• Jobless Claims Fall Below 500,000
    Posted by on May 6th, 2021 at 10:17 am

    We had some good economic news this morning. The initial jobless claims report was “only” 498,000. This is a new pandemic low. Of course, that’s normally a very high number, but in the age of Covid, it’s pretty good.

    In fact, 498,000 is closer to previous peaks in other cycles. A little over a year ago, jobless claims peaked at six million. Jobless claims are now lower than they were during any time over the 12 months immediately following the financial crisis (November 2008 to November 2009).

    While the jobs market still has a long way to go before it fully heals from the pandemic damage, improvement has accelerated in recent weeks as restrictions on activity continue to be lifted.

    Though the pace has eased lately, the U.S. is still vaccinating more than 2 million people a day and soon will have half the population with at least one shot.

    The claims decline comes a day before the Labor Department releases its nonfarm payroll count for April. Economists expect that the economy added another 1 million jobs during the month, with hiring likely to be the quickest in the hospitality sector, which sustained the worst of the pandemic-related damage.

    However, continuing claims actually ticked higher last week, rising 37,000 to just below 3.7 million. The four-week moving average for claims edged down to 3.68 million, the lowest since March 28, 2020, just as mass layoffs were beginning to combat the spreading coronavirus.

  • Morning News: May 6, 2021
    Posted by on May 6th, 2021 at 7:01 am

    Companies Warn of U.S. Labor Shortages Economists Call Temporary

    U.S. Vaccine Patent Shock Roils Pharma as Talks Move to WTO

    Moderna Raises 2021 Sales Forecast for COVID-19 Vaccine to $19.2 Billion

    The Chip Shortage Keeps Getting Worse. Why Can’t We Just Make More?

    Gas and Power Sellers Rack Up Billions in Profit from Texas Freeze

    Biden Leans Into Plans to Tax the Rich & Biden’s Audit-the-Rich Target of $700 Billion Seen as Tall Order

    Facebook Oversight Board Upholds Social Network’s Ban of Trump

    British Political Veteran Steers Facebook’s Trump Decision

    Tesla Developing Platform to Allow Car Owners in China Data Access

    Why Trouble May Loom for Stock Market if Cathie Wood’s ARK Innovation ETF Fails to Bounce

    Cryptocurrency Dogecoin Surges Ahead of Elon Musk’s ‘SNL’ Gig

    Space Aged: Bottle of Wine from Space Station Could Sell for $1 Million

    Jeff Carter: Inflation, or Is It Inflation?

    Michael Batnick: The Real World

    Ben Carlson: Animal Spirits: We Should Be In A Bubble

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  • Earnings from Miller Industries and Ansys
    Posted by on May 5th, 2021 at 4:45 pm

    After the closing bell, Miller Industries (MLR) reported fiscal Q1 earnings of 28 cents per share. That’s a drop of 41.5%. Sales fell 3.5% to $169.9 million. No analysts follow the stock.

    Also after the close, Ansys (ANSS) reported Q1 earnings of $1.12 per share. That’s an increase of 17% in constant currency over last year’s Q1. Wall Street had been expecting 84 cents per share.

    For Q2, Ansys expects earnings to range between $1.43 and $1.67 per share. Wall Street had been expecting $1.57 per share. For revenue, the company expects $415 million to $445 million.

    For the whole year, Ansys expects earnings between $6.69 per share and $7.10 per share. Wall Street had been expecting $6.76 per share. Sales are expected between $1.81 billion and $1.875 billion.

  • Crossing Wall Street Gets Results
    Posted by on May 5th, 2021 at 1:04 pm

    One year ago, FactSet (FDS) announced a 7% increase to their quarterly dividend. That brought the dividend from 72 to 77 cents per share. In their press release, the company said:

    ”The $0.05 per share increase marks the fifteenth consecutive year the Company has increased dividends.”

