• Dividends Have Been Big Winners This Year
    Posted by on December 19th, 2011 at 11:14 am

    Bloomberg notes that dividend stocks have done well this year:

    In a year when American companies piled up record amounts of cash, the worst stocks were the savers and the best gave the money back to investors with dividends and buybacks.

    Companies that hoarded cash such as CareFusion Corp. (CFN), Western Digital Corp. and 18 other members of the Standard & Poor’s 500 Index lost an average 15 percent in 2011, according to data compiled by Bloomberg. The 40 that repurchased the most stock or offered the biggest dividends climbed 5.7 percent, led by DirecTV and Reynolds American Inc. (RAI), the data show.

    Bulls say gains in companies that returned money will help unlock almost $1 trillion of cash that chief executive officers have been hoarding for three years. Thomas Lee, the chief U.S. equity strategist at JPMorgan Chase & Co., says distributions should increase 28 percent to $1.1 trillion into next year. Bears say dividends and buybacks will be insufficient to keep the rally going as mandated budget cuts curb growth.

    When investors get nervous, they seek stability and that means higher dividends. What’s also attractive about dividends is that they’re easy to understand and somewhat easy to project. Dividend payments tend to be much more stable than earnings.

    The big change in recent years is that so many financial stocks slashed their dividends or got rid of them entirely. The Financial Sector ETF ($XLF), for example, used to pay more than 90 cents per share a year in dividends. That dropped as low as 17 cents per share but should start climbing higher as the Fed allows more dividend payments.

  • Investing Tips
    Posted by on December 19th, 2011 at 10:43 am

    From The Onion:

    Invest everything in Morton Salt, then run around screaming, “The Slug-men are coming! The Slug-men are coming!”

    Before choosing a brokerage firm, carefully study the TV commercials of several firms. Go with the one with the most impressive ads.

    When your stock begins to drop, gesticulate wildly to coax it back in the right direction. (Note: Also works in bowling.)

    Instead of investing in stocks, why not invest your time and energy in your community? You will reap dividends far more precious than wealth.

    Stock-market losses are only losses on paper. Use Wite-Out to your advantage.

    Keep a close eye on Dan Aykroyd and Eddie Murphy. They may try to outfox you and your cold-hearted brother.

    Diversify your portfolio with some colored yarn or pictures clipped from magazines.

    Many small, privately held companies are now issuing IPOs, often with incredible success. Among those rumored to be going public: The West End Valu-Shopper, The Marzipan Bunny Sweet Shoppe, and www.geocities.com/chadspage/favekornpics.html.

    Wait until stocks are just about to soar in value, then buy lots of them. When they’ve gone as high as they’re going to go, sell them all.

    Take your screeching trophy wife’s advice: Invest all your money in designer handbags.

    If at all possible, start out with $80 million. This will reduce both the pressure on you and the risks involved.

    Ask your company if it offers an employee stock plan. If it doesn’t, consider working for a different gas station.

    Go to a financial advisor and act as if you understand and are carefully weighing what they say, then blindly do whatever they tell you.

    Invest in your friends’ band. They rock.

    When examining the balance sheet of a corporation, a good sign of health is an assets-to-liabilities ratio of two to one. Then again, if you understand that, you’re probably a rich prick who doesn’t need any more money.

  • Hudson City Pays Off Debt Early
    Posted by on December 19th, 2011 at 10:14 am

    Our Buy List is doing well so far this morning. While the S&P 500 is up 0.20%, our Buy List is up 0.49%. Stocks like Moog ($MOG-A), Jos A Bank ($JOSB) and Deluxe ($DLX) are particularly strong. I also see that Nicholas Financial ($NICK) is now trading above $12 per share.

    I would think the departure of the world’s most gruesome person would be a positive for the market. I think it’s interesting that three main points of the yield curve are now separated by 1%; the five-year yields 0.81%, the ten-year is at 1.85% and the 30-year yields 2.84%. I really doubt if those low yields will hang around much longer.

    On Friday, one of our new stocks for 2012, Hudson City Bancorp($HCBK), jumped 3.8%. I’d like to think this was on the news that it’s joining my Buy List. Alas, the news that the bank is paying off $4.3 billion in structured debt before it’s due probably played a much larger role in the rally.

    Unfortunately for me (but not for you), since the 2012 Buy List doesn’t go into effect for another two weeks, none of the positive move in HCBK will go towards helping my tracking record.

  • Bed Bath & Beyond’s Upcoming Earnings Report
    Posted by on December 19th, 2011 at 9:27 am

    I had a mistake in Friday’s CWS Market Review. I said that Oracle ($ORCL) is the only Buy List company to report earnings this week. That’s not right; Bed Bath & Beyond ($BBBY) will report its fiscal third-quarter earnings on Wednesday, December 21st.

    This was a bad oversight on my part because BBBY had a great earnings report three months ago. In September, the company said it earned 93 cents per share which was nine cents more than Wall Street’s expectations. They had told investors to expect fiscal Q2 earnings to range between 77 and 82 cents per share.

