Buy List Hits All-Time High
Posted by Eddy Elfenbein on November 8th, 2010 at 10:47 am

We had very good news on Friday. Thanks to a late market surge, our Buy List broke out to an all-time high.

For all of 2010, we’re up 14.54%. Including dividends, we’re up 16.03%. The S&P 500 is up 9.93%, or 11.77% including dividends.

We’re on our way toward beating the market for the fourth straight year. Best of all, we’ve done with ZERO trading during the year.

For the complete history of the Buy List (four years and a little over ten months), we’re up 33.36% compared with 8.77% for the S&P 500. Both of those numbers include dividends.

Sysco Earns 51 Cents Per Share
Posted by Eddy Elfenbein on November 8th, 2010 at 10:17 am

The last of our stocks reported earnings for this earning season. Before the bell, Sysco (SYY) said it earned 51 cents per share which matched Wall Street’s expectations. Thanks to food inflation, Sysco’s revenues rose 7.4% to 9.75 billion which beat consensus by $20 million.

From the company’s press release:

“I am pleased with the volume growth and productivity improvements our operating companies produced during the quarter,” said Bill DeLaney, Sysco’s president and chief executive officer. “While our overall sales increase and operating expense management were encouraging, we missed our goal for operating income growth, largely due to a decline in gross profit margin and higher pension costs. Our entire leadership team is focused on effectively leveraging sales growth as the fiscal year progresses.”

This is slightly disappointing, but it’s still an improvement over last earnings season when Sysco missed by a penny per share. This is still a decent stock and I expect a small dividend increase soon.

Here’s what I wrote over the summer:

If you’re looking for a decent bargain, shares of Sysco (SYY) look pretty good now that they’re under $29. Thanks to the market’s recent unpleasantness, the stock has gotten as low as $28.46.

Sysco is a conservative company. They pay a 25-cent quarterly dividend, so the current yield is about 3.5% which is well above the 10-year T-bond yield.

Sysco’s business had been feeling the squeeze of lower prices. The company saw three straight quarters of declining earnings (not a lot, but declining). They responded by cutting overhead and their earnings started to perk up. Last quarter was interesting because it was the first time since 2008 that sales also grew. That’s very good news because you can’t cut overhead forever; you need to start growing your sales.

Sysco has now beaten earnings for four straight quarters. Sysco reports late, so the next earnings report probably won’t come out until around August 10. Plus, Sysco’s fiscal year ends on June 30 so this upcoming report will be for their fiscal fourth quarter.

The company will probably earn around 60 cents per share, give or take, which comes out to $1.96 for the year. At $29 per share, that’s not bad. I don’t expect Sysco to grow its earnings by a lot for their next fiscal year, but they almost certainly should be higher than last year.

Sysco is a buy any time it’s below $30. Below $28 would be much better.

Here’s a final summary of earnings for our Buy List:

Morning News: November 8, 2010
Posted by Eddy Elfenbein on November 8th, 2010 at 7:18 am

Euro Hurt as Peripheral Debt Jitters Resurface

Oil Falls From Two-Year High in New York as Stronger Dollar Trims Demand

The Man Who Called the Financial Crisis—70 Years Early

China Says Fed Easing May Flood World Economy With ‘Hot Money’

G-20 Spat Risk Eases as U.S. Eschews Pushing Targets

Top US, South Korea Officials Hold Trade Pact Talks

Nikkei Hits 3-month Closing High

Irish Debt Woes Revive Concern About Europe

CEOs Most Optimistic on U.S. Profits in Bull Signal for S&P 500

Adidas sets targets to overtake Nike

AOL Hires Advisers for Options as it Eyes Yahoo

Bernanke at Jacksonville University
Posted by Eddy Elfenbein on November 5th, 2010 at 11:49 pm

Here’s a 53-minute video of Bernanke answering questions from students. It’s long, but he’s good at explaining complicated issues clearly.

