  

  There was also news on the earnings front. Oracle ($ORCL) had an ugly report; the shares took a 9.7% hit on Thursday (I’ll have more on that in a bit). Plus, FactSet ($FDS) and Ross Stores ($ROST) reported earnings. But first, let’s look at what lies ahead for Nicholas Financial.

  Nicholas Financial Gets Buyout Offer

  After the closing bell on Wednesday, Nicholas Financial ($NICK) announced that it “received an unsolicited, non-binding indication of interest from a potential third-party acquirer.” In English, this means probably someone wrote down a price on a napkin, slid it to the board and said, “How’s this?” I have no idea who it is or how much they’re offering, but it’s serious enough for NICK to reveal that it happened. The firm has retained Janney Montgomery Scott to advise them in evaluating “strategic alternatives.”

  Some of you may remember that the same thing happened to NICK in early 2011. At the time, the stock was at $10 and it soared 18% following the news. In the end, NICK shot down that offer. Again, I don’t know what the offer was, but I’m almost positive it was too low and NICK’s board did the right thing in walking away. It’s tough to turn down a buyout offer, but sometimes it’s the right thing to do. NICK’s stock is up about 50% since then, and that doesn’t include the big dividend we got in December.

  This time around, I’m far more open to NICK being sold. The senior management is close to retirement age, so they may be looking for an exit as well. The difference between now and two years ago is that NICK has proved to the world that it navigated the financial crisis. Their portfolio is solid, and according to the Fed, short-term interest rates are going to stay low for a while more. This is a very good environment for NICK’s business. On Thursday, the stock got as high as $15.15. Obviously, I want as high a price as possible, but if I were a member of the board, I’d set $18 as a minimum.

  Here’s the reality: In a world of zero interest rates, there’s a massive hunt going on for yield. This is one of the distortions that Bernanke and the Fed are worried about. Fund managers are looking anywhere and everywhere for higher rates without too much risk. Eventually, that led someone to NICK. Fortunately, we were there first.

  Let me warn shareholders that these situations can become dramatic, and it’s largely out of our hands. If the deal is shot down or withdrawn, the shares will take a hit. But on the plus side, it’s possible that a bidding war will ensue, and the shares will be ratcheted higher. For now, I’m going to raise my Buy Below price to $16. Stay tuned for more news.

  Oracle Plunges after Weak Earnings

  While the news was good from NICK, the news from Oracle ($ORCL) wasn’t so fortunate. Three months ago, Oracle told us to expect fiscal Q3 earnings to range between 64 and 68 cents per share. As it turned out, they earned 65 cents per share, which was one penny below Wall Street’s consensus.

  Frankly, this was a big disappointment. I thought Oracle was going to earn 70 cents per share or more, but the big miss wasn’t on the bottom line. It was on the top line. Quarterly sales rose to $8.97 billion, which was $40 million below Wall Street’s consensus. The problem isn’t hard to spot—Oracle is facing more competition from Internet-based cloud systems.

  Some of these numbers are pretty ugly. Wall Street had been expecting an increase in new software sales of 8%. Instead, it fell by 1.8%. Hardware revenue has been dropping, but Oracle told us that that division is close to turning around. Apparently not. Hardware sales dropped 23% last quarter. Oracle’s stock took a big hit yesterday as it lost 9.7%. A bunch of previously bullish analysts piled on and cut their ratings.

  For Q4, Oracle sees earnings ranging between 85 cents and 91 cents per share. Actually, that’s not so bad. Oracle sees quarterly revenue coming in between $10.8 billion and $11.4 billion, which, in my opinion, is pretty light. The company also said that new software license revenue will grow between 1% and 11% this quarter, and hardware revenue will drop by 13% to 23%. That’s not what I wanted to hear.

  To be fair, Oracle was hurt last quarter by some of the mess in Europe. The CFO also said that some large contracts had been delayed last quarter, and those numbers will show up in this quarter’s earnings report. Bloomberg quoted an analyst at UBS as saying, “I’ve followed this company for a decade, and historically when they have a miss, it’s a great time to buy.” Oracle’s in my doghouse right now, but I’m not giving up on them. Oracle remains a good buy up to $37 per share.

