Morning News: January 10, 2018
Posted by Eddy Elfenbein on January 10th, 2018 at 6:48 am

World Bank Raises Outlook as Growth Hits Fastest Pace Since 2011

Bond Yields Hit Multi-Month Highs on BOJ Tweak, Heavy Supply

Saudi Aramco Working to Raise Cheap Loans Before IPO

Kodak Surges After Announcing Plans to Launch Cryptocurrency Called ‘Kodakcoin’

No, JPMorgan Chase CEO Jamie Dimon Has Not Changed His Stance on Bitcoin

Ripple Countersues in $12 Billion Fight Over XRP Options

Bill Gross Calls a Bond Bear Market After Treasury Yield Surges

Democrats Vow to Force Vote on Net Neutrality

Toyota and Mazda Are Said to Pick Alabama for $1.6 Billion Plant

Tesla’s New York Gigafactory Kicks Off Solar Roof Production

How a Coal Baron’s Wish List Became the President’s To-Do List

Here’s Why Jeff Bezos Is Not Truly The Richest Person In History

Ben Carlson: How the U.S. Stock Market is Unique

Jeff Carter: Things That Make You Go Hmmmmmm

Josh Brown: Hard to Tell

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89 Years of Stocks, Bonds and Bills
Posted by Eddy Elfenbein on January 9th, 2018 at 11:38 am

From Aswath Damodaran’s website, here’s the latest update on how stocks, Treasury bonds and Treasury bills have performed over the last 89 years.

Annualized, stocks have gained 9.77%. Bonds are up 4.94% and Treasury bills are up 3.43%.

Morning News: January 9, 2018
Posted by Eddy Elfenbein on January 9th, 2018 at 7:03 am

How China’s Stifling Bitcoin and Cryptocurrencies: QuickTake Q&A

Ether Tops Ripple to Reclaim Second Spot in Crypto Rankings

India Proposes 70% Duty on China, Malaysia Solar Imports

Regulators Reject Perry’s Plan to Help Coal and Nuclear Plants

Alibaba’s Return Home Would Carry a Sting

Samsung Disappoints as iPhone Screens Prove No Match for Strong Won

GoPro’s Recovery Flops As Customers Shun High-Priced Cameras

Toyota Joins With Uber and Amazon to Find Its Self-Driving Future

Pfizer to Exit Neuro Research, May Create Finance Arm

Berkshire May Get $37 Billion Book Value Boost From U.S. Tax Cuts

Intel Faces Scrutiny as Questions Swirl Over Chip Security

Toymaker VTech Settles Charges of Violating Child Privacy Law

Cullen Roche: Waiting for The Market to Boom is a Terrible Strategy

Howard Lindzon: STFR – Sell The F’ing Rip

Ben Carlson: 10 Things Investors Can Expect in 2018

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Hingham Institution for Savings
Posted by Eddy Elfenbein on January 8th, 2018 at 2:47 pm

Here’s my latest entry in my list of great stocks that no one knows about. It’s surprising how many of them are out there.

This stock is the Hingham Institution for Savings (HIFS). Here’s the stock in red against the S&P 500 in blue.

Here’s how they describe themselves:

Hingham Institution for Savings is a Massachusetts-chartered savings bank located in Hingham, Massachusetts. Incorporated in 1834, it is one of America’s oldest banks. The Bank’s Main Office is located in Hingham and the Bank maintains offices on the South Shore, in Boston (South End and Beacon Hill), and on the island of Nantucket. The Bank is also an active commercial real estate lender in the Greater Washington D.C. metropolitan area.

I can’t say the company has raised its dividend every year. I believe they’ve skipped a couple. I think they’re currently on 10 straight years, but that understates HIFS’s return because the company often issues special dividends.

HIFS’s market cap is currently $420 million. There are about 2.1 million shares outstanding, and an average of 4,000 shares trade each day. That’s very low. It’s about one-third the rate of trading that you’ll see in shares of Citigroup.

Given the red line in the chart above, you’d think that HIFS is widely followed on Wall Street. Think again. It’s not followed by a single Wall Street analyst.

