AFLAC Splits 2-for-1
Posted by Eddy Elfenbein on March 19th, 2018 at 9:56 am

Shares of AFLAC (AFL) split this morning 2-for-1. This means you now have twice as many shares and the share price has fallen in half. Our Buy Below splits as well, so now AFLAC is a buy up to $47 per share.

We’re also adjusting AFLAC’s starting price this year. The year-end closing price was $87.78 per share. Now it’s $43.89 per share. Also, the number of shares in our $1 million tracking portfolio will double from 455.6847 to 911.3694.

Morning News: March 19, 2018
Posted by Eddy Elfenbein on March 19th, 2018 at 7:11 am

Can China’s New Central Banker Restart Reforms?

Xi Taps Harvard-Educated Adviser to Tighten Grip on China’s Economy

Powell Jumps in Driver’s Seat as Fed Weighs Speed of Rate Hikes

Hedge Funds Suffer Worst Month in Two Years

Alibaba Bets Another $2 Billion on Southeast Asia

AT&T’s ‘South Park’ Argument

Google to Convert Product Searches Into Cash

Push to Settle McDonald’s Case, a Threat to Franchise Model

FedEx Follows Amazon Into the Robotic Future

Micro Focus Shares Collapse After Sales Warning and CEO Exit

Claire’s Becomes Latest Retailer to Go Bankrupt

StanChart Fined in Singapore for Money Laundering Breaches

Jeff Miller: A New Direction for the Fed?

Lawrence Hamtil: Oil’s Evolving Role in the Dow Transports

Joshua Brown: Nine Rules for Managing a Creative Culture

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RPM Downgraded
Posted by Eddy Elfenbein on March 16th, 2018 at 3:43 pm

This morning, JPMorgan downgraded RPM International (RPM) from Neutral to Underweight. The shares gapped down at the open but have rebounded some.

CWS Market Review – March 16, 2018
Posted by Eddy Elfenbein on March 16th, 2018 at 7:08 am

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.” – Benjamin Graham

In recent issues, I’ve struck a cautious note to investors. After the brief correction of a few weeks ago, the market rebounded very quickly. Perhaps too quickly.

I still think there’s danger out there. The S&P 500 has now fallen for four days in a row. That’s hardly a disaster, but I’m noticing a few troubling trends just below the surface. I’ll explain more in a bit.

The economic news continues to be mostly positive. We got a very good jobs report last Friday. This week’s inflation report was quite tame, which is reassuring after the surprise from last month.

The big issue ahead is next week’s Fed meeting. The consensus is that the Fed will raise interest rates again. This would be the sixth rate hike of this cycle. But what comes next? That’s not so clear. I’ll lay out what it means for us, but first, let’s look at some of the cracks showing up in the bull market’s foundation.

Tech Has Dominated This Market and It Can’t Last

I have to be up front. This is going to be a rather slim issue because, well…there’s not much going on in the market right now. But that will change very soon.

What has me concerned recently is the divergence between growth stocks and value stocks. The expected relationship is that growth leads value during a bull market, and value grabs the upper hand during a bear market. This time, growth has been giving value a super-atomic wedgie almost nonstop since the middle of 2007.

Value shone briefly in late 2016, after the election. But since the beginning of 2017, growth has been tearing up value. We can see this effect in a few other areas. For example, while the S&P 500 is still well below its all-time high from January, the NASDAQ Composite recently powered its way to a seven-day winning streak and it struck a few new all-time highs.

When we look at classic safe-haven sectors like Utilities, REITs and Consumer Staples, they’ve been left behind. On our Buy List, we can see this in the performance of stocks like Hormel Foods (HRL) and Ingredion (INGR). Meanwhile, the Tech Sector ETF (XLK) seems like it never goes down. Don’t be lured in (note today’s epigraph). Tech has done much of the heavy lifting for this market. The chart below shows the tech sector in red and the consumer staples in blue. Excluding a few high-profile stocks, the overall rally hasn’t been as impressive as it appears.