  Buy FactSet below $95 and Ross Stores below $62

  On Tuesday, FactSet Research Systems ($FDS) reported second-quarter (ending February) adjusted earnings of $1.14 per share, which was three cents better than what Wall Street had been expecting. This is good news, and it was actually better than the forecast FactSet gave three months ago when they said earnings should range between $1.11 and $1.13 per share.

  Interestingly, at the time of that guidance, Wall Street was disappointed because they had been expecting $1.13 per share. FactSet said they expected revenues to range between $212 and $215 million. On Tuesday, they reported that Q2 revenues rose 7% to $213.1 million.

  The problem, if you can even call it that, is that banks have been working hard to cut costs. For Q3, FactSet sees revenues ranging between $213 and $216 million and earnings-per-share coming in between $1.14 and $1.16. Wall Street had been expecting revenues of $217 million and earnings of $1.13 per share.

  Even though the numbers are pretty good, shares of FDS got hammered this past week. The stock broke below $90 per share on Thursday, but I’m not worried at all about FactSet. This company has increased its earnings every year for the last 16 years, and they’re going to do it again. I’m going to lower my Buy List to $95 to reflect the recent sell-off, but FDS remains a very good buy.

  On Thursday, Ross Stores ($ROST) reported fiscal Q4 earnings of $1.07 per share, which is up from 85 cents per share last year. This was hardly a surprise, since their previous guidance was a range between $1.06 and $1.07 per share. When the range is like that, you can be pretty sure it’s not a guess. Q4 sales rose 15% to 2.761 billion. Comparable stores sales were up by 5%.

  Business is going well for Ross, and they just wrapped up a very good year. For the fiscal year, Ross earned $3.53 per share, which was up from $2.86 per share last year. Sales rose 13% to $9.721 billion. Same-store sales were up by 6%. The stock rallied 3.4% on Thursday. ROST remains a very good buy up to $62 per share.

  Don’t Let Fears over Cyprus Scare You

  Over the weekend, we learned of a dramatic bailout plan for Cyprus which involved a one-time tax of bank deposits. Let’s just say that this idea didn’t go over well on the island; the plan failed to get a single vote in the Cypriot parliament. This was the first time a legislature stood up to the ECB.

  Then there was talk of Cyprus striking a cash-for-gas deal with Russia, but that doesn’t seem to be going anywhere. Now the European Central Bank is running out of patience, and no one knows what will happen next. The ECB has set a Monday deadline for the island to agree to a deal. Paul Krugman wrote, “Cyprus has managed to combine in one place everything that has gone wrong elsewhere.”

  I know Cyprus has been getting a lot of attention, and it’s a fascinating story from an economic perspective. But I don’t want investors to be overly concerned about Cyprus’s impacting our Buy List. Let’s take a step back and remember that Cyprus makes up just 0.2% of the eurozone’s economy.

  The big fear is that once one country agrees to a tax on bank deposits, a new precedent will be set, and it could be done elsewhere. That fear would in turn lead to a run on banks in countries like Italy, Spain and Portugal. While I can’t rule a scenario like that out, it’s simply too far down the road for investors to worry about. Cyprus is such a small and unusual case that it may turn out to be a story that isn’t repeated elsewhere. I feel for the Cypriots, especially those who have their life savings at risk. But what happens on that island really doesn’t matter much to our Buy List stocks. I’m afraid that a tax on deposits may be the path of least resistance.

  That’s all for now. Next week is the final week of the first quarter. We’ll get important reports on durable goods, new home sales and another look at Q4 GDP. 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

• Nicholas Financial Gets Buyout Offer
  Eddy Elfenbein, March 20th, 2013 at 5:20 pm

  Interesting news from Nicholas Financial ($NICK). The company got a buyout offer. I don’t know the details but NICK has retained Janney Montgomery Scott to help them look at the deal and other possible alternatives.