Morning News: January 8, 2018
Posted by Eddy Elfenbein on January 8th, 2018 at 7:02 am

Euro-Area Economic Confidence Soars to Nearly Two-Decade High

India Clings to Cash Even as Tech Firms Push Digital Money

Oil Rises as U.S. Drillers Cut Rigs for First Time in 3 Weeks

U.S. Bank Gains From Tax Law Start With Red Ink

Bitcoin’s Biggest Competitor: What You Need To Know About Ripple

Telegram Plans Multi-Billion Dollar ICO For Chat Cryptocurrency

Consumer Tech To Hit Record $351 Billion In 2018

How Many Hipsters Does It Take to Change a Lightbulb Industry?

Celgene to Buy Cancer-Drug Maker Impact for $1.1 Billion

Blockchain Saves the Day for Iced-Tea Company Facing Nasdaq Boot

Nvidia Expands Its Drive For Robocar Tech Supremacy With VW, Uber Alliances

Pfizer to Cut 300 Jobs as Alzheimer’s, Parkinson’s Research Ends

Josh Brown: The Fatal Mistake Crypto Investors Are Making Now

Jeff Carter: Taking A Break From Seed?

Cullen Roche: Let the Paramedics Sort Them Out & Why I Hate Leveraged ETFs

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Continental Building Products Jumps 8%
Posted by Eddy Elfenbein on January 5th, 2018 at 11:47 am

Shares of Continental Building Products (CBPX) are up around 8% today thanks to an upgrade from Barclays.

December NFP = +148K
Posted by Eddy Elfenbein on January 5th, 2018 at 11:33 am

The December jobs report showed an increase of 148,000 net new jobs. The unemployment rate stayed at 4.1%.

According to the WSJ, the consensus was for 180,000. The number for October was revised to 211,000, and for November, it’s now 252,000.

Average hourly earnings rose by nine cents to $26.63. For the year, wages rose by 2.5%.

CWS Market Review – January 5, 2018
Posted by Eddy Elfenbein on January 5th, 2018 at 7:08 am

“If markets were rational, I’d be waiting tables for a living.” – Warren Buffett

The stock market got the new year off on the right foot. The market rallied for three straight days. These were the best three days for the Dow since 2010.

On Thursday, the Dow closed above 25,000 for the first time ever. This fact was good enough to earn a celebratory tweet from the president.

Dow just crashes through 25,000. Congrats! Big cuts in unnecessary regulations continuing.

— Donald J. Trump (@realDonaldTrump) January 4, 2018

I hate to nitpick, but I’m not sure if “crashes through” is the best word choice, particularly for those of us who know market history. Either way, we’ll take our gains.

We also got a very good earnings report from RPM International (RPM) although the shares pulled back a little. I’m not worried. I’ll also cover some recent economic news. But first, I want to discuss some of my thinking on the new Buy List.

Dissecting the New Buy List

I don’t normally consider myself a value investor. Naturally, I look for the cheapest stocks I can, but I realize that it can be worthwhile to “pay for growth.”

With this year’s Buy List, however, I found myself unusually concerned with valuation. Simply put, there aren’t that many good buys out there. That’s to be expected after a nine-year rally.

I look at many, many stocks, but so many seem to be richly valued. I can’t remember the last time it was this difficult to find new buys. There are lots of good stocks, but not many good prices.

With our sells, I parted ways with a few stocks like Microsoft and HEICO because I thought the prices were too high. I really like HEICO, but the current price is 44 times the earnings of the fiscal year that just ended. I can’t justify that. Don’t take this to mean, though, that I think the market is due for a plunge. It’s the realities of stock-picking in a bull market.

Church & Dwight (CHD) is a good case study. I like this business a lot, but the stock is almost always too expensive. But for nearly two years, consumer-staple stocks have badly lagged the market. See below how badly CHD has lagged the market. On our Buy List, we saw top-notch staples like Hormel Foods (HRL) and Smucker (SJM) lag during 2017. Staples are classic defensive stocks. That means they go down when the economy looks brighter, but they lead the way when the economy crashes against the rocks. During recessions, people stop buying cars and houses, but they keep on buying Church & Dwight’s products.

CHD is now going for 23.5 times next year’s estimate. That’s hardly a bargain, but it’s not bad considering where CHD has been before. The same thing goes for Check Point Software (CHKP). The cyber-security stock is going for 18.5 times next year’s earnings.

