Heico Rallies to New High
Posted by Eddy Elfenbein on June 2nd, 2021 at 11:04 am

Heico (HEI) initially fell after its recent earnings report. The shares have now rallied seven times in the last eight days, and it’s up again today.

Morning News: June 2, 2021
Posted by Eddy Elfenbein on June 2nd, 2021 at 7:04 am

ECB Says Lack of Official Digital Currency Risks Loss of Control

Portugal Is Riding a Boom in Bicycles

Why China’s Most-Hated Internet Company Decided to Play Nice

Russian Criminals Suspected in Cyber Attack on World’s Largest Meat Processor

Meat Giant Poised to Reopen Most Packing Plants Hobbled by Cyberattack

Investors’ Inflation Bet Loses Some Steam

The $15 Billion Jet Dilemma Facing Boeing’s CEO

The $10 Billion Bright Spot in the Battered World of Office Real Estate

AMC Up 40% as Reddit Bulls Drown Out Hedge Fund Share Dump

Supreme Court Will Not Take Up Johnson & Johnson Challenge of $2.1 Billion Cancer Case Award

Theranos’ Elizabeth Holmes Mimicked Bill Gates and Steve Jobs. The Difference Is She Failed.

Nick Maggiulli: Is $1 Million Still Worth $1 Million?

Ben Carlson: If You’re Still Worried, You Aren’t Wealthy

Michael Batnick: Animal Spirits: And then I Got Scammed & The Biggest Risk

Howard Lindzon: Momentum Monday – Traders Have A Lot To Choose From

Joshua Brown: The Race to Hedge Inflation

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CWS Market Review – June 1, 2021
Posted by Eddy Elfenbein on June 1st, 2021 at 3:17 pm

(This is the free version of CWS Market Review. Don’t forget to sign up for the premium newsletter for $20 per month or $200 for the whole year. Thank you for your support.)

The month of May is on the books, and it was another good one for Wall Street. The S&P 500 gained 0.55% last month. If we include dividends, then the index gained 0.70%. This was the index’s fourth monthly gain in a row, and the 11th up month of the last 14.

Interestingly, May has been a sluggish month historically for the stock market. Adding up the numbers, the Dow has lost an average of 0.22% during May.

That may sound small, and it is, but it’s quite large for an average of 125 years. By tradition, the market starts to heat up along with summer temperatures. For July and August, the Dow has gained an average of nearly 3%. That’s close to 40% of the index’s total gain for the year coming in just two months. Historically, the market acts well during the summer but then usually gets weak again shortly after Labor Day.

The stock market was down slightly today, although we’re not far from our all-time high. The S&P 500 lost only 0.05% today. Today was the fifth day in a row that the S&P 500 closed up or down by less than 0.22%.

Jobs and the Stock Market

This morning, the Institute for Supply Management said the ISM Manufacturing Index rose to 61.2 for May. That’s up from 60.7 for April. That’s a very good number. Wall Street had been expecting 60.9. Any number above 50 means that the factory sector of the economy is expanding.

I like to watch for the ISM figure for a few reasons. Although the manufacturing sector is currently above 12% of the economy, the ISM usually comes on the first business day of the month. Usually, the better the economic report, the longer the lead time. The ISM has a pretty good track record of signaling recessions. Recessions usually occur when the ISM is around 45 or less. We’re far from that.

What’s happening is that there’s clearly a lot of pent-up demand in the economy. When you keep people locked up for so long, they’re going to want to go out and spend. On top of that, the major stimulus efforts from Washington are aiding the economy. In fact, one of the major obstacles that the economy faces right now is supply bottlenecks.

The U.S. economy is at an unusual crossroads. There are 10 million unemployed, yet there’s a worker shortage. That sounds weird but here we are. Part of that, without a doubt, is due to generous unemployment benefits that are keeping folks from returning to work. Many people also face problems with childcare. And there are many people who are still cautious about returning to an office environment.