  Long-time NICKers will remember that NICK got a similar offer two years ago but the price was too low. I was very happy NICK shot down that offer. The stock was at $10.08 when that offer was made (pre-dividend) so we were right, NICK would probably have sold itself too soon. Now I’d be more interested in a good price. Also, NICK’s senior management is at the age when most folks think it’s time to retire.

  When NICK got the offer in January 2011, the shares jumped 18% the next day. In the current after-hours market, NICK is up to $14.50 which is a 9.5% gain.

  Here’s the press release:

  CLEARWATER, Fla., March 20, 2013 (GLOBE NEWSWIRE) — Nicholas Financial, Inc. (NICK) announced today that the Board of Directors of the Company has retained Janney Montgomery Scott LLC as its independent financial advisor to assist the Board of Directors in evaluating possible strategic alternatives for the Company, including, but not limited to, the possible sale of the Company or certain of its assets, potential acquisition and expansion opportunities, and/or a possible debt or equity financing.

  The Company also announced today that it has received an unsolicited, non-binding indication of interest from a potential third-party acquirer. The Company cautions its shareholders and others considering trading in its securities that its Board of Directors only recently received the indication of interest, and that the process of considering this proposal as well as other possible strategic alternatives for the Company is only in its beginning stages. The Board of Directors will proceed in an orderly and timely manner to consider possible strategic alternatives for the Company and their implications. Accordingly, no assurances can be given as to whether any particular strategic alternative for the Company will be recommended or undertaken or, if so, upon what terms and conditions. The Company currently does not intend to make any further public announcements regarding its Board of Directors’ review of possible strategic alternatives until this evaluation process has been completed.

• Nicholas Financial Earned 37 Cents Per Share
  Eddy Elfenbein, January 30th, 2013 at 4:48 pm

  Nicholas Financial ($NICK) earned 37 cents per share for the December quarter which is their Q3. Don’t worry, they had a six-cent charge related to the special dividend. Except for that, these results were largely what I expected.

  Nicholas Financial, Inc., announced that for the three months ended December 31, 2012 net earnings decreased 15% to $4,566,000 as compared to $5,363,000 for the three months ended December 31, 2011. Per share diluted net earnings decreased 18% to $0.37 as compared to $0.45 for the three months ended December 31, 2011. Revenue increased 4% to $17,889,000 for the three months ended December 31, 2012 as compared to $17,140,000 for the three months ended December 31, 2011.

  For the nine months ended December 31, 2012, net earnings decreased 7% to $15,101,000 as compared to $16,186,000 for the nine months ended December 31, 2011. Per share diluted net earnings decreased 9% to $1.24 as compared to $1.35 for the nine months ended December 31, 2011. Revenue increased 4% to $52,940,000 for the nine months ended December 31, 2012 as compared to $50,985,000 for the nine months ended December 31, 2011.

  “During the three months ended December 31, 2012, our results were affected by an increase in the net charge-off rate and an after-tax charge of $747,000 or $0.06 per share, which is related to a 5% withholding tax associated with the one-time special cash dividend of $2.00 per share paid in December 2012. The withholding is required under the Canada-United States Income Tax Convention. While competition remains fierce, we are committed to maintaining our conservative underwriting principles. We will continue to develop additional markets and expect to continue our branch network expansion”, stated Peter L. Vosotas, Chairman and CEO.

  A few few things to note. Operating costs rose by 6.3% over Q4 2011 which is steeper than I expected. The provision for credit losses jumped to $819,000 last quarter. That’s the most in two years. We knew the ultra-low numbers weren’t going to last forever, but this provision is still well below what NICK had been setting aside a few years ago.

  Outside that and the special dividend taxes, the numbers here are almost the same as the previous few quarters. The portfolio’s gross yield is the highest in four years. Even with the dividend tax, the pre-tax yield is over 10%. During the financial crises and recession, NICK wasn’t able to hit 10% pre-tax for more than three straight years. Without the dividend tax, NICK would have earned 43.6 cents per share last quarter.