Peter Lynch said he loves to find stocks that do something boring or depressing. Well, Carriage Services (CSV) certainly qualifies. Our hot funeral-home stock said they expect to see earnings between $1.73 and $1.77 over the coming 12 months (that’s Q4 2017 through Q3 2018).

That means the shares are going for about 15 times forward earnings which is quite good for this market. Plus, I think it’s reasonable to expect Carriage to exceed its estimate. I know, though, that some of you are concerned this investment might just be dead money. (I’m really sorry.)

Torchmark (TMK), the insurance company, is currently selling for just under 17 times forward earnings. That’s not bad either. FactSet Research (FDS) is one of our pricier stocks even though it took a minor hit after the last earnings report. FDS is currently going for 21 times forward earnings. In their case, I think a modest premium is warranted.

Mind you, with all these stocks, I’m comfortable owning them for several years. Our Buy List holds 25 stocks. Since we turn over five each year, that gives us an average holding period of five years. I often noticed that some of our best investments don’t turn into really big winners until they’ve had two or three years on the Buy List.

RPM International Earns 70 Cents per Share

On Thursday, RPM International (RPM) reported fiscal Q2 earnings of 70 cents per share which beat the Street by eleven cents. However, that includes a tax benefit of nine cents per share. Quarterly sales rose 10.5%. Organic sales rose by 4.3%, and acquisition sales were up 4.7%. Forex added another 1.6% to sales growth.

RPM is one of our quieter stocks, and that is just fine by me. Comparing this year’s fiscal Q2 to last year’s, RPM’s EBIT rose by 15.4%. (If that sounds too technical, just trust me, business is going well.)

RPM has three business segments. Last quarter, their industrial unit had sales growth of 11%, the consumer unit was up 11.1% and the specialty segment was up 7.4%.

RPM said that the new corporate tax rate will add ten cents per share to their bottom line. For the entire fiscal year, RPM now expects earnings of $3 to $3.10 per share. They’ve already made $1.56 per share for the first half of fiscal 2018.

Shares of RPM shot out of the gate on Thursday (see above). At one point, RPM was up 6% on the day to a new 52-week high. Later, sellers came back, and the shares closed down 2%. I’m not worried. I like these results. Remember, this company has increased its dividend every year since 1973. RPM remains a buy up to $55 per share.

Recent Economic News

Later today, we’ll get the jobs report for December. I think it will be another good one. The consensus is for 190,00 net new jobs. The current trend has been in place a few years, and I don’t see that changing. I would like to see some improvement with average hourly earnings. That’s what you would expect for an economy at full employment.

Earlier this week, the ISM Manufacturing report for December was reported to be 59.7. That’s a good report. Any number above 50 means the factory sector of the economy is growing. The ISM was up from 58.2 in November.

This week, we also learned that construction spending rose 0.8% in November. In the past year, construction spending was up 2.4%. At the end of this month, we’ll get the first report on Q4 GDP, and I think it could be a very good one. There’s even a chance we could hit 4% growth. We haven’t put together three good quarters of GDP growth in a row in many years. That could change soon.

Before I go, I want to make sure everyone is clear on what happened with CR Bard. The company was bought out by Becton, Dickinson (BDX) for cash and stock. As far as our Buy List is concerned, CR Bard vanished at the end of 2017 and was replaced by BDX at the start of 2018.

The companies said that the merger would take place in 2017. I didn’t realize they meant the very last day.

I also want to update a few Buy Below prices. I want to raise Alliance Data Systems (ADS) to $282 per share. This could be a big winner for us this year. I’m also lifting Smucker (SJM) to $130 per share. Lastly, I’m raising Wabtec (WAB) to $88 per share.

That’s all for now. Earnings season is set to begin soon. Most of our Buy List stocks will report earnings between mid-January and early February. I’m expecting more good results from our stocks. Also next week, I’ll be looking out for the latest CPI report which comes out on Friday. Outside a few particular areas, we haven’t seen much inflation yet. Also on Friday, we’ll get the latest retail-sales 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

P.S. I need to address two corrections to our last issue. I said that the total return for our Buy List last year was 22.79%, and for the S&P 500 it was 22.83%. It should have been 21.79% and 21.83%. I also said that Torchmark was based in Alabama. The company is based in Texas.