This trend can’t last. I don’t know when it will end, but we’re closer to the end than to the beginning. I’m not predicting a crash or market blowup, but I do think we may soon see a change in market leadership.

What to do now? Investors should continue to focus on high-quality stocks. On our Buy List, I especially like some of the names that have lagged recently. Ross Stores (ROST) looks quite good especially after its earnings report and dividend hike. JM Smucker (SJM) is going for less than 14 times next year’s earnings. That’s a good deal. Another Buy List stock that’s looking good here is Alliance Data Systems (ADS). In January, ADS creamed earnings, raised guidance and hiked its dividend.

About technology, I was also struck by two key news stories this week. The first is that the government blocked Broadcom’s attempt to buy Qualcomm. Let’s skip over the debate over whether it made business sense or if it’s the right government policy. The fact is that they did it, and this is a big change. Twenty years ago, this kind of merger would have barely raised an eyebrow. Those days are gone.

The other news was that President Trump is planning to impose tariffs on up to $60 billion worth of Chinese imports. I’m not sure how firm the administration is on these plans. I know some people think this is the president’s “opening bid” in an effort to gain concessions later on.

I highlight these stories because I think they quietly signal the end of the post-war consensus on economic issues. For over 25 years, the global economy has moved toward free trade and relaxed regulations. Sure, there have been bumps and bruises along the way, but the free-market orthodoxy has held the higher ground. These two events of this week show that the old conventional wisdom no longer holds.

Preview of Next Week’s Fed Meeting

The Federal Reserve meets again next week. This will be the first meeting with Jay Powell as chairman. The central bank is expected to raise interest rates again. However, what comes next is the big question.

Powell will hold a post-meeting press conference, and the Fed will release updated economic projections. This is what I’m most interested in. In previous projections, the Fed has said it will raise interest rates three times this year. Wall Street seems to buy that. However, there’s a growing belief that they may raise rates a fourth time before the end of the year. That’s quite extraordinary.

Personally, I think the chances of four hikes are remote, but the futures markets currently put the odds at 33%. Seven months ago, the odds were at 0.05%. There are a few factors driving this thesis. The first is that inflation might heat up. There was some concern that the inflation report for January might come in hot. Fortunately, this week’s CPI report showed that inflation was much more subdued in February. I still don’t think inflation is an issue.

There’s also a chance that the economy could be revising up, and that may require elevated rates. It’s possible, but I don’t see the hard evidence just yet. I should note that last Friday’s jobs report (+313,000) was quite good.

There’s also a concern that the budget deficits are unusually high for this point in the cycle. That’s certainly true, but foreign investors seem quite happy to finance our spending. I had a little concern this week when investors weren’t particularly enthusiastic about the recent Treasury auctions. In the bond market, they like to watch the “bid to cover ratio.” That’s simply how much interest there is in the Treasury auction. This week’s auction had some of the weakest ratios in years.

I think of this as an early test of the Trump administration’s fiscal policy. If China, Japan and other countries still gobble up our bonds, then it’s no problem. If not, that’s going to mean higher interest rates. In turn, that means tougher competition for the stock market. It’s not a major issue now, but there’s a chance it could become one down the road.

There hasn’t been much in the way of Buy List news recently. Our next Buy List earnings report will come from FactSet Research Systems (FDS) on March 27. The one after that is RPM International (RPM) on April 5.

We also have two stock splits coming up. AFLAC (AFL) will split 2-for-1 on March 16, and Fiserv (FISV) splits 2-for-1 on March 19. So don’t be alarmed when you see the lower share prices. Our Buy Below prices will split as well.

I should also mention that on Tuesday, AFLAC made a new all-time high. If you recall, the shares plunged 7.4% on January 12 after a negative article appeared. As usual, the long term works to the advantage of superior companies.

That’s all for now. The big news next week will be the Federal Reserve meeting. This will be a two-day affair (Tuesday and Wednesday). Also on Wednesday, we’ll get the latest report on existing-home sales. Then on Friday, the government reports on durable goods. 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

Syndication Partners

I’ve teamed up with Investors Alley to feature some of their content. I think they have really good stuff. Check it out!