• Nicholas Financial Spikes Higher
  Eddy Elfenbein, January 9th, 2013 at 11:20 am

  Shares of Nicholas Financial ($NICK) have spiked higher today. I don’t know why. The stock has been as high as $13.89 today. Remember that’s equivalent to $15.89 pre-dividend.

  

• CWS Market Review – December 14, 2012
  Eddy Elfenbein, December 14th, 2012 at 7:42 am

  The stock market is a giant distraction to the business of investing. – Jack Bogle

  The S&P 500 rose for six straight days, and on Thursday, for the 13th time in a row, the index failed to extend a six-day winning streak into a seven-day streak. Nevertheless, the market continues to do well, which is exactly as I suspected. I’m still holding to my view that the market will rally well into 2013; this is a good time to be an investor.

  

  This was an eventful week. On Wednesday, the Federal Reserve made news by announcing economic triggers for its interest rate policy. The stock market responded by surging to a two-month high. I’ll explain what it all means for investors in just a bit. Perhaps the best news of the week was that Nicholas Financial ($NICK) joined the special dividend parade by announcing a monster $2-per-share dividend. Percentagewise, that’s a big deal, and the stock surged.

  Let me also remind you that next week, I’ll unveil our 2013 Buy List. I won’t start tracking the new list until the start of the year. I’m happy to report that the current Buy List is ending the year on a strong note. Since August 2nd, our Buy List has more than doubled the S&P 500, 9.2% to 4%. It looks like we’re going to narrowly beat the S&P 500 for our sixth-straight market-beating year. Now let’s take a look at the Fed’s announcement this week and what it means for us.

  The Fed Lays Its Card on the Table

  Meetings of central bankers are usually rather dull affairs, and that’s probably how it ought to be. This past week, however, the Federal Reserve actually did something interesting. For the first time, the Fed laid out specific trigger points for its interest rate policy.

  Let me explain, and I’ll try to avoid any econo-speak. When the economy went into the toilet, the Fed responded by slashing interest rates. In fact, they even cut rates to 0%. After all, that’s what models say you should do. The problem was that the model even said to go into negative rates. The Fed responded by doing the equivalent—they started buying bonds—or as economists call it, “Quantitative Easing” (QE if you want to sound cool).

  The Fed then ran into another problem. The central bank was simply announcing a bond-buying program with a price tag. Once that ran out, they announced another. Then another. Then in September, the Fed took a step back and said “Look, this isn’t working. Forget these dollar amounts and deadlines. We’re going to keep buying bonds and we’re not going to stop until things get better. That’s that.”

  To be more specific, the Fed said it was going to buy $40 billion of agency mortgage-backed securities (MBS) each month. In practical terms, the Fed swaps assets with a bank. The Fed gets a risky MBS, while the bank gets low-risk reserves, which, I should add, are held at (guess where?) the Federal Reserve.

  The game-changer in September wasn’t the $40 billion number. It’s that the Fed said it was going to go all in until things got better. By taking a time horizon off the table, the Fed sent a clear signal to investors that it was going to do what it had to in order to help the economy. But there was still the question “how will we know when things get better?” That’s where this week’s news comes in. But first let me quote the CWS Market Review from September 21:

  An idea gaining popularity among economists is that the Fed should buy bonds until some metric like the unemployment rate or nominal GDP hits a specific target. With today’s news, the Fed has clearly moved towards that position without expressly saying so. The Fed said that the bond buying would continue until the labor market improved “substantially” and “for a considerable time after the economic recovery strengthens.”

  In this week’s policy statement, the Fed gave us an answer. They said they won’t raise interest rates as long as the unemployment rate is over 6.5% (we’re currently at 7.7%) and inflation is under 2.5%. Basically, this means that rates are going to stay low for a long while more.

