• CWS Market Review – April 2, 2021
    Posted by on April 2nd, 2021 at 7:08 am

    ”I’m always fully invested. It’s a great feeling to be caught with your pants up.”
    – Peter Lynch

    4,000! It finally happened. On Thursday, the S&P 500 broke the 4,000 barrier for the first time in history. The index finished the day at 4,019.87.

    For some context, the S&P 500 first closed above 400 on December 26, 1991. That’s a 10-fold gain in nearly 30 years.

    Going back further, the index first closed above 40 on June 17, 1955 (technically, that was the old S&P 90). What about before that? Well, the S&P 500 never got down to 4. But if we go way, way back to the mega-low from July 8, 1932, it was 4.41. That means we still need a nice rally to make it a 1,000-fold gain in about 90 years.

    The S&P 500 is now up more than 80% from its low of just over a year ago. At the time when the world was locking itself down due to the coronavirus, who would have predicted such a robust recovery? I know I didn’t. (Take note of this week’s epigraph.)

    Once again, a strategy of buying and holding high-quality stocks has been a big winner. I’m glad to see that many of our Buy List stocks are also doing well. In fact, little Miller Industries just touched a new 52-week high. We already have a 23% gain in Miller.

    In this week’s issue, I want to discuss the recent earnings report from FactSet. Honestly, it was OK but not great. The stock took a hit after the earnings report, but it has since made back most of what it lost. As we know well, the market prefers to act first and think second. I’ll have all the details in a bit.

    Since it was a slow news week, I wanted to take a step back and discuss the oft-overlooked consumer-staples sector. I’ll also have some updates on our Buy List stocks. Before we get to that, let’s look at some recent news on the economy.

    Best ISM Manufacturing Report in 37 Years

    The stock market is closed today for Good Friday. This is one of the rare days when the stock market is closed while much of the world is still open. The government will release the March jobs report later this morning. Wall Street is expecting more job gains.

    Earlier this week, the ADP payroll report showed that private-sector jobs increased by 517,000 last month. That’s the best month for jobs growth since September. On Thursday, the weekly jobless-claims report increased to 719,000. Last week’s report was 658,000, which is the post-pandemic low.

    The other news was that the ISM Manufacturing Index jumped to 64.7. That’s a huge number. It’s the highest level since December 1983. Any number above 50 means that the factory sector of the economy is improving. This is very good news.

    Bond yields continued to climb higher. I think this is a response to news of an improving economy. On Tuesday the yield on the 10-year Treasury bond got up to 1.765%. That’s the highest yield in 14 months. It also might be a guess that the Federal Reserve will cut off its massive bond buying sooner rather than later. I doubt that will happen soon, but some folks are clearly getting ready.

    The Case for Consumer Staples

    Earlier this week I hosted a webinar with Lawrence Hamtil, and one of the things we both agree on is that we’re big fans of consumer-staples stocks. Many new investors don’t realize what a profitable sector of the market this has been, and I believe it will continue to be so.

    Unfortunately, these tend to be fairly dull stocks, but don’t let that fool you. There are many excellent stocks among the consumer staples.

    First off, what do we mean by consumer staples? These are regular day-to-day items that you use like food, soft drinks and household items. Two such stocks on our Buy List are Hershey (HSY) and Church & Dwight (CHD). Yet folks new to investing get mesmerized by high-profile tech stocks and often pass over humdrum consumer staples.

    There are several reasons why I’m a fan of consumer staples. Their businesses tend to be fairly simple. Not only can tech stocks be hard to follow, but many banks and insurance companies can be very opaque. The earnings reports of consumer staples can be quite easy to follow.

    I also like that consumer staples tend to have strong brand names. In business, this means a lot because it signifies reliability to consumers. In the S&P 500, there are 32 stocks that are classified as consumer staples. Nearly half of them date back to the 19th century.

    Consumer staples tend not to be capital-intensive businesses. This is a key point that investors overlook. In plain English, some businesses demand huge investments to keep the profits flowing. Semiconductors are a good example. Maintaining operating facilities or big R&D investments can suck up a lot of the cash flow. Toothpaste? Not so much.

    Since these consumer staples are well established, they can afford to pay out generous dividends to shareholders. I also like that consumer staples tend to have fairly stable sales and earnings growth. That means they aren’t hurt so much during a recession. I believe sales of soup actually improve. Contrast that with industries like housing or energy which can see wild boom-and-bust cycles. Probably the best industry over the past several decades has been tobacco stocks. That’s about as stable as you can get.