Leucadia National 3Q earnings falls
Posted by Eddy Elfenbein on November 5th, 2010 at 8:01 pm

From AP:

Diversified holding company Leucadia National Corp. said Friday that its third-quarter net income fell 22 percent as it lost money on securities, and income related to associated companies fell.

Net income in the three months to Sept. 30 fell to $287.7 million, or $1.17 per share, down from $370.2 million, or $1.50 per share.

Revenue rose to $185.9 million from $143.4 million.

It lost a net $64,000 in securities, after a gain of $9.6 million a year earlier. The loss from operations rose to $62.2 million from $38.4 million. Income related to associated companies, net of taxes, fell to $324.7 million from $379.5 million.

Shares rose 29 cents, or 1.1 percent, to close at $27.30.

“Kehehehehehehehehehe Yourself!”
Posted by Eddy Elfenbein on November 5th, 2010 at 3:01 pm

That’s enough market stuff for one week. Have a great weekend and enjoy some classic Ernie and Bert.

The Yield Curve’s Reaction to QE2
Posted by Eddy Elfenbein on November 5th, 2010 at 11:01 am

I wanted to show you why the QE2 announcement was such a big deal. Here’s a look at the yield curve from before and after. The blue line is for Tuesday. The black line is yesterday.

I doesn’t look terribly dramatic, but the middle part of the curve got squished down while the end got pushed up. The spread between the middle and the end is at a record.

October Unemployment Unchanged at 9.6%
Posted by Eddy Elfenbein on November 5th, 2010 at 8:32 am

The good news is that nonfarm payrolls rose by 151,000. Private sector jobs increased by 159,000. Although there are still 14.8 million Americans who are unemployed, this was a better-than-expected report:

The job total numbers were revised higher for August and September. For August, instead of a loss of 57,000 jobs, it’s now 1,000. September’s loss was revised from 95,000 to 41,000.

Over the last 10 years, the U.S. labor market has grown by nearly 11 million, yet the number of jobs has increased by 1.7 million. That’s like an 84% unemployment rate of new workers.

Morning News: November 5, 2010
Posted by Eddy Elfenbein on November 5th, 2010 at 7:40 am

US Stock Futures Fall Ahead Of Jobs Data

Gold May Advance on Weaker Dollar, Fed Stimulus, Survey Shows

Yuan Trade Offers Opportunities for Investors

Schaeuble Rejects Trichet Criticism of Crisis Plan to Penalize Bondholders

Geithner Visited Jon Stewart in April, Though Not for Laughs

Dish Third-Quarter Profit Triples, Beating Analyst Estimates

Toyota Lifts Full-Year Outlook After Beating Forecast

Beazer Homes posts Q4 loss

Disney Teams With Shanghai Company for First China Theme Park

Starbucks’ Profits Jump as Sales Climb

CWS Market Review – November 5, 2010
Posted by Eddy Elfenbein on November 5th, 2010 at 7:27 am

Welcome to the premiere issue of CWS Market Review!

And what a time to begin! The market had a spectacular day yesterday. The Dow jumped 219.71 points. The S&P 500 rose 23.10 points or 1.93% to reach its highest close in over two years. The last time we were at this level was September 19, 2008.

As strong as Thursday was, our Buy List did even better. Our 20-stock portfolio gained 2.24%. We’re now up 13.99% for the year (not including dividends) and 20.42% since the end of August. We’re on track for our fourth straight year of beating the market.

Let’s look at a few of our stocks. AFLAC ($AFL) hit a new 52-week high for us yesterday. The stock broke $58 per share. Fiserv ($FISV) is inches away from a new high. Reynolds American ($RAI) also made a new high for us yesterday.

The huge star for us yesterday was Wright Express ($WXS). By the closing bell, Wright Express had added 16.33%. That was enough to make it the fourth best-performing stock on the entire Big Board yesterday.