  There are a few key takeaways: This is especially good news for financial stocks. Nicholas Financial ($NICK), for example, borrows money at the short end of the yield curve. The lower rates are, the better it is for them. In fact, I think a lot of the major banks are going for good values. Given the current conditions, I think JPMorgan Chase ($JPM) will have a very profitable 2013.

  The housing market should also continue to get better. This has been an underreported story this year. A key difference between the current “Quantitative Easing” and the previous attempts is that back then, the housing market was still in free fall. Now it’s gaining strength, and in turn, that’s helping consumers. We don’t have the numbers in yet, but this may turn out to be a good holiday shopping season. We just got the retail sales report for November, and it was pretty good. The initial jobless claims report came very close to hitting a five-year low (which means the spike from Hurricane Sandy has now passed).

  This new Fed policy will also be good for economically sensitive “cyclical” stocks. These are sectors like energy, transportation and heavy industry. There’s also a key “double whammy” effect with cyclicals since they tend to outperform the market when the market itself is doing well. I like to follow how the Morgan Stanley Cyclical Index ($CYC) performs relative to the S&P 500, and it’s improved very nicely since the summer. The CYC-to-S&P 500 ratio is close at an eight-month high. I should warn you that Q4 GDP will probably be a dud (0% to 1% growth), but we may see greater than 3% growth toward the latter half of 2013.

  This week’s Fed news is a clear signal that the Fed is in the investors’ corner and is willing to boost the economy for several more quarters. The risk right now is finding yourself getting left behind. Now let’s look at my second-favorite NICK of the holiday season.

  Nicholas Financial’s Special Dividend

  On Tuesday, Nicholas Financial ($NICK) announced a special $2-per-hare dividend. In previous issues, I’ve talked about how companies have announced special dividends before the end of the year so they won’t get hit by higher taxes, which are almost certainly on their way next year.

  The major difference with NICK is that this is a pretty large dividend. It works out to be about 15% of the stock’s value. The dividend will be paid out on December 28th to shareholders of record as of December 21st. Also note that NICK is a Canadian company, so there may be foreign tax withholdings (please consult your tax advisor).

  I want to clear up a few things about this dividend. This news, by itself, doesn’t do anything to boost NICK’s value. It’s simple math: Once the dividend is paid out, we can expect the shares to fall by $2. Since the dividend works out to be roughly one year’s worth of profits, we shouldn’t expect any dividends next year.

  While the special dividend doesn’t add value to NICK, the perception did, as the value of the stock rallied nicely on Wednesday, getting as high as $14.14 per share. Why did it rally? That’s hard to say exactly, but it was probably an appreciation of the company’s boldness. Think of it this way: You’re not going to pull a big move like that unless you’re pretty darn confident about your business’s ability to rake in cash. Traders took notice. NICK continues to be a very good buy.

  Earnings from Oracle and Bed, Bath & Beyond

  Next week, we’ll get earnings reports from Oracle ($ORCL) and Bed, Bath & Beyond ($BBBY). Also, BBBY will lay out some important planning assumptions for next year. Both of these companies wrapped up the end of their quarter in November.

  Oracle made news last week by announcing that they’re going to pay out their next three dividends before the end of the year in order to avoid the taxman. The company will report its fiscal Q2 earnings on Tuesday, December 18th. In September, Oracle told us to expect earnings to range between 59 and 63 cents per share. The Street expects 61 cents per share, which Oracle should be able to beat.

  Last quarter, Oracle got dinged by currency costs. That’s frustrating, but I’m not particularly worried, since those tend to be transient concerns. I’d be much more concerned by a downturn in their overall business, and Oracle isn’t experiencing that. I’ll be interested to hear what Ellison & Co. have to say about fiscal Q3 and how badly Europe is hurting then. I continue to like Oracle a lot and rate it a good buy up to $35 per share.

  Bed Bath & Beyond is due to report on Wednesday, December 19th. In June, BBBY surprised Wall Street (and me) by guiding lower for their August quarter. The stock got hammered, and analysts quickly slashed their forecasts. When the results came out in September, BBBY still came in four cents below consensus. It was just an ugly quarter, which is very uncharacteristic of BBBY.