    For the third quarter, BBBY projects earnings between 82 and 87 cents per share. The company also raised their full-year guidance to earnings growth of 22% to 25%.

    This is the second time that BBBY has raised their full-year growth forecast this year. They went from forecasting an earnings increase of 10% – 15% to a revised range of 15% – 20% to the current range of 22% – 25%. For 2010, Bed Bath & Beyond earned $3.07 per share, so the updated forecast translates to a range of $3.74 – $3.84 per share.

  • Morning News: December 19, 2011
    Posted by on December 19th, 2011 at 6:59 am

    Kim Jong Il, North Korea’s Dictator, Dies

    Stocks Fall as Dollar Gains on Kim’s Death

    EU Ministers Seek Crisis IMF Funding Deal

    European Leaders Face Bundesbank Hurdle Over IMF Funds

    Germany Says Full ESM Payment in 2012 Not Very Likely

    ECB’s Draghi Puts Hopes on EFSF Bailout Fund, Rules

    Instability a New Fear for Investors in Russia

    S&P Cut Proves Absurd as Investors Prefer U.S.

    S.E.C. Accuses Fannie and Freddie Ex-Chiefs of Deception

    Goldman Sachs Winning CEOs as Global No. 1

    Private Investment Rounds Weaken I.P.O.’s

    Microsoft Shrinking Margins Loom on Cloud Push

    Saudi Prince Buys $300 Million Stake in Twitter

    Saab Runs Out of Road as Lengthy Rescue Quest Fails

    Jeff Miller: Weighing the Week Ahead: What Should We Expect From Santa?

    Phil Pearlman: Institutional Journalism and the Race to Zero

    Cullen Roche: 10 Outrageous Predictions for 2012

    Be sure to follow me on Twitter.

  • Most Mutual Funds Are Down for the Year
    Posted by on December 19th, 2011 at 12:34 am

    USA Today reports that most stock mutual funds are down for the year:

    The average diversified U.S. stock mutual fund has fallen 5.9% this year, vs. a 1.4% loss for the Standard & Poor’s 500-stock index, says Lipper, which tracks the funds. Out of 8,036 funds, 7,399, or 92%, are showing a loss — and some are doozies.

    (…)

    One reason the average fund has lagged so badly: expenses. The average fund charges about 1.3% a year to pay for salaries, offices and other costs, according to Morningstar. Stock indexes have no expenses.

    Also, stock funds tend to invest in midsize and small companies, which have lagged behind the S&P 500. The Russell 2000 small-cap index, for example, has fallen 8.4% this year.

    Another reason is technical: Lipper’s average U.S. stock fund figure includes many new funds that use futures and options to amplify gains and losses. Without those funds, the average loss for U.S. stock funds would have been 4.1%.

    Thanks to the European crisis, international funds have been smacked even harder: The average large-company international fund has plunged 15.5%.

    Some specialized funds have tanked even more. Direxion Daily Real Estate Bear 3X, which uses futures and options to amplify performance up and down, plunged 57.7%.

    It’s not all bad news. Virtus Small-Cap Sustainable Growth leads the pack among diversified U.S. funds, jumping 16.5%. And Direxion Daily India Bear 3X, an amped-up single-country fund, soared 58.8%.

    Continued market volatility has sent investors fleeing stock funds this year. Investors have yanked out $133 billion more than they have put in to stock funds this year, according to the Investment Company Institute, the funds’ trade group.

    Last year through October, investors pulled $37.2 billion from stock funds, vs. $84.5 billion the same period this year.

    Few investors put all their money in stock funds, however, so the year hasn’t been a total wash. The average bond fund that invests in U.S. Treasury securities has soared 14.7% this year, as investors flocked to government securities for safety.

    Funds that invest in Treasury Inflation Protected Securities, or TIPS, have surged 11% even though the consumer price index, the government’s main gauge of inflation, has risen only 3.4% the 12 months ended November.

  • AFLAC “Way Ahead of Target”
    Posted by on December 16th, 2011 at 12:22 pm

    From Bloomberg:

    Aflac Inc. (AFL), the health insurer that gets about three-quarters of its sales in Japan, will continue to beat goals in that country, said Chief Executive Officer Dan Amos.

    “We have achieved all of our targets and our sales are actually running way ahead of target, as we said in the third quarter, and we expect them to continue,” Amos told Tom Keene and Ken Prewitt during an interview on “Bloomberg Surveillance” today.

    Customers who bought policies through banks drove a 14 percent gain in Japanese sales for the nine months ended Sept. 30, Aflac said last week. The world’s biggest provider of policies supplementing work and government health coverage has prospered as the Japanese market has “pretty much gone back to normal” since the March 11 earthquake and tsunami, Amos said.

    “It’s amazing, the adaptability of the Japanese and how they were able to transform,” Amos said. “We as Americans would find this more difficult.”

    Here’s the audio.

