Bed Bath & Beyond Plunges
Posted by Eddy Elfenbein on June 27th, 2017 at 10:13 am

Last Friday, shares of Bed Bath & Beyond (BBBY) dropped 12%. They missed earnings by a mile and same-store-sales growth was terrible. This is difficult for me to see. I try not to let my feelings get in the way of investing, but it’s hard to see a company I liked for such a long time fail so badly.

Bed Bath & Beyond was on our Buy List every year until I decided to drop it from this year’s list. It certainly looks like I made the right call. In fact, I probably held on too long.

This is especially hard for me because BBBY used to exhibit all the signs of the stocks I like. It was an Eddy stock if there ever were one. They had strong cash flow, low debt, solid margins and a consistent operating history.

The stock was actually a big winner for us for a few years. Starting in 2012, BBBY began lagging the market. At first, I dismissed the slide as a short-term move. I gave BBBY the benefit of the doubt. Then I saw that the problems were severe and eventually let it go.

The lesson for investors, especially me, is that good stocks can turn into bad ones very quickly. Selling a position should be completely unemotional.

Morning News: June 27, 2017
Posted by Eddy Elfenbein on June 27th, 2017 at 7:12 am

China’s Premier, Li Keqiang, Praises Free Trade, in Contrast to Trump

Hollywood is Auditing China’s Box Office for the First Time

Indian Technology Workers Worry About a Job Threat: Technology

Google Fined $2.7 Billion in E.U. Antitrust Ruling

Draghi Says Stimulus Still Needed Even as Euro Area Reflates

No, Fed Didn’t Make a Mistake by Hiking Rates

The Top Five Tech Rivals Join Forces to Shape Policy—and Fight the Government

Buffett Wants a Big Deal. Lately, He’s Settled for Small Ones

With Crowding in U.S. Market, Activist Investors Look to Europe

California Is Listing a Key Ingredient in Monsanto’s Roundup Weed Killer as Cancer-Causing

Sprint Enters Into Exclusive Talks With Charter, Comcast On Wireless Deal

Effects of Takata Bankruptcy to Extend Far and Wide

World’s First ATM Machine Turns to Gold on 50th Birthday

Ben Carlson: Playing All The Hands You’re Dealt

Roger Nusbaum: Central Bank Hedge Funds?

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Checking In On The 2/10 Spread
Posted by Eddy Elfenbein on June 26th, 2017 at 12:43 pm

I like to take an occasional look at the spread between the two- and ten-year Treasuries. Over the last 35 years, negative 2/10 spreads have often preceded recessions. It’s not perfect, but the spread’s track record is better than a lot of economists’ track records.

Thanks to the Fed’s latest rate hike, the spread is down to about 80 points. It’s very close to a 10-year low.

We’re not in the danger zone just yet, but we’re getting closer. The futures market thinks the Fed will hold off doing anything for a few months. They currently see a 50-50 chance of another rate hike in December.

The Number of Stocks Has Dropped in Half
Posted by Eddy Elfenbein on June 26th, 2017 at 11:23 am

In the Wall Street Journal, Jason Zweig points out that the number of publicly traded stocks has dropped in half over the last 20 years. This, Zweig posits, may help explain why so many active managers have failed to beat the markets. The reasoning is that the stocks that went into making historically-attractive strategies are no longer around.

Small-caps work! But there are so few small-caps left.

Or, micro-caps work! But there are only a handful left.

As a result, active managers are plowing over the same fields. The effect has hit the small-cap arena especially hard. Twenty years ago, there were over 4,000 stocks that were too small for the Russell 2000. Today, there are less than 1,000.

I tend to be skeptical about claims that don’t make intuitive sense. For example, tobacco stocks have done very, very well historically. That’s great, but I don’t see it as a reason why that should continue. They’re for-profit companies just like so many others. But it does make sense for bonds to lag stocks over the long-term because they’re different kinds of instruments.

Whenever we hear that “value” or “momentum” has done well in the past, we have to remember that it’s likely that meant a very different group of stocks that we have to work with today.