Let’s look at Wright’s earnings report. In July, they said to expect Q3 earnings between 65 cents and 68 cents per share. Ha! Try 72 cents. On top of that, Wright said to expect between 68 cents and 74 cents per share for Q4. The Street had been expecting just 59 cents. Obviously, business is going quite well for them.

Bottom line: I really like this stock, but let me warn you not to expect days like this every earnings season. I rate Wright a buy to $50.

I had been expecting earnings from Becton, Dickinson ($BDX) yesterday but the earnings report came out late Wednesday. Unfortunately, the stock became our first earnings miss of the season.

Although they missed the Street’s consensus by a penny ($1.24 to $1.25), they gave guidance for next year of $5.45 to $5.55 per share (their fiscal year ends in September). That’s higher than where the Street was and it means the stock is still a good value. All told, Becton gained 3.59% for the day. I think the stock is a good buy up to $80 per share. (By the way, on the website you can see a good interview the CEO did on CNBC.)

Lastly, Moog ($MOG-A) reported earnings of 71 cents per share which was one penny ahead of the Street. One year ago, Moog said to expect EPS for this fiscal year (also ending in September) between $2.15 and $2.35. They reiterated that in February. Then in May, Moog said to expect $2.35 per share which they reiterated in July. In the end, they made $2.36 per share. They now say to expect earnings for next year of $2.70 per share. Again, this is a good stock for the price. Moog is a solid buy up to $42 per share.

That’s almost it for our earnings report this season. Sysco ($SYY) is due next Monday. Leucadia National ($LUK) hasn’t reported yet but that’s not so important since they aren’t followed by any investment houses. With no expectations, you don’t have to worry about missing expectations.

I want to talk a little about QE2. My earlier prediction was totally, totally wrong. I thought the Fed’s plan would be smaller and the Street would be disappointed and sell-off. Fortunately, I was wrong. I had been hoping there would be some good buying opportunities with a sell-off, but I don’t mind being proven wrong by a nice gain for the Buy List.

My advice is to not get caught up in the economic debate about QE2’s effectiveness. The major point for us is that the Fed is on the side of the rally. They’ve openly told us that they want inflation expectations to go higher so companies will put their massive cash hordes to work. That means riskier assets ought to do well and that’s why we’ve done so well over the past two months. Our stocks are exactly the kinds that will do benefit.

The Fed has effectively lowered rates by about 50 basis points. The difference is that a normal rate cut happens at the short-end of the yield curve. Now it’s happening in the middle. My fear is that consumer deleveraging will mute any impact from QE2, but we’ll know more about that soon enough.

This morning we’ll get the jobs report. The easy bet has been to expect dismal numbers and I don’t see any reason for that to change. In particular, Wall Street is looking for growth in private sector jobs. I think the market really wants to rally, but it needs good news for conformation. We’ll also see if investors want to hold stocks over the weekend. For most of this year, Friday has not been a good day.

I also want to mention Ford ($F). Boy, I wish I had added Ford to the Buy List at the beginning of the year. The turnaround here is simply astounding. The shares closed at $15.86 yesterday. Two years ago, Ford bottomed out at $1.01. That’s right. Ford was nearly a penny stock! The story looks to get better and better. I hope to talk more about Ford in the coming weeks. I’ve already called Ford my “Stock of the Decade” (you have to get a jump on the competition).

Next week will be a slow week for economic reports. We’ll probably start to hear about the upcoming holiday shopping season. I think consumers have been holding back over the last two years so this could be a big season for holiday sales.

This week was about as hectic as you can get with the election, the Fed, earnings and jobs. Sysco ($SYY) reports on Monday. The Street’s consensus is for 51 cents a share. I also want to remind you that Reynolds American ($RAI) will be splitting 2-for-1 on November 16. This is an excellent stock. Don’t worry about waiting for the split to get into RAI.

I’ll have more market analysis for you in the next issue of CWS Market Review!

Best – Eddy