There’s Never Just One Stock Market
Posted by Eddy Elfenbein on April 20th, 2017 at 12:18 pm

Check out Josh Brown’s post from earlier today on the stealth bear market that hit Wall Street in 2015-16. He quotes Andrew Adams as saying that if you had invested in the 10 largest stocks in 2015, you would have been up 20% on the year, yet the other 490 stocks were down 3%.

The point is that we often talk about the S&P 500 as if it’s one giant stock. In reality, there are many currents and cross-currents running just below the surface. The index only tells us an average, and it’s a size-weighted average at that.

One good way to divide the market is by looking at high beta stocks compared with low vol stocks. Look at this chart from the last 20 months:

I’ll tell you that Low Vol is the blue line, which seems obvious since it’s so much less volatile. The red line is High Beta. Back to Josh’s point, we already had a nasty bear market. Sure, not everybody experienced it, but for those who did, it was rather unpleasant.

The Trump Rally was all about the red line, but the blue line started to perk up in February.

Four Buy List Earnings Reports this Morning
Posted by Eddy Elfenbein on April 20th, 2017 at 9:24 am

This was a busy morning for Buy List earnings reports. We had four before the opening bell. Let me go through each one.

Let’s start with Alliance Data Systems (ADS). The company reported “core” EPS of $3.91 per share which beat estimates by five cents per share. Quarterly revenue rose 12.1% to 1.88 billion. That topped estimates by $70 million.

This was a good quarter for ADS. They’re standing by their full-year EPS guidance of $18.50. The CEO said he expects significant acceleration in the back half of the year.

Moving on to Danaher (DHR). The company reported Q1 earnings of 85 cents per share. That beat estimates by a penny. Previously, the company said they expected Q1 earnings to range between 82 and 85 cents per share.

Danaher said they expect Q2 earnings between 95 and 98 cents per share. Wall Street had been expecting 99 cents. The company also reiterated their full-year guidance of $3.85 to $3.95 per share.

Sherwin-Williams (SHW) had a very strong quarter. The company earned $2.53 per share, but that included 34 cents from lower income, and an eight-cent charge for acquisition costs. That works out to $2.27 per share. The company had told us to expect a range between $2.03 and $2.12 per share, while Wall Street had been expecting $2.05 per share.

For Q2, Sherwin expects earnings to range between $4.40 and $4.60 per share (not including 25 cents per share in acquisition costs). Wall Street had been expecting $4.43 per share. For the whole year, the company now expects $14.05 to $14.25 per share (40 cents for acquisition costs). Wall Street had been expecting $13.71 per share. Sherwin’s previous range was $13.60 to $13.80 per share.

Last is Snap-on (SNA), which had a visit from President Trump earlier this week. The company earned $2.39 per share for Q1. That’s three cents better than estimates. Snap-on had quarterly revenues of $887.1 million which beat estimates of $876.9 million.

Morning News: April 20, 2017
Posted by Eddy Elfenbein on April 20th, 2017 at 6:55 am

Reconciling the IMF’s 3 Growth Messages

Japanese Exports Surge to End First Quarter on Strong Note

Brent Oil Rebounds as Saudis Signal Potential OPEC Cut Extension

General Motors Says Venezuela Illegally Seizes Auto Plant

Exxon Seeks U.S. Waiver to Resume Russia Oil Venture

ConocoPhillips Takes Slow, Steady Route in Race For Oil Profits

Bill O’Reilly Is Forced Out at Fox News

Morgan Stanley Bond Traders Top Goldman for First Time Since 2011

Wells Fargo’s Regulator Admits It Missed Red Flags

Why The Best Is Yet To Come For Netflix

Qualcomm’s Chip Expansion Helps Deflect Lawsuit Concerns

Why IBM Stock Is Likely to Keep Singing the Blues

Theranos Investors Say They Were Pressured to Abandon Lawsuit

Jeff Carter: Change Is Not Easy

Josh Brown: ESG Links: Allocating With Purpose

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New High Today for CR Bard
Posted by Eddy Elfenbein on April 19th, 2017 at 11:01 am

We added CR Bard (BCR) to the Buy List in 2012 at $85.50. Today, BCR made a new high of $252.38.

HEICO Splits 5-for-4
Posted by Eddy Elfenbein on April 19th, 2017 at 9:11 am

This morning, shares of HEICO (HEI) split 5-for-4. This means that shareholders now have 25% more shares, and the price will drop about 20%.

HEICO closed Tuesday at $85.36 per share, so it will open around $68.29 today, give or take, depending on the market. Note also that our Buy Below price has dropped from $90 to $72 per share.