Morning News: June 26, 2017
Posted by Eddy Elfenbein on June 26th, 2017 at 6:55 am

Only the World Can Stop Germany as Business Climate Hits Record

Italy Bank Deal Lifts Europe Shares, Dollar on Back Foot

Is Coal Making a Comeback?

Trump’s Anti-Nafta Stance Is on a Collision Course With Natural Gas

Texas Is Too Windy and Sunny for Old Energy Companies to Make Money

Corporate Tax Rate at 28% Seen as More Likely Than Historic Cut

Bankers Are Hiring Cyber-Security Experts to Help Get Deals Done

The Credit Card Rewards War Rages. Are You the Loser?

Takata’s Long Road Through Bankruptcy

Loeb’s Third Point Targets `Staid’ Nestle for Change

Shkreli Made Big-Money Brag to FBI and Now Faces His Reckoning

China Sentences 3 Australians to Prison for Promoting Gambling

Jeff Miller: Technical Danger Signals?

Michael Batnick: This Is Your Nightmare Scenario

Jeff Carter: The Human Crisis in Finance

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CWS Market Review – June 23, 2017
Posted by Eddy Elfenbein on June 23rd, 2017 at 7:08 am

“Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.” – Peter Lynch

The stock market easily survived the Federal Reserve’s recent rate hike. In fact, the S&P 500 touched a new all-time high as recently as Monday. However, aside from the new high, the chief characteristic of the market continues to be its very low volatility.

Simply put, the market ain’t doing a whole lot of moving around lately. This seems at odds with so many of the headlines we see coming from around the world. Here’s a remarkable stat: seven times in the last eleven trading sessions, the S&P 500 has closed up or down by less than 0.1%. That’s a very small move.

If the market were to average daily changes of 0.1%, that would mean the Volatility Index (VIX) should be less than 2. The takeaway is clear—we’re living in a volatile world with extremely chill financial markets.

Frankly, we’re in the midst of a lull period for the stock market. I don’t expect much action from the markets until the second-quarter earnings season begins in another few weeks. While there hasn’t been a great deal of action for the overall market, there have been some growing currents underneath the surface.

As the second quarter wraps up, Wall Street is experiencing a pronounced sector rotation. The tech sector is getting wobbly. Healthcare stocks are finally coming to life, and oil is dropping like a stone. Also, many retail stocks are in full retreat. I’ll tell you what it all means. I’ll also run down several of our Buy List stocks. Plus, I have several new Buy Below prices for you. But first, let’s take a closer look at where the economy and markets stand at the middle of the year.

The Stock Market’s Quiet Sector Rotation

The market continues to be quiet and upward. In the last 43 trading says, the VIX has closed over 11 just four times. The S&P 500 has already set 23 new highs this year, and we’re not even at the midway point yet. By historic standards, that’s a high pace.

But not all stocks are equally calm. Two weeks ago, the Tech Sector got dinged for a 2.5% loss. Actually, the selloff on June 9 wasn’t that big by historic standards, but it was gigantic by 2017 standards. Tech stocks are starting to settle down, but there could be another move down for them. Fortunately, Microsoft (MSFT), our large-cap tech position on the Buy List, is holding up well. I’m going to keep our Buy Below for Microsoft at $70 per share. This has been a very solid performer for us. I’m looking forward to another good earnings report next month.

The healthcare sector badly lagged the overall market from the middle of 2015 until the early part of this year. Since then, healthcare has become increasingly popular. In fact, the Healthcare Sector ETF (XLV) has now beaten the overall market for seven days in a row. A lot of this, naturally, surrounds the debate about healthcare reform. I won’t speculate on the political debate, but the U.S. Senate has moved forward with a bill of its own. The bill in its current form probably won’t go very far, but it could serve as the starting point for a negotiation. In any event, many healthcare stocks are acting much better.

On our Buy List, the healthcare rally has been good news for Express Scripts (ESRX). If you recall, the pharmacy-benefits manager dropped more than 10% after they said they’re losing their largest customer. The shares have gained back more than 8% since then. This week, I’m raising my Buy Below on Express Scripts to $69 per share.