    But that was incorrect. It was really their 21st dividend hike in a row. It turns out, FactSet had not adjusted for stocks splits. (Which is a little embarrassing for a financial data company!)

    I have to credit Dividend Growth Investor for catching the error. I wrote the company to inform them of the mistake.

    This morning, the company announced a 6.9% increase to their quarterly dividend, bringing it to 77 cents per share.

    And guess what it says in the press release!!

    “The $0.05 per share increase marks the twenty-second consecutive year the Company has increased dividends on a stock split adjusted basis”

    We get results!

  • Cerner Beats Earnings
    Posted by on May 5th, 2021 at 11:40 am

    This morning’s ADP report showed an increase in April payrolls of 742,000. While that’s a huge number, it’s still short of Wall Street’s expectations of 800,000. The official jobs report is this Friday.

    Leisure and hospitality, the sector hurt the most by pandemic-related business lockdowns, led growth with 237,000 new positions. The industry is still about 3 million shy of where it was before the pandemic but has been adding jobs steadily since federal and state governments have been relaxing restrictions.

    Trade, transportation and utilities also was a major contributor, adding 155,000 new jobs, while professional and business services contributed 104,000 and education and health services increased by 92,000 as students headed back to in-school learning.

    Services typically account for the bulk of job growth, and that was true again in April as the sector added 636,000 positions.

    Jessica Alba’s Honest Company raised $412.8 million in its IPO. The ticker symbol is HNST. The company is valued at $1.44 billion. She started the company in 2011. Good for her!

    The WSJ reports that Berkshire Hathaway’s stock is too high for the Nasdaq’s computers. The highest number the exchange can use is 2 to the 32nd minus one, but they use four decimal places. That means the highest possible price is $429,496.7295. This morning, the A shares have been as high as 427,435.12.

    This morning, Cerner (CERN) reported earnings of 76 cents per share. Wall Street had been expecting 74 cents per share. Cerner has also approved a new share buyback program, which lets Cerner to repurchase up to $3.75 billion through the end of 2023.

    For Q2, Cerner sees 20% earnings growth over last year’s Q2. The company made 63 cents per share in last year’s Q2, so that implies earnings of 76 cents per share which matches Wall Street’s forecast.

    “Cerner’s first quarter results reflect a solid start to the year,” said Brent Shafer, chairman and CEO. “We are sharpening our focus and moving forward with a renewed sense of urgency in delivering value to our clients and shareholders. These efforts are reflected in Cerner’s improved earnings outlook for the year.”

    “The new repurchase program reflects the Board of Directors’ and our entire leadership team’s belief in Cerner’s long-term potential and emphasizes our ongoing commitment to returning capital to shareholders,” said Mark Erceg, executive vice president and chief financial officer. “With our strong balance sheet and anticipated future cash flow, we are well positioned to continue making investments in growth while also executing a balanced capital allocation strategy.”

    Cerner raised its full-year guidance to over $3.20 per share. The previous range was $3.10 to $3.20 per share.

    Update: Shares of Cerner were down as much as 4.85% today but only lost 1.17% by the closing bell.

  • Morning News: May 5, 2021
    Posted by on May 5th, 2021 at 6:58 am

    As Cars Go Electric, China Builds a Big Lead in Factories

    Can the Biden Agenda Fix Middle America’s Deepest Problem?

    Facing Chips Shortage, Biden May Shelve Blunt Tool Used in COVID Fight

    U.S. Chip Startups, Long Shunned in Favor of Internet Bets, Stir Excitement Again

    Biden’s Fed Choices Add Uncertainty for Inflation-Wary Investors

    U.S. Births Drop to the Lowest Level Since the 1970s

    Dogecoin, ‘The Most Honest Sh*tcoin,’ Has Remarkably Strong Fundamentals, Concludes Galaxy Digital Research

    Pfizer Reaps Hundreds of Millions in Profits From Covid Vaccine

    Bill and Melinda Gates’ Other Partnership Is Too Big To Fail

    The Untold Story of How Jeff Bezos Beat the Tabloids

    Snapchat Can Be Sued For Role In Fatal Car Crash, Court Rules

    Nick Maggiulli: Two Bets for the Next Decade

    Ben Carlson: When Does It Make Sense to Take Profits From Your Biggest Winners?