  The problem is that Bed Bath & Beyond had become overly reliant on coupons to get feet in the door. I understand the temptation, but a retailer can’t discount their way to sales for the long-term. I’m not giving up on BBBY. This is a very well-run outfit, and they’ve already steered their way though an historic housing bust. I think they can handle this.

  Interestingly, the guidance for Q3 was 99 cents to $1.04 per share, which really isn’t that bad. What traders seemed to overlook is that the company stood by its previous full guidance of earnings growth between the high single digits and low double digits. BBBY also has a rock-solid balance sheet. I currently rate BBBY a buy up to $62 per share. This is a solid company, and the shares are going for a good value.

  Before I go, I want to make two adjustments to our Buy Below prices. Fiserv ($FISV) has been a monster for us this year. I’m raising our Buy Below price to $83 per share. Moog ($MOG-A) has been a lousy stock this year, but I think it’s an exceptionally good value. I’m raising the Buy Below on Moog to $40 per share.

  That’s all for now. Next week, we’ll get earnings from Oracle and Bed, Bath and Beyond. The government will also update the Q3 GDP 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

• Nicholas Financial = $14.12
  Eddy Elfenbein, December 12th, 2012 at 9:46 am

  Nicholas Financial ($NICK) is currently at $14.12 this morning. I don’t know if it will hold up, but here we are.

  I also see that AFLAC ($AFL) has been as high as $54.70 this morning.

• Sysco Earns 49 Cents Per Share
  Eddy Elfenbein, November 5th, 2012 at 10:09 am

  The stock market is down a few points this morning. Obviously, traders are waiting for tomorrow’s election so this is causing some anxiety. Leaving aside any partisan issues, I think investors are nervous that the outcome may be undecided for a few days. That’s probably what concerns people most. I don’t think anyone wants to go through what we had in 2000 again.

  Shares of Nicholas Financial ($NICK) took a beating on Friday. Don’t let that scare you. At Friday’s closing price, the stock yields almost exactly 4%. The company will have no trouble covering its dividend. As I said before, the earnings report was slightly disappointing. Note word slightly. All would have been fine if it was, say, four cents more, so how can a four-cent miss turn into a $1 per share loss? I’m not sure. That’s 25 times missing earnings for a stock going around seven times earnings. Such is the mindset of short-term trading.

  This morning, Sysco ($SYY), the food services outfit, reported fiscal first-quarter earnings of 49 cents per share which was one penny below expectations. Sales rose 4.7% to $10.6 billion which was an all-time record for Sysco. The shares have pulled back some this morning, but I’m not too concerned. Sysco had a one penny share charge for some severance issues. Like NICK, Sysco pays a generous yield and the stock has had a good run since the market’s swoon in May.

• The S&P 500’s First 1% Drop in Two Months
  Eddy Elfenbein, September 26th, 2012 at 9:27 am

  For the first time in two months, the S&P 500 lost more than 1% yesterday. The market didn’t start out so poor yesterday but traders got nervous after Charles Plosser, the head of the Philadelphia Fed, said that QE3 won’t work. Specifically, Plosser said that by pinning so much on the policy, the Fed is risking its credibility. My initial reaction is that I’m afraid that happened a long time ago.

  The market slowly moved down towards yesterday’s closing bell. Financial stocks were particularly hard hit. Members of our Buy List like AFLAC ($AFL), JPMorgan Chase ($JPM) and Nicholas Financial ($NICK) were surprising losers.

  The market is still nervous about events in Europe. The austerity policies have led to more riots in Greece. There are also protests in Spain and bond yields there are back over 6%. The government there is prepared to ask for a bailout. In China, the Shanghai Composite has fallen to a 3.5-year low.

  The key metric that’s on everyone’s mind is the bond market in Europe. The authorities there have made it clear that they intend to defend the euro. That would lead me to believe that yield spreads would tighten. That had been happening but now the yields are moving in the other direction.