    Not only are the business staples solid, but the stocks are also stable. This is why consumer staples are classic defensive stocks. They tend to lead the market during rough times. Here’s a great example. Check out this long-term chart of Clorox (CLX):

    Would you have guessed that something so boring and everyday would have been such a big winner? The stock is up 54-fold in 30 years, and it’s just…Clorox! There are a lot of hedge funds that don’t come close to Clorox.

    Outside of the ones I’ve mentioned, some high-quality consumer stables include Procter & Gamble (PG), Colgate-Palmolive (CL), Kellogg (K), General Mills (GIS), Coke (KO), Kimberly-Clark (KMB), McCormick (MKC), Pepsi (PEP), Hormel (HRL), Smucker (SJM) and Sysco (SYY). Or you can grab the whole bunch with the Consumer Staples ETF (XLP). Don’t overlook this valuable sector.

    Now let’s look at the earnings report from FactSet.

    Fact Set Earned $2.72 per Share

    On Tuesday morning, FactSet (FDS) reported fiscal-Q2 earnings. This is for the quarter that ended on February 28. If you’re not familiar with FactSet, it’s a financial-data and -software company. It provides Wall Street with all the numbers we love to crunch.

    For Q2, FactSet earned $2.72 per share. That’s a 6.7% increase over last year’s Q2. That’s pretty good, but it was two cents below Wall Street’s consensus. I’m hardly worried by a two-cent miss, but the stock took a hit after the report. At one point on Monday, FactSet was down more than 6%.

    Let’s dig into some details. Quarterly revenue increased by 6% to $391.8 million. The key stat for FactSet is Annual Subscription Value (or ASV) plus professional services. For the quarter, that came in at $1.598 billion. I was pleased to see FactSet’s adjusted operating margin increase from 31.8% to 32.6%. That’s a good sign. The company also added $206 million to its share-buyback program, which brings the total to $350 million.

    The most important news is that FactSet didn’t change its full-year earnings outlook. One positive change is that the company raised the low end of its ASV professional-services forecast.

    “I am proud of how we executed this quarter, resulting in a solid first half of our fiscal 2021,” said Phil Snow, CEO, FactSet. “In our second quarter we saw a number of key wins validating our strategy for long-term growth. Our focus on digital transformation, content expansion and being an open platform continues to resonate with our clients as they navigate a rapidly evolving landscape.”

    At the end of the quarter, client count stood at 6,103. User count increased by 6,659 to 153,355. Annual ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention improved to 90%, year over year. Employee count reached 10,660. That’s an increase of 7.8% over the last 12 months. That’s a clear message of strength in a tough labor market.

    CFO Helen Shan said, “We enter our fiscal second half with good momentum and remain focused on delivering significant value to our clients and shareholders.” During the quarter, FactSet bought back 221,959 shares for $71.5 million. That’s an average price of $322.11.

    Let’s look at their guidance. The company expects earnings to range between $10.75 and $11.15 per share. (Their fiscal year ends on August 31.) I suspect that’s probably too low. For the first half of this year, FactSet has already made $5.12 per share. The company also sees revenue coming in between $1.57 billion and $1.585 billion. FactSet expects operating margins between 32% and 33%. These are good numbers.

    Fortunately, the shares firmed up some on Thursday. I’m keeping our Buy Below on FactSet at $340 per share.

    Buy List Updates

    I mentioned earlier that little Miller Industries (MLR) is already racking up some big gains for us. Miller is up 23% so far this year. Stepan (SCL) is our second-smallest stock, and it’s more than five times the size of Miller. If you want to learn more about the company, here’s an old profile of Bill Miller. This week, I’m raising our Buy Below on Miller to $50 per share.

    We finally had our 3-for-1 stock split for Sherwin-Williams (SHW). This means stockholders now have three times as many shares while the share price falls by two-thirds. SHW hit a new 52-week high earlier this week. With the stock split, our Buy Below falls to $250 per share.

    Shares of Broadridge Financial Solutions (BR) have improved in recent weeks. This is one of our quieter companies, and I should write about it more. They really don’t make a lot of news, which is fine by me. Broadridge beat its last earnings report by three cents per share. The CEO said he expects sales and earnings growth to be at the “higher end” of guidance. I’m raising our Buy Below price on Broadridge to $165 per share.