This is jobs week which means we’ll get the big May employment report this Friday. Leading up to the jobs report, we’ll get the ADP private payrolls report on Thursday. Also on Thursday, we’ll see the latest report on jobless claims. The last jobless claims report was 406,00 which was another pandemic low.

These reports are slowly getting back to normal. The last report was lower than nearly every jobless-claims report in 2009 and 2010. Bear in mind that a little over a year ago, the jobless claims figure peaked at more than six million.

For Friday’s jobs report, Wall Street expects a gain of 674,000 nonfarm jobs, and it expects the unemployment rate to fall to 5.9%.

The jobs report for April was a huge disappointment. Economists were expecting an increase of one million jobs. Instead, the U.S. economy added just 266,000. The unemployment rate ticked up to 6.1%. The jobs report was especially frustrating as more state and local economies are getting back to normal. One analyst said, “This might be one of the most disappointing jobs reports of all time.”

I have to agree. Plus, it came at the same time we got reports that job openings were at an all-time high. Bloomberg reports that “many employers say they are unable to fill positions because of ongoing fears of catching the coronavirus, child-care responsibilities and generous unemployment benefits.” There are two million more job vacancies than new hires. That’s the highest on record.

Here’s a chart of the stock market in blue and the unemployment rate in red. It’s a fascinating chart.

Historically, what’s been the relationship between unemployment and the stock market? To find out, I went over to the Bureau of Labor Statistics and downloaded all the monthly unemployment numbers since 1948. That’s when the series begins. I then went to Professor Robert Shiller’s data library (a great resource) and downloaded all the monthly inflation-adjusted returns of the stock market since 1948. (His numbers go way back.)

I then separated the data into four roughly equal groups. When the unemployment rate has been 4.65% or less, stocks have averaged 4.82% annualized.

When the unemployment rate has been between 4.65% and 5.69%, stocks have averaged 4.81% annualized. Almost exactly the same as the first group.

Now things get interesting. When the unemployment rate has been between 5.69% and 7.28%, stocks have averaged an 8.42% annualized returned. The worse for jobs, the better for stocks, which makes sense.

Now for the final group. When the unemployment rate has been greater than 7.28%, stocks have averaged an annualized gain of 14.87%. That’s quite good.

Very roughly, the tripping point appears to be 6%. Below that, stocks have averaged 3.85%. Above 6%, stocks have gained 15.50%. It’s far from a perfect relationship but it illustrates Warren Buffett’s famous dictum: “Be fearful when others are greedy, and greedy when others are fearful.”

Another sign of a return to normalcy is that the price for oil got to a two-year high today. OPEC and its allies are adjusting to surging demand but they’re trying to do it carefully. Oil is already up 30% this year.

Stock Focus: Mueller Industries (MLI)

One of the most-requested features I run is when I highlight a not-well-known company with a great long-term track record.

A perfect example of this is this week’s stock in focus, Mueller Industries (MLI). Mueller is a leading manufacturer of copper, brass, aluminum and plastic products. This is a classic small-cap cyclical stock. Once you realize the scope of their business, you understand that the use of Mueller’s products is seemingly endless. Mueller makes everything from copper tubing and fittings to brass and copper alloy bars and refrigeration valves.

You can find Mueller most anywhere. Some of the companies that rely on Mueller are in sectors like plumbing, heating, air conditioning, refrigeration, appliance, medical, automotive, military and defense, marine and recreational. Mueller’s operations are located throughout the United States and in Canada, Mexico, Great Britain, South Korea, and China.

Mueller has about 5,000 employees and it’s based in Collierville, Tennessee. The company’s operations are divided among three divisions: Piping Systems, Industrial Metals, and Climate.

MLI’s current market cap is about $2.7 billion. Mueller pays out a quarterly dividend of 13 cents per share. That gives the stock a dividend yield of about 1.1%. Mueller traces its roots back to 1917.