I think it’s interesting that healthcare is improving while retail is falling. Perhaps rising premiums are taking a bite about out of shopping plans.

Perhaps one of the more surprising moves lately has been the downward spiral for oil. Many traders had assumed that OPEC had finally wrested control of oil from the bears. Not so. Since May 23, the price for spot West Texas crude has fallen from $51.47 per barrel to $42.74 per barrel. This week, oil touched a 10-month low. This is especially bad news for OPEC because it took a lot of arm-twisting to get all the members on board for the production cuts. Now prices are lower than when they started.

This has been especially difficult for energy stocks. The Energy Sector ETF (XLE) broke $76 per share late last year. This was part of the Trump Rally. This week, the XLE broke below $64 per share. Fortunately, we don’t have any major energy stocks on our Buy List. This wasn’t a prediction on the macro economy from me. Rather, I just didn’t see any energy stocks I liked at the moment.

Amazon’s (AMZN) surprising move to purchase Whole Foods (WFM) has shaken up many consumer and retail stocks. The market apparently thinks this is bad news for stocks like Hormel Foods (HRL) and JM Smucker (SJM). I don’t see why, but the market doesn’t always think these things though.

Shares of SJM have dropped for the last seven days in a row to reach a new 52-week low. The shares now yield 2.5%. This looks to be a good buying opportunity for SJM. I’m going to lower my Buy Below on Smucker to $131 per share.

The real loser in the retail sector of late has been Ross Stores (ROST). I still like Ross a lot, but the stock has been a dud lately. In the last three weeks, ROST has lost over 12%. The deep discounter has proven itself to be one of the few “Amazon resistant” retailers out there. Let’s also remember that Ross has recently raised its full-year guidance, plus they increased their dividend by more than 18%. I’m going to drop my Buy Below on Ross down to $59 per share this week. The next earnings report is due out in mid-August.

Since the beginning of June, the Consumer Discretionary Sector (XLY) and Consumer Staples (XLP) have both been laggards. I’m not sure if this trend will last. I noticed, for example, that this week, we got a very good existing-home sales report. For May, existing-home sales rose 1.1%. This was the third–highest report in the last 10 years. On a year-over-year basis, housing inventory has dropped for 24 straight months. That’s probably a decent sign for consumer spending. I should also note that initial jobless claims have now been below 300,000 for 120 straight weeks.

Buy List Updates

Shares of Alliance Data Systems (ADS) have drifted higher recently. The stock rallied after its earnings report in April, but lately gave most of it back. ADS has now climbed for the last six days in a row. This week, I’m raising my Buy Below to $264 per share.

Cerner (CERN) has been a big winner for us this year. It’s currently up 42% YTD. This week, I’m going to bump our Buy Below up to $68 per share.

CR Bard (BCR) isn’t slowing down since the acquisition was announced. The stock just touched another 52-week high this week (see below). The merger with Becton, Dickinson seems to be going well, and both stocks are drifting higher. I’m keeping my Buy Below on BCR at $330 per share.

This week, Stryker (SYK) announced that it’s buying Novadaq Technologies for $701 million. Novadaq is a Canadian fluorescence-imaging technology manufacturer. The deal is expected to dilute Stryker’s earnings by three to five cents per share, but it will have no impact of their full-year adjusted earnings. Stryker’s current guidance for this year is $6.35 to $6.45 per share. I’m raising Stryker’s Buy Below to $145 per share.