Sell These 3 Stocks as Amazon Takes Over Banking

Executives across the world are asking themselves the same question: is there no end to the ambitions of Jeff Bezos and Amazon.com (Nasdaq: AMZN)?

A good question since it looks like the company nicknamed the “Death Star” (after the moon-sized, planet-killing weapon from Star Wars) is set to take aim at another industry. Just recently, Amazon seemed to be setting its sights on the freight delivery industry then on the healthcare industry and now its seems to be getting ready to target the financial industry. Although as with healthcare, Amazon is in talks with possible established partners in the sector.

Now Amazon has its sights set on the banking industry. Find out what three financial stocks you need to sell right now to avoid the wrath of the Death Star!

3 REITs Increasing Dividends in April

With a pending interest rate increase from the Fed, I have been receiving questions on whether REIT values will be hurt by rising interest rates. It is a widely held – but inaccurate – belief that REIT values must fall if interest rates continue to increase. The fact that many REITs increase their dividends over time tells us that these are businesses with the potential for growing dividends and share values even in a rising rate environment.

Recently, I read an article that looked at the history of REIT values and interest rates. Since 1995, there has been 15 periods of significantly rising interest rates. Out of those 15, REIT values increased 12, or 75% of the time. In the period from June 2004 through August 2006 the Fed increased rates 16 times. During that period REITs outperformed the S&P 500, 59% to 22%.

The fact is that REIT results are driven more by economic conditions, rising commercial real estate values, and the ability of REITs to increase the rental rates on their properties. We can monitor how well a REIT is performing from its history of dividend growth. Most REITs announce any dividend increases once a year, in the same month each year.

Across the sector there are increase announcements in almost every month in the calendar. You can often get a nice share price gain by buying shares before a dividend increase announcement hits the news wires. I maintain a database that covers about 140 REITs. I use the database to track dividend rates, yields and increases. Of the 140, about 90 have histories of regular dividend increases. Here are three REITs that should announce a dividend increase in April.

Morning News: March 16, 2018
Posted by Eddy Elfenbein on March 16th, 2018 at 7:04 am

China Is Stepping Up Its Efforts To Draw Tech Giants Like Alibaba And Baidu Back Home

On Bleak Day, Pipeline Operators Say Tax Policy Is No Big Deal

Fiduciary Rule Dealt Blow by Circuit Court Ruling

Former Qualcomm Chairman Explores Long-Shot Bid for U.S. Chip Maker

Behind the Breakneck Unraveling of Toys ‘R’ Us

Theranos and the Problem With Booming Biotech Funding

Bear Stearns Lives On Inside JPMorgan

Walmart Whistle-Blower Claims Cheating in Race With Amazon

Nike Investigates Workplace Complaints, Says No. 2 Executive Resigns

Here’s What Elizabeth Warren Thinks About Wells Fargo CEO Tim Sloan’s Pay Raise

Siberian Gold Rush Ensues After $368 Billion in Bars Tumble From Plane

Hong Kong Billionaire Li Ka-shing to Retire as Chairman of His Empire in May

Jeff Carter: City Mouse, Country Mouse

Ben Carlson: Some Perspective on Investing Advice

Mark Hines: Are You Trading The Energy Sell-Off?

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Morning News: March 15, 2018
Posted by Eddy Elfenbein on March 15th, 2018 at 7:12 am