Last year, when Covid first hit, shares of MLI got chopped in half within a few weeks. The stock fell from $34 to $16. Since then, the shares have roared back. Recently, MLI broke above $48 per share. That’s a remarkable turnaround. Over the last 30 years, MLY has gained 132-fold (including dividends).

Let’s look at some numbers. A few weeks ago, Mueller reported very good numbers for Q1. The company made $1.11 per share which nearly doubled the 57 cents per share one year ago. The rise in copper prices has been a big help for Mueller.

Last year, Mueller made $2.47 per share. I think the company has a decent shot of making $4 per share for this year. If I’m right, that means the stock is going for less than 12 times this year’s earnings.

One of the best valuation metrics to follow is Enterprise Value/EBITDA. For Mueller, that’s currently just under 9.57 which is very good. In fact, I think it would be quite reasonable to pay 20% more than that. In February, Muller raised its quarterly dividend by 30% to 13 cents per share.

Best of all, zero Wall Street analysts follow the stock. Keep an eye on Mueller. This could be a big winner in the months ahead.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

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Abbott Labs Lowers Guidance
Posted by Eddy Elfenbein on June 1st, 2021 at 10:07 am

Abbott Labs (ABT) had bad news this morning. The company had to lower its guidance due to “significantly lower” demand for Covid testing.

This has been driven by several factors, including significant reductions in cases in the U.S. and other major developed countries, accelerated rollout of COVID-19 vaccines globally and, most recently, U.S. health authority guidance on testing for fully vaccinated individuals.

Abbott now sees earnings this year of $4.30 to $4.50 per share. Wall Street had been expecting earnings of $5.04 per share. Previously, Abbott said it expected earnings of at least $5 per share.

“We’ve recently seen a rapid decline in COVID-19 testing demand and anticipate this trend will continue, which led us to adjust our full-year guidance,” said Robert B. Ford, president and chief executive officer, Abbott. “At the same time, excluding COVID-19 tests, our organic base business growth is accelerating, we continue to see improving end-markets and our new product pipeline continues to be highly productive.”

Morning News: June 1, 2021
Posted by Eddy Elfenbein on June 1st, 2021 at 7:04 am

Indian Economy, Hit by COVID-19, Shrinks by 7.3% in 2020-21

Is Crypto Trading Illegal in India? RBI Clarifies 2018 Rule

Panic Over Dogecoin Price Shouldn’t Kill Bitcoin, Ethereum, Other Fundamental Innovations In Crypto, Says Binance US CEO

The Covid Trauma Has Changed Economics—Maybe Forever

How the World Ran Out of Everything

Oil Highest Since 2018 With Iran Deal Elusive and OPEC Talks Due

OPEC, Russia Seen Gaining More Power with Shell Dutch Ruling

What Germany Can Teach America About Renewable Energy

Unloved 60/40 Strategy Needs a Modern Makeover to Win Over Skeptics

Chasing Yield, U.S. Private Equity Firms Nudge Up Risk on Insurers

Americans Are Done With 5-Days a Week in the Office. Here’s What That Means for the Economy

Top Glove’s $1 Billion HK Listing Stalls, In Latest Blow From U.S. Import Ban

Cybersecurity Attack Hits World’s Largest Meat Supplier JBS’ IT Systems

The Radical Modesty of Biden’s Budget

Ben Carlson: 200+ Years of Asset Class Returns

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Morning News: May 31, 2021
Posted by Eddy Elfenbein on May 31st, 2021 at 7:08 am

Kenya Lawmakers Balk as Debt Servicing Costs Jump to $11 Billion

China Moves to Three-Child Policy to Boost Falling Birthrate

Lackluster Hiring in China as Economy Struggles to Reach Full Recovery, Data Shows

Bitcoin Is Headed Toward Its Worst Month Since 2011; ‘Rich Dad, Poor Dad’ Author Says That’s ‘Great News’

A Resurgent World Economy Is Seen Leaving Many Behind

Battle Brews Over Banning Natural Gas to Homes

House Hunters Are Leaving the City, and Builders Can’t Keep Up

The Luckiest Workers in America? Teenagers.