    Abbott Laboratories (ABT) said this week that the government gave the greenlight for BinaxNOW, which is Abbott’s at-home COVID-19 test. The company hopes to start shipping it to retailers soon. The test takes about 15 minutes. People will be able to buy it at stores or online without a prescription. Abbott said it doesn’t know the price point yet, but it will probably be under $10. The company currently sells about 50 million units a month. In August it was approved for use by medical professionals.

    That’s all for now. The stock market is closed today for Good Friday. The March jobs report will be out later this morning. There’s not much in the way of economic news next week. One item that I’ll be looking out for is the minutes from the Federal Reserve’s last meeting. That will be due out on Wednesday afternoon. On Thursday, we will get another initial jobless-claims 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

  • Morning News: April 2, 2021
    Posted by on April 2nd, 2021 at 7:04 am

    China Puts Limits on Foreign Banks, Worrying Businesses

    Why the Markets Need a Strong Government Hand

    The Bull Market Roulette Wheel Just Keeps Landing on Winners

    Mortgage Firms Warned to Prepare for a ‘Tidal Wave’ of Distress

    God and Man Collide in Bill Hwang’s Dueling Lives on Wall Street

    That Spotty Wi-Fi? There’s $100 Billion to Fix It.

    TSMC to Invest $100 Billion to Increase Semiconductor Output

    An Accidental Disclosure Exposes a $1 Billion Tax Fight With Bristol Myers

    BTS’s K-Pop Agency Buys Bieber Manager’s Firm for $1 Billion

    Robocalls May Get Worse Soon, and You Can Blame Facebook

    Brooklyn Man Accused of Using Information from Bloomberg Reporter for Insider Trading

    Nike Scores Victory in Legal Battle Against Lil Nas X’s ‘Satan Shoes’

    Michael Batnick: The Generational Wealth Gap

    Ben Carlson: The Problem With Timing The Housing Market

    Howard Lindzon: Jason Hirschhorn, CEO of REDEF, Joins Me on Panic with Friends to Discuss the Future of New Media and the Explosion of the Creator Economy (EP.143)

    Be sure to follow me on Twitter.

  • The S&P 500 Breaks 4,000
    Posted by on April 1st, 2021 at 1:50 pm

    The S&P 500 finally broke 4,000 today. The index has been as high as 4,012.75 today.

    We had mixed economic news this morning. The weekly jobless claims report increased to 719,000. Last week’s report was 658,000 which is the post-pandemic low. The big jobs report comes out tomorrow,

    The other news was that the ISM Manufacturing Index jumped to 64.7. That’s a huge number. It’s the highest level since December 1983.

  • Sherwin-Williams Splits 3-for-1
    Posted by on April 1st, 2021 at 1:02 pm

    Sherwin-Williams (SHW) split its stock 3-for-1 today.

    I always want to be very transparent on how I track my Buy List.

    At the start of each year, the 25 Buy List stocks are equally balanced. I assume it’s a $1 million portfolio, with 25 stocks and $40,000 in each.

    For Sherwin-Williams, that worked out to 54.428433 shares at $734.91 per share.

    So adjusting for the split, that works out to 163.285299 shares bought at $244.97.

  • Morning News: April 1, 2021
    Posted by on April 1st, 2021 at 7:00 am

    China’s Commodities Binge Makes America’s Future More Expensive

    Biden $2.25 Trillion Jobs Plan Squeezed By All Sides in Congress

    Biden Tax Plan Challenges G.O.P. Formula for Economic Growth

    Biden’s Push for Electric Cars: $174 Billion, 10 Years and a Bit of Luck

    Auto Industry Rethinks Cost-Cutting Playbook as COVID-19, Chip Shortages Disrupt Supply Chains

    Ford Slashes Vehicle Production at Six Plants in North America Due to Chip Shortage

    Taiwan Semi to Spend $100 Billion to Combat Chip Shortage

    How Masayoshi Son’s ‘Money Guy’ Lex Greensill Went From Hero to Zero

    Five Market Trends Investors Are Focused On for the Second Quarter

    Fact, or Corporate Fiction?