Senate Passes Rollback of Banking Rules Enacted After Financial Crisis

Toys R Us to Close All 800 of Its U.S. Stores

U.S. Fires a Warning Shot at Silicon Valley With Theranos Case

Balancing Act: Chip Giant Qualcomm Caught Between Washington and Beijing

Going Dutch: Unilever Picks Rotterdam Over London for Headquarters

Lyft Partners With Magna To Turbocharge Race For Robot Car Mobility Service

Disney Overhaul Sets Stage for Succession Race

iHeartMedia Files for Bankruptcy, Reaches Restructuring Agreement in Principle

Walmart Patents Hint at Future Where Its Drones Tend the Farms

Trump Picks CNBC’s Larry Kudlow as Top Economic Advisor

Equifax CIO Put ‘2 and 2 Together’ Then Sold Stock, SEC Says

Time for Pharma to Play Defense With Deals

Lawrence Hamtil: Capex Darlings and the Myth of Long-Termism

Cullen Roche: Three Things I Think I Think V. 1,204

Howard Lindzon: Technicals and Chart Art

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Cognizant’s $300M Accelerated Repurchase
Posted by Eddy Elfenbein on March 14th, 2018 at 10:08 am

This morning, Cognizant Technology (CTSH) said it’s buying back $300 million worth of shares in an accelerated share repurchase plan. This is part of their plan to return $3.4 billion to shareholders.

Under the terms of the ASR agreement, approximately 3.04 million of the shares to be repurchased will be received by Cognizant on March 14, 2018. The final number of shares to be repurchased will be based on the volume-weighted average stock price of Cognizant’s Class A common stock less a discount and subject to potential adjustments pursuant to the terms of the ASR agreement. Final settlement of the transaction under the ASR agreement is anticipated to occur during the second quarter of 2018. Cognizant will fund the ASR program on March 14, 2018 from cash on hand and its existing credit facility.

Morning News: March 14, 2018
Posted by Eddy Elfenbein on March 14th, 2018 at 7:04 am

Draghi Promises to Avoid Surprises as ECB Tiptoes to QE End

As Merkel Begins New Term, Compromises Could Undo Economic Boom

EU’s Trade Chief Questions Rationale of Trump Steel Measures

Oil Halts Decline as Tillerson’s Departure Boosts Iran Risks

Broadcom Ends Bid for Qualcomm

Qualcomm Outspent Broadcom About 100 to 1 in Lobbying

How Amazon Became Corporate America’s Nightmare

Google to Ban Ads for Cryptocurrencies

Walmart to Offer Home Delivery of Groceries in 100 Cities

Dick’s Is Tumbling, and Its Woes Have Nothing to Do With Guns

China Sells Stake in Blackstone as Deal Turns Sour

Adidas Sales Growth Picks Up on China Strength, Retro Trend

Ycharts Adds Crypto For Free

Michael Batnick: The Flash Correction & Animal Spirits: Goodnight Moon

Ben Carlson: Does Economic Volatility Affect Stock Market Volatility?

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February CPI +0.2%
Posted by Eddy Elfenbein on March 13th, 2018 at 11:40 am

This morning, the government reported that the CPI rose by 0.2% last month. Splitting out the decimals, it was up 0.15005%. Thank you for rounding.

The core rate last month was +0.18176%.

In the last year, headline CPI was up 2.26012%. The core rate was up 1.85712%.

Here’s the real Fed funds rate based off core inflation. We’re getting close to 0%.

Morning News: March 13, 2018
Posted by Eddy Elfenbein on March 13th, 2018 at 7:05 am

Trade Conflicts Threaten Global Growth, Says OECD

Central Banks Are Looking for New Ways to Meet Inflation Targets

China Merges Bank, Insurance Regulators to Tackle Risk

Saudi Aramco International Listing Looks Increasingly Difficult

Trade Wars Can Be a Game of Chicken. Sometimes, Literally.

Havens Just Aren’t Safe Anymore, Goldman Says

How China’s Huawei Killed $117 Billion Broadcom Deal

Dropbox I.P.O. Could Value Company at More Than $7 Billion

Say Hello to Cora, the New Flying Taxi From a Secretive Startup Funded by Google’s Larry Page

VW Secures $25 Billion Battery Supplies in Electric-Car Surge

Why Did Shares of Tesla Move 5% Higher Today?

New Boeing Jet to Accelerate Services Shake-Up

Roger Nusbaum: The Bull Market Turns Nine!

Michael Batnick: The Race to A Trillion

Jeff Carter: 18 Best Practices for Angel Groups

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