Intel Reiterates Chip Supply Shortages Could Last Several Years

Why the Pandemic Was a Breakout Moment for the Cannabis Industry

‘It’s Going to Be a Big Summer for Hard Seltzer’

American, Southwest Airlines Extend Alcohol Suspensions After ‘Disturbing’ Incidents

A New Era Dawns for Harley-Davidson

H&M’s Online Second-Hand Shop Sellpy Launches in 20 More Countries

Michael Batnick: Listener Mailbag & Learning is Hard

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In Memoriam
Posted by Eddy Elfenbein on May 30th, 2021 at 7:28 am

The Battle for Welbilt
Posted by Eddy Elfenbein on May 28th, 2021 at 6:40 pm

Shares of Middleby (MIDD) got a pop last month when the company said it was buying Welbilt (WBT) for $2.9 billion.

It’s an all-stock deal. Welbilt shareholders will get 0.124 shares of Middleby for each Welbilt share they own. That’s a 28% premium.

Now Italy’s Ali Group has jumped in and said it will offer $3.3 billion for Welbilt. Shares of WBT gained 24% today.

Reuters reports: “The company said it was offering $23 for each Welbilt share, representing a premium of 15.5% to the Welbilt closing price on Thursday.”

Stand by to see if there’s a counter offer.

Morning News: May 28, 2021
Posted by Eddy Elfenbein on May 28th, 2021 at 7:02 am

Japan’s Top Central Banker Joins Chorus of Bitcoin Critics

Ark’s Wood Says Bitcoin Can’t Be Shut Down, Rebuts ESG Fears

Biden to Propose $6 Trillion Budget to Make U.S. More Competitive

Markets Eerily Silent Amid Surprise Report on Capital-Gains Tax Hikes

Big Oil Faces A Reckoning Decades In The Making

Three Exxon Refineries Top the List of U.S. Polluters

From Jersey Shore to Great Barrier Reef, Businesses Ask: Where’s the Help?

Why Apple and Google’s Virus Alert Apps Had Limited Success

Google Nears Settlement of Ad-Tech Antitrust Case in France

Credit Suisse Scandals Prompt Switzerland to Think Unthinkable: Punish Bankers

AMC’s Four-Day Surge Slaps Short Sellers With $1.3 Billion Loss

How to Buy Happiness (Responsibly)

Ben Carlson: The Guy Fieri Theory of Investing in the Internet Age

Joshua Brown: What I Learned From Ten Years of Cold Calling & This Is Why

Howard Lindzon: Dan McMurtrie, Founder of Tyro Partners LLC, Joins Me on Panic with Friends to Discuss Information Overload and Behavioral Investing

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Some Key Economic Reports
Posted by Eddy Elfenbein on May 27th, 2021 at 12:06 pm

This morning’s jobless claims report fell to 406,000. That’s another pandemic low. That’s below Wall Street’s estimate of 425,000.

“Many of the factors that sidelined workers earlier in the recovery are changing to contribute to fast job gains in the rest of 2021. The pandemic is coming under control in the U.S., assuaging health fears,” wrote PNC senior economist Bill Adams.

While claims had remained elevated through the pandemic period, they’ve recently made a marked shift lower amid the economic reopening spurred by accelerated vaccines and sharp decline in Covid cases.

Multiple states also have been shutting down their extended benefits programs as business reopens and unemployment levels decline.

Continuing claims fell sharply, declining by 96,000 to 3.64 million, bringing the four-week moving average down to 3.68 million. That number runs a week behind the headline claims total.

The Commerce Department said that the U.S. economy grew at an annualized rate of 6.2%. That matched the initial report we got last month.

The report on durable goods fell by 1.3% last month. Wall Street had been expecting a gain of 0.95. If you excuse transportation, then orders rose by 1%.