    Joshua Brown: Sorry Not Sorry

    Howard Lindzon: The New Builders

    Michael Batnick: The Biggest Threat to Tech

    Be sure to follow me on Twitter.

  • CWS Market Review – May 4, 2021
    Posted by on May 4th, 2021 at 7:52 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. Thanks for your support.)

    The Best Earnings Season Ever!

    The Q1 earnings season is shaping up to be an outstanding earnings season for Corporate America.

    The Wall Street Journal notes that this season’s “beat rate,” meaning how many companies are reporting results above Wall Street’s consensus, is running at 87%. That’s the highest since they started tracking these numbers in 1994. The long-term average is 65%.

    Side note: That last stat says a lot about how Wall Street thinks. You’re expected to beat expectations. You’ll notice how often companies that merely meet expectations see their share prices drop. As I like to say, when they meet expectations, no one sees it coming. When in doubt, the market’s reaction is the real judge.

    Once, when I was just getting started in this business, I was reading a particularly confusing earnings report. I asked one of the old-timers if the company had beaten or missed expectations. He said, “I’ll let you know at 9:31,” referring to just after trading started.

    Not only are companies beating the Street, but they’re doing it by a lot. Historically, the average earnings beat has been 3.6%. This season, the average beat is 22.8%. This looks to be Wall Street’s best earnings growth in more than 10 years. Of course, that’s really due to throttling the economy a year ago and then letting go. Plus, the stimulus checks are helping out. I’ll have more on that in a bit.

    I’m pleased to report that our Buy List is doing better than the rest of the market. Through Tuesday, 14 of of 15 Buy List stocks have beaten expectations. Some have beaten by a lot. Both Danaher (DHR) and Moody’s (MCO) beat expectations by 44%. Sherwin-Williams (SHW) beat by 25% and Stepan beat by 27%. Lots of our stocks are responding well. We had new highs today from AFLAC (AFL), Broadridge Financial Solutions (BR), Hershey (HSY), Sherwin-Williams (SHW) and Stepan (SCL).

    There’s still an important rotation unfolding. Tuesday was the sixth day in a row that the NASDAQ trailed the S&P 500. This looks to be the continuation of a trend that started in mid-February but had stalled out somewhat by March. Now it’s moving again. The simple fact is that a lot of the tech sector is too expensive.

    (Did I mention I have a premium newsletter where I go into more detail on our portfolio? OK, good.)

    What to Do With All This Cash?

    One of the interesting side effects of the pandemic is that companies are now flush with cash. As the economy started to lock down a year ago, many companies rushed to borrow money to ride out the storm.

    So now we’re at a crossroad. With rates so low, there’s no rush to pay off that debt. That’s leading more companies to raise dividends or expand buybacks. The other choice is that more companies are willing to use that cash to make acquisitions.

    From Bloomberg:

    Total debt loads for U.S. companies outside the financial industry rose 10% in 2020 to $11.1 trillion, according to the Federal Reserve, in part because lower interest rates have made it less burdensome for many companies to shoulder more debt. So far, corporations have largely been hoarding the money rather than spending it. Non-financial companies in the S&P 500 index that reported results before March 31 had about $2.13 trillion of cash and marketable securities on their books in the most recent quarter, up more than 25% from a year earlier, according to data compiled by Bloomberg.

    Personally, I get a little nervous when companies have too much cash. They’re liable to do something with too little forethought. Peter Lynch referred to this as the Bladder Theory of Corporate Finance. Recently there were rumors that FactSet, one of our stocks, might be bought out. I expect to see more acquisitions.