For track record purposes, I assume the Buy List starts the year as a $1 million portfolio that’s equally divided among the 25 stocks. For HEICO, that meant a position of 518.4705 shares at a starting price of $77.15 per share. With the split, that becomes 648.0881 shares starting at $61.72 per share.

Signature Bank Earns $2.48 per Share
Posted by Eddy Elfenbein on April 19th, 2017 at 7:43 am

Signature Bank (SBNY) reported very strong Q1 earnings this morning of $2.15 per share. That’s five cents more than estimates, and it compares with $1.97 per share for last year’s Q1.

Net interest income rose 8.4%. Total assets increased 15.4% to $40.27 billion. In the last year, total deposits are up 17.2%. Net interest margin was 3.14%.

“We are pleased to begin 2017 by reporting another quarter of record earnings, driven by strong deposit and loan growth. Our results directly reflect the core values on which this institution was built nearly 16 years ago, to which we have remained steadfast since first opening our doors. The structure upon which Signature Bank was founded is straightforward. We continually execute on our sound and secure business plan that emphasizes a single-point-of-contact approach to relationship banking. All the necessary fundamentals have been put in place to allow us to face challenges that may arise, and we are confident in our abilities to successfully address them,” said Joseph J. DePaolo, Co-founder, President and Chief Executive Officer.

Morning News: April 19, 2017
Posted by Eddy Elfenbein on April 19th, 2017 at 7:05 am

I.M.F. Raises 2017 Outlook for Global Economic Growth

Markets Start to Ponder the $13 Trillion Gorilla in the Room

Canada: Trump Is Wrong When He Says Dairy Practices Unfair

U.S. House Panel to Begin Hearings on Tax Reform Next Week

Steve Ballmer Serves Up a Fascinating Data Trove

Why Facebook Keeps Beating Every Rival: It’s The Network, Of Course

Yahoo’s First-Quarter Revenue Jumps 22%

IBM Posts First Revenue Miss in Five Quarters, Shares Tumble

Asset Manager BlackRock’s Quarterly Profit Rises 31%

United Picks a Funny Time to Attract More Passengers

Malaysia Airlines First to Track Fleet With Satellites

Disney’s Intergalactic Theme Park Quest to Beat Harry Potter

Burberry Sales Miss Estimates as New CEO’s Task Gets Tougher

Roger Nusbaum: “Head-Snapping” Reversals

Cullen Roche: The Evidence Based Investing Conference

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March Industrial Production +0.5%
Posted by Eddy Elfenbein on April 18th, 2017 at 10:33 am

We got some good news on industrial production this morning. For March, IP rose by 0.5%. Industrial production bottomed out a year ago. Prior to that, it had been in an unpleasant downtrend.

Looking below the surface, however, shows that factory output was down in March. Utilities saw a jump of 8.6%.

The Doolittle Raid 75 Years On
Posted by Eddy Elfenbein on April 18th, 2017 at 10:15 am

Seventy-five years ago today marked the daring Doolittle Raid over Tokyo. (This is also the 242nd anniversary of Paul Revere’s ride; “On the 18th of April in ‘75, hardly a man is now alive, who remembers that famous day and year.”)

The stock market was in rough shape at the time of the raid. Since Pearl Harbor, stocks had been drifting lower, but the ultimate low came on April 28, 1942 when the Dow hit 92.92.

Within two years, the Dow was up 50%, and it doubled by 1945. By 1955, the Dow was up fivefold, and it doubled again ten years later. The market really didn’t see any pause until 1966 when inflation started to have a major impact. Twenty four years after FDR’s speech, the Dow had advanced close to 1,000% and that’s not counting dividends.

The Skewed Market
Posted by Eddy Elfenbein on April 18th, 2017 at 9:35 am

The stock market this year has been unusually skewed, meaning that a small number of stocks are making up a large part of the gains. More than half the gain in the S&P 500 this year comes from just 10 stocks. Further, just three stocks — Apple, Facebook and Amazon — make up nearly one-third of the index’s gain YTD.

The recent strength in tech and internet companies marks a reversal from late last year, when investors piled into banks, industrials and small-cap stocks in the weeks following November’s U.S. elections. They bet that Republican control of Congress and the White House would lead to pro-growth policies.

But as investors began to lose confidence that the policies would be enacted quickly, these sectors have trailed the S&P 500 in recent months. Instead of focusing on companies that could outperform during faster economic growth, many investors returned to large-cap favorites with a track record for boosting revenue during slower growth periods.

On our Buy List, four stocks (CERN, AXTA, MCO, SHW) make up 57% of our YTD gain.