That’s all for now. Next week is the final week of trading for the first half of the year. It also marks the three-quarters mark for the decade. On Monday, we’ll report on orders for durable goods. Then on Tuesday is consumer confidence. On Thursday, the government will give its second revision for Q2 GDP. Last month, the government revised Q2 growth from 0.7% to 1.2%. That’s not very good. On Friday, we’ll get the personal-income and spending data for May. 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: June 23, 2017
Posted by Eddy Elfenbein on June 23rd, 2017 at 4:57 am

China Bulls, Don Your Hard Hats

The $100 Billion City Next to Singapore Has a Big China Problem

U.S. Suspends Beef Imports From Brazil

Big Banks Clear First Phase of Federal Reserve Stress Tests

`Nobody Is Perfect’: Some Uber Employees Balk at Travis Kalanick’s Exit

Tesla in Talks to Set Up Electric Car Factory in Shanghai

Why Nvidia and AMD Continue to Ride the Cryptocurrency Mining Wave

Grocery Aisles and E-Commerce Collide With Whole Foods-Amazon Deal

In Qatar Airways, American Airlines May Have an Unwanted Suitor

Toshiba Asks Regulators for Extension on Annual Statement Deadline to Aug. 10

Martin Shkreli, `Pharma Bro,’ Prepares for Trial: `I’m So Innocent’

Miami Man Faces $120 Million Fine For $96-Million Robocall Spree

Ben Carlson: Patience Exemplified

Jeff Miller: Are Traders Joining the Yield Chase?

Cullen Roche: Walk it Back, Random Walker

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DryShips Reverse Splits Again
Posted by Eddy Elfenbein on June 22nd, 2017 at 9:18 am

This morning, shares of DryShips (DRYS) are having another reverse stock split. This will be their 1-for-5 and it’s DRYS’s seventh reverse in the last 15 months.

The reverse splits add up to 1 to 1.68 million. At Seeking Alpha, a writer notes that the stock would have to rise by nearly 18 billion percent to reach its previous all-time high.

Adjusting for today’s split, the 2007 high is around $30 million.

Morning News: June 22, 2017
Posted by Eddy Elfenbein on June 22nd, 2017 at 7:08 am

US, EU Urge China to Limit Food Import Control

MSCI Forgets Its Doubts About China

Saudi Prince’s Elevation Will Have Far-Reaching Consequences in Energy

Inside Travis Kalanick’s Resignation as Uber’s C.E.O.

Kalanick’s Ouster Shows Founder Control Doesn’t Mean Job Security

Why Nike May Start Selling Directly on Amazon

Ebay’s New Price Match Guarantee Makes Sure Shoppers Get Lowest Prices On New Products

Oracle Surges 10%: Well On Our Way to Passing Salesforce, Says Ellison

Tesla Is Shaking Up Its Entire Autopilot Team At a Critical Time for the Program

Tesla Reaches Pact With Shanghai for China Production

Takata to File for Bankruptcy Monday, SMFG to Provide Bridge Loan

Airbus Concedes Defeat to Boeing in Paris Order Race

A Kansas Investment Firm Spurring Change on Wall Street

Roger Nusbaum: The Crash That Will Bring Down The Entire Galaxy

Joshua Brown: What Investors Need to Know About MSCI’s Historic China Decision

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Morning News: June 21, 2017
Posted by Eddy Elfenbein on June 21st, 2017 at 7:02 am

Liquor Titans to Coal Miners: the Chinese Stocks in MSCI’s Club

OPEC Should Heed Lessons From Achnacarry Agreement: Kemp

The Fed Rate Hike And Gold – Precious Metals Supply And Demand

I Know Why Mutual Funds Fail to Perform

Ford’s Big Bet: Americans, and Trump, Are Ready for Chinese Cars

ExxonMobil Lends Its Support to a Carbon Tax Proposal

Uber Founder Travis Kalanick Resigns as C.E.O.

Uber and Lyft Messed With Texas – And Won

Amazon Bites Off Even More Monopoly Power

Amazon Will Let Customers Try On Clothes Before Buying

Toshiba Picks Preferred Bidder for Microchip Business

Apple Tells Court Qualcomm Chip Licenses Are Invalid

Adobe Notches Beat Again With Sales Outlook on Cloud Demand

Cisco’s Next Big Bet Is Years in the Making

Jeff Miller: Fed Balance Sheet Unwind? No Reason to Worry!

Ben Carlson: Money Manager Cliches

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