    This leads us to the Federal Reserve. Chairman Jerome Powell has made it clear that the Fed has no plans to raise rates anytime soon. The Fed moved early and aggressively. Investors have gotten used to the idea that we’re going to see more inflation sometime soon. FactSet reported that inflation is being mentioned in more earnings calls than at any point in the last 10 years.

    In addition to lower interest rates, the Fed has also had a massive bond-buying program. Each month, the Fed buys $80 billion in Treasuries and $40 billion in mortgage-backed securities. Now more economists on Wall Street believe that the Fed will announce a tapering of these purchases before the end of the year. This is a noticeable change compared with a few months ago. It may be related to more fiscal stimulus from Washington. One possible unveiling forum could be in late August at the Fed’s annual conference in Jackson Hole, Wyoming.

    For now, I would say that I’m slightly but not strongly in the doubter camp. I’m inclined to believe that the Fed will keep buying as many bonds as it can. The key is to watch for any incipient signs of inflation.

    Here’s a look at the 10-year breakevens, which is the market’s take on inflation for the next 10 years.

    Household finances are also on the mend. This week we learned that household spending rose by 21.2% in March. That’s an all-time record. We have the stimulus checks to thank. Check out this stat: The stimmies made up $3.948 trillion of the total $4.213 trillion rise in personal income during March.

    The most recent Case-Shiller Index showed that home prices are rising at the fastest rate in 15 years. In the 12 months ending in January, U.S. home prices increased by 11.2%. Lowe’s said it’s going to hire 50,000 workers. Trex (TREX) is up 29% for us this year. That’s after gaining 86% last year.

    This boom is distorting the entire market. The number of buyers has far outpaced the number of sellers. As a result, the supply of homes is at a record low. In February, the number of homes for sale was down 30% from last February. The housing boom has actually led to a shortage of chlorine. The difference this time is that the banking system is far more resilient than it was 15 years ago.

    Stock Feature: Simulations Plus (SLP)

    Here’s another example of a neat company that’s not well known. Simulations Plus (SLP) is a small company that I’m a big fan of. Not many people know about this one. The market cap is just over $1 billion and only three analysts follow it. Unfortunately, the stock price is very high. Too high in fact, but it’s certainly one to keep an eye on. Simulations Plus makes software that lets drug companies simulate tests of their products in the virtual world before using any human or animal test subjects.

    That’s a big cost-saver for drug companies. Simulations Plus helps streamline the R&D process by making it faster and more efficient. Not only is this cost effective, but it also helps drug companies in dealing with time-consuming regulatory hurdles.

    In fact, there are times when the results from SLP’s products have allowed companies to waive clinical studies. The cost savings are substantial. This means drug companies don’t have to deal with the time and expense of recruiting test subjects and analyzing test results.

    By using SLP’s software, drug companies can experiment with many variables like fine tuning dosage amounts. Companies can also see potential harmful side effects. Another important factor is that companies can identify treatments that have no benefits.

    In healthcare, cost control is a major issue. That’s why SLP’s products are in such heavy demand. A great business to buy is one that helps other companies control their costs.

    In many ways, I think what Simulations Plus does for pharmaceutical researchers is closely akin to what Ansys (ANSS) does for engineers. By sitting at a computer, an employee can efficiently iron out a lot of kinks before experimenting in the real world. Simulations Plus is also branching out from their core customer base of drug companies. They work with consumer products companies to see the side effect of things like pesticides.

    There’s good news lately! The stock has been getting beaten up. (I love when companies I like but don’t own get dinged by the market.) Today was SLP’s seventh daily decline in a row. The last two earnings reports were fine, but nothing great. SLP beat by one penny per share each time. In February, SLP got above $90 per share. Lately, it’s around $57.50 per share.