Morning News: January 5, 2018
Posted by Eddy Elfenbein on January 5th, 2018 at 7:03 am

Euro-Area Inflation Slowdown Undermines Hawkish Calls to End QE

What to Watch For in the December Jobs Report

After Dow 25,000 the Party Has to End. But When?

Rise of Bitcoin Competitor Ripple Creates Wealth to Rival Zuckerberg

Ripple Slides After Coinbase Says Not Adding New Crypto Coins

Apple Says All Macs, iPhones and iPads Exposed to Chip Security Flaws

Mark Zuckerberg’s Goal for 2018: ‘Fixing’ Facebook

J.C. Penney CEO Warns Sears: We’re Coming for Your Appliance Business

Macy’s Had a Merry Christmas but Wall Street Cries Humbug

Philip Morris Wants to Quit Its Tobacco Habit

Uber Co-Founder Travis Kalanick Plans to Sell 29% of Stake

Tesla’s New Trip Planner Gives You Free Insight to the Model 3 Experience

Michael Batnick: My Favorite Charts

Ben Carlson: When Things Don’t Make Any Sense

Mark Hines: How Soon Will Tax Cuts Be Forgotten?

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RPM Earns 70 Cents Per Share
Posted by Eddy Elfenbein on January 4th, 2018 at 11:16 am

Good news this morning for RPM International (RPM). The company reported fiscal Q2 earnings of 70 cents per share which beat the Street by eleven cents. However, that includes a tax benefit of nine cents per share. Quarterly sales rose 10.5%. Organic sales rose by 4.3% and acquisition sales were up 4.7%. Forex added another 1.6% to sales growth

RPM International today reported record sales, net income and diluted earnings per share for its fiscal 2018 second quarter ended November 30, 2017. Sales increased 10.5% and net income of $95.5 million, or $0.70 per diluted share, compared to a year-ago net loss of $70.9 million, or loss of $0.54 per diluted share. The fiscal 2017 second-quarter results included a $188.3 million pre-tax ($129.2 million or $0.97 per diluted share, after-tax) impairment charge. The fiscal 2017 second-quarter results also included a charge of $12.3 million, or $0.09 per share, which had no tax impact, related to the decision to exit an industrial segment business in the Middle East.

Second-Quarter Results

Net sales of $1.32 billion were up 10.5% over the $1.19 billion reported a year ago. Organic sales improved 4.2% and acquisition growth added 4.7%. Foreign currency translation increased sales by 1.6%. Net income of $95.5 million compares to last year’s adjusted net income of $70.5 million. Earnings per diluted share of $0.70 in the current quarter, which included a $0.09 per diluted share tax benefit relative to last year’s tax rate, compare to an adjusted $0.52 per diluted share last year. Earnings per diluted share increased 34.6% from last year’s adjusted earnings per diluted share of $0.52, and increased 17.3% excluding the $0.09 per diluted share tax benefit. Income before income taxes (IBT) of $109.2 million compares to a loss before income taxes of $106.9 million reported in the fiscal 2017 second quarter. RPM’s consolidated earnings before interest and taxes (EBIT) of $131.8 million compare to a consolidated loss before interest and taxes of $86.4 million reported in the fiscal 2017 second quarter. Excluding the year-ago charges, RPM’s consolidated EBIT for the fiscal 2018 second quarter improved 15.4% over $114.2 million in the fiscal 2017 second quarter. The EBIT improvement of 15.4% included the cost savings benefit in “Corporate/Other” expenses of $11.1 million from lower pension, healthcare, acquisition-related expenses and professional fees.

“We were very pleased with RPM’s results during the fiscal second quarter. Our strategically balanced business model performed as intended with strength in our industrial and specialty businesses offsetting weakness in our consumer segment. Sales growth was strong across all three of our business segments, with a balance of organic and acquisition growth. We are also seeing the benefits of last year’s product line acquisitions and cost reduction efforts on improved leverage, which more than offset higher raw material costs that have negatively impacted gross profit margins,” stated Frank C. Sullivan, chairman and chief executive officer.