    Greensill Insurance Mystery Turns Up the Heat on Credit Suisse

    Microsoft Earns Contract Worth Up to $21.9 Billion to Make AR Devices for the US Army

    Raising This Tax Would Make the Ultra-Rich Pay Their Fair Share

    Howard Lindzon: Bill Hwang…Stay Away From Raccoons

    Michael Batnick: Animal Spirits: The Active Management Resurgence

    Be sure to follow me on Twitter.

  • New All-Time High; The S&P 500 Closes in on 4,000
    Posted by on March 31st, 2021 at 12:54 pm

    You can’t keep this market down! The S&P 500 hit a new all-time intra-day high today of 3,990.75. Before today, the record was 3,981.83 from Monday. The all-time closing high is 3,974.54 from Friday.

    This morning’s ADP report showed that private sector jobs increased by 517,000 last month. That’s the best month for jobs growth since September. The jobless claims report is due out tomorrow, and the official jobs report will be on Friday. Consensus is for 565,000 jobs.

    The S&P 500 is closing in on 4,000. It first closed above 400 on December 26, 1991. The index first closed above 40 on June 17, 1955 (that was the old S&P 90).

  • Morning News: March 31, 2021
    Posted by on March 31st, 2021 at 7:06 am

    China’s Covid Rebound Edges It Closer to Overtaking U.S. Economy

    A Billion Dollars for Every Chip-Maker Who ‘Makes in India’

    Clearing the Suez Canal Took Days. Figuring Out the Costs May Take Years.

    Why the World’s Container Ships Grew So Big

    America’s Imports Are Stuck on Ships Floating Just Off Los Angeles

    Biden Plans $2.25 Trillion Spending Offset by Corporate Tax Hike

    How to Fix SPACs: Keep Their Backers Locked In Longer

    Deliveroo Heads to I.P.O. as Challenges Pile Up

    Billionaire’s Real Estate Empire Risks Unraveling From the Pandemic

    Brevan Howard Runs $50 Billion Unit Like BlackRock’s Aladdin

    Volkswagen of America Said Its Name Was Changing. Now It Admits It Was Just a Disaster of an April Fool’s Stunt

    Howard Lindzon: Active Investing – The Beginning Of The Beginning and A Bear Market Is In The Eye Of The Bagholder

    Joshua Brown: The Spending Surge & Sorry my family office crashed the Nasdaq.

    Cullen Roche: Let’s Talk Some More About Assflation

    Michael Batnick: Yield Shortage

    Ben Carlson: Can the Stock Market Crash During an Economic Boom?

    Nick Maggiulli: If You Play With FIRE, Don’t Get Burned

    Be sure to follow me on Twitter.

  • Profile of Bill Miller
    Posted by on March 30th, 2021 at 3:26 pm

    This is nine years old, but it’s a great profile of Bill Miller, of Miller Industries (MLR).

    Here’s a sample:

    HE’S the factory worker’s son who rides a Harley Davidson, employs 2000 people, never wears a suit and has no known interest in football – or soccer as he would call it in his US drawl.

    Meet the Vietnam veteran and espionage expert destined to be new owner of crisis-hit Rangers – semi-retired trucking mogul William “Call Me Bill” Miller.

    A millionaire several times over, he’s one of the wealthiest men in the southern US state of Georgia.

    (…)

    Miller, 65, became a high flyer in industry and his career has brought some high profile disasters along the way. But his rise from factory floor to the boardroom has been spectacular.

    In the 1950s, he was a blue collar boy with the ambition of working as a line supervisor for Ford in Detroit.

    But his dad told him: “At my plant, the guys with college degrees walk around all day doing nothing and making lots of money.”

    That sealed the deal and Miller enrolled at the University of Michigan, where he earned a degree in engineering and later an MBA.

    After college, he worked for various big firms, typically getting involved in troubleshooting in failing departments.

    During national service, he served in Army intelligence where he was an expert codebreaker.

    He was just 12 miles from the Czech border in 1968 when Russian tanks rolled in to quell the Prague Spring uprising.

    Miller – who also studied at the military language school in Monterey, California – again worked for intelligence while in Vietnam.

    (…)

    In 1990, he bought three formerly great tow truck companies that were crippled with debt and combined them to form Miller Group.

    He then set up a series of savage cuts to bring back profitability.

    Miller told business magazine Forbes: “The big companies weren’t geared toward the shareholders. They were geared toward a bureaucracy.”