    The financial numbers are very impressive. Over the last ten years, Simulations Plus has maintained organic growth of 12% to 14%. Impressively, they’ve done this without carrying much debt. Sales growth is strong, 27% last quarter. Gross margins are running at 78%.

    The problem is price. Ballpark guess, SLP should earn about 55 cents per share this fiscal year and 65 cents per share next year. That means the stock is going for something like 87 times next year’s earnings. That’s way too high.

    Simulations Plus currently pays out a quarterly dividend of six cents per share. That’s not that much but it’s a sign of confidence from management. The company has consistently paid out a dividend for the last nine years. While SLP is too rich for me, if the stock ever drops below $40, it could be a very good buy.

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

    – Eddy

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    P.P.S. And support the ETF!

  • Why I Like Disney
    Posted by on May 4th, 2021 at 8:58 am

    I saw this posted by Josh Brown. This is basically a three-minute clip explaining why I’m such a fan of Disney’s business.

  • Broadridge Earns $1.76 per Share
    Posted by on May 4th, 2021 at 7:22 am

    This morning, Broadridge Financial Solutions (BR) released a very good earnings report and the company increased its guidance. The company reported fiscal Q3 earnings of $1.76 per share. That beat Wall Street’s consensus by eight cents per share. Both operating income and recurring revenue grew by 8%.

    “Broadridge delivered strong third quarter results, including 8% recurring revenue growth and 8% Adjusted Operating income growth,” said Tim Gokey, Broadridge’s Chief Executive Officer.

    “Our results continue to be propelled by powerful long-term trends including increased digitization, mutualization, and the democratization of investing. As a result, we continue to invest in our products and technology platforms. These investments, along with the pending acquisition of Itiviti, will further strengthen our ability to drive increased value to our clients and growth to our shareholders,” Mr. Gokey continued.

    The best news is that Broadridge raised its 2021 guidance. Previously the company saw recurring revenue growth coming in the top end of its 3% to 5% range. Now Broadridge sees recurring revenue growth of 8% to 10%.

    For total revenue, the company had previously projected the higher end of its 1% to 4% range. Broadridge also sees total revenue growth of 8% to 10%.

    On the earnings call, Broadridge said it sees earnings growth for this year of 11% to 13%. The previous guidance was 6% to 10%. Since BR made $5.03 per share last year, the old guidance implied earnings of $5.43 to $5.53 per share for this year. Going by the new range, BR expects earnings of $5.58 to $5.68 per share.

    The company has already made $3.47 per share for the first three quarters of this fiscal year, so the new guidance implies fiscal Q4 (June) earnings of $2.11 to $2.21 per share. Wall Street had been expecting $2.13 per share.

  • Morning News: May 4, 2021
    Posted by on May 4th, 2021 at 7:02 am

    ‘We Cannot Wait Until June’: Greece’s Reopening Gamble

    The Booming U.S. Recovery Is Leaving Some Communities Completely Behind

    Biden Tax Rule Would Rip Billions From Biggest Fortunes at Death

    Is It Over Yet? Still No Recession End Date as U.S. Economy Hums Along

    Rotation Out of Megacaps Drags Nasdaq Futures Lower

    Infineon Expects 2.5 Million ‘Lost Cars’ Due to Chip Shortage

    Oil Giant Saudi Aramco Beats Estimates with 30% Hike in First-Quarter Profit

    Buffett’s ESG Snub Risks Alienating Wall Street

    The Big Stakes in the Gates Divorce

    Jeweler Pandora Takes Ethical Stand Against Mined Diamonds

    Eleven Madison Park, One of the World’s Best Restaurants, Is Going Vegan

    Mr. Beast, YouTube Star, Wants to Take Over the Business World

    Ben Carlson: The Difference Between Managing Money and Managing Investors

    Joshua Brown: Disney’s Not Playing Games

    Howard Lindzon: Momentum Monday: Much Ado About Inflation

    Jeff Carter: Questions on Exchanges & Crying About Competition

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