    In August 1994, a shares flotation brought in $30 million, of which Miller pocketed his original $5 million investment.

    Two years later, a North Carolina tow truck distributor told Forbes that Miller “came along and he healed the sick.”

    But Miller’s run of success was not to last forever. In 1997, he created RoadOne, a US towing company, and then acquired 34 towing service firms. RoadOne, however, crashed in 2005.

    Miller’s stock was devalued by more than $100 million before he managed to get the company’s fortunes back into line.

    Now he is America’s top manufacturer of tow trucks and wrecking machines – a massively lucrative market in the motor-obsessed US.

    Away from work, keep-fit enthusiast Miller is known as a family man who likes the outdoor life. He rides a Harley Davidson motorbike and still plays tennis and golf.

    One source in Chattanooga said: “Bill Miller isn’t quite Bill Gates but, in the world of tow trucks, he is a giant.

    “He is known to like the look of once great industries, with a tradition behind them, which have fallen on hard times. He reckons that such a challenge can bring a tidy profit if it’s done right.

  • The Long Run at Clorox
    Posted by on March 30th, 2021 at 2:34 pm

    I post these from time to time on Twitter and they seem to be pretty popular. Here’s the long-term chart of Clorox (CLX). The stock is up more than 44-fold in 30 years.

    It’s not a complicated business. From their website, Clorox describes themselves thusly:

    The Clorox Company (NYSE: CLX) is a leading multinational manufacturer and marketer of consumer and professional products with about 8,800 employees worldwide and fiscal year 2020 sales of $6.7 billion. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Fresh Step® cat litter; Glad® bags and wraps; Kingsford® charcoal; Hidden Valley® dressings and sauces; Brita® water-filtration products; Burt’s Bees® natural personal care products; and RenewLife®, Rainbow Light®, Natural Vitality Calm™, NeoCell® and Stop Aging Now® vitamins, minerals and supplements. The company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro™ and Clorox Healthcare® brand names. More than 80% of the company’s sales are generated from brands that hold the No. 1 or No. 2 market share positions in their categories.

    The stock hasn’t performed that well recently. CLX reached a high of $239.87 per share last August. CLX is currently at $194.64 per share.

  • FactSet Earned $2.72 per Share
    Posted by on March 30th, 2021 at 11:17 am

    FactSet (FDS) reported fiscal Q2 earnings this morning. This is for the quarter that ended on February 28.

    For Q2, FactSet earned $2.72 per share. That’s a 6.7% increase over last year’s Q2. That’s pretty good but it was two cents below Wall Street’s consensus. I’m hardly worried by a two-cent miss but the stock is down about 5% in today’s trading.

    Let’s look at some details. Quarterly revenue increased by 6% to $391.8 million. The key stat for FactSet is Annual Subscription Value (or ASV) plus professional services. For the quarter, that came in at $1.598 billion. I was pleased to see FactSet’s adjusted operating margin increase from 31.8% to 32.6%.

    The company added $206 million to its share buyback program which brings the total to $350 million.

    The most important news is that FactSet didn’t change its full-year earnings outlook. One positive change is that the company raised the low end of its ASV professional services forecast.

    “I am proud of how we executed this quarter, resulting in a solid first half of our fiscal 2021,” said Phil Snow, CEO, FactSet. “In our second quarter we saw a number of key wins validating our strategy for long term growth. Our focus on digital transformation, content expansion, and being an open platform continues to resonate with our clients as they navigate a rapidly evolving landscape.”

    At the end of the quarter, client count stood at 6,103. User count increased by 6,659 to 153,355. Annual ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention improved to 90%, year over year. Employee count was 10,660. That’s an increase of 7.8% over the last 12 months.

    CFO Helen Shan said, “We enter our fiscal second half with good momentum and remain focused on delivering significant value to our clients and shareholders.”

    During the quarter, FactSet bought back 221,959 shares for $71.5 million. That’s an average price of $322.11.

    FactSet didn’t alter its full-year guidance. The company expects earnings to range between $10.75 and $11.15 per share. (Their fiscal year ends on August 31.) I suspect that’s probably too low. For the first half of this year, FactSet has made $5.12 per share. The company also sees revenue coming in between $1.57 billion and $1.585 billion. FactSet expects operating margin between 32% and 33%. These are good numbers.