  • CWS Market Review – December 16, 2011
    Posted by on December 16th, 2011 at 6:51 am

    Before I get into today’s CWS Market Review, here’s my Buy List for 2012:

    AFLAC ($AFL)
    Bed Bath Beyond ($BBBY)
    CR Bard ($BCR)
    CA Technologies ($CA)
    DirecTV ($DTV)
    Fiserv ($FISV)
    Ford ($F)
    Harris ($HRS)
    Hudson City Bancorp ($HCBK)
    Johnson & Johnson ($JNJ)
    Jos. A. Bank Clothiers ($JOSB)
    JPMorgan Chase ($JPM)
    Moog ($MOG-A)
    Medtronic ($MDT)
    Nicholas Financial ($NICK)
    Oracle ($ORCL)
    Reynolds American ($RAI)
    Stryker ($SYK)
    Sysco ($SYY)
    Wright Express ($WXS)

    Fifteen of the stocks from last year will stay on the list for next year. The five new stocks are CR Bard ($BCR), CA Technologies ($CA), DirecTV ($DTV), Harris ($HRS) and Hudson City Bancorp ($HCBK).

    The five deletions are Abbott Labs ($ABT), Becton, Dickinson ($BDX), Deluxe ($DLX), Gilead Sciences ($GILD) and Leucadia National ($LUK).

    The new Buy List goes into effect on January 2, 2012 which is the first day of trading of the new year. For tracking purposes, I assume the Buy List is a $1 million portfolio that’s equally weighted among 20 positions of $50,000 each based on the closing price of December 30, 2011. As usual, I can’t make any changes to the Buy List during the year.

    Through Thursday’s close, our 2011 Buy List is down 1.63% for the year while the S&P 500 is down 3.33%. Including dividends, our Buy List is up 0.15% while the S&P 500 is down 1.36%. There are only ten trading days left this year, but it’s looking like we’re going to beat the market for the fifth year in a row. Once again, we’ve shown that discipline and patience can beat the market.

    The problem for us right now is that market hasn’t been in a terribly good mood. After putting on a decent rally of close to 9% between November 25th and December 7th, the S&P 500 is limping into the end of the year. On Thursday, the index closed at 1215 which I like to call the Magna Carta line. If all goes well, we can be at back at the Black Death (1348-1350) in early in 2012.

    There are some reasons for optimism. For one, the economic news continues to be…not awful, which is a pleasant change of pace. On Thursday, for example, we learned that the number of initial jobless claims fell to 366,000 which is the lowest number since May 2008. This stat tends to have a lot of noise so it’s best to see more confirmation of a positive trend, but the past few reports have been pretty good.

    The Philly Fed report showed that manufacturing picked up there at the fastest pace in eight months. The report from the New York Fed also showed that the economy is better than expected. I noticed that FedEx ($FDX) posted good earnings recently. This is noteworthy because their business is often a good barometer for the overall economy.

    A recent poll of economists showed that they expect the economy to grow by 2.9% in the fourth quarter. That’s a big increase from 2.3% in a similar poll conducted last month. While that’s hardly a great rate, it’s a nice improvement over what we’ve seen (not to mention that many gurus confidently predicted we’d been in a nasty Double Dip right now). Only 25% of economists currently believe the economy will hit a recession in the next 12 months. Interestingly, the Federal Reserve met this week and their statement revealed no changes to current policy.

    Another good sign is that we’re seeing more strength in small-cap stocks. This sector got absolutely hammered during the late summer this year. Between July 13th and October 3rd, the Russell 2000 ($RUT), which is an index of small-cap stocks, dropped 27.2%. That’s 10% more than the loss suffered by the S&P 500. When people get scared they run towards safety. Or rather, what they think is safe. That means large-cap multinationals.

    Only when investors are more confident are they willing to take on more risk. Since October 4th, the S&P 500 has put on 10.6% while the Russell 2000 has added 17.5%. That’s a good sign. I’m also pleased to see the unraveling of stocks with absurd valuations like Netflix ($NFLX) and Amazon.com ($AMZN). (And yes, Amazon still has a long way to fall.) I’ll also point out that trading volume has been suspiciously light recently. Perhaps traders are getting fed up with the constant price swings.

    We’ve also seen a major breakdown in the price of gold. The Midas Metal fell below $1,570 per ounce this week. My guess is that this is related to the recent breakdown in the euro. As the euro loses ground to the dollar, the ECB will have more “permission” from the markets to lower interest rates. Remember that the price of gold is really a ratio—gold per dollar. In other words, movements in gold are often less about the metal and more about the currency.

    Investors are finding a lot more interest at the longer end of the yield curve. The yield curve has narrowed over the past few days. Part of this is certainly due to efforts of the Federal Reserve’s QE program, but I suspect many investors are riding this wave. On Wednesday, an auction of 30-year T-bonds went off at the lowest yield ever. The bid-to-cover ratio, which measures investor interest in the auction, was the highest in eleven years. A recent auction of three-year notes had the highest bid-to-cover ratio ever recorded for that maturity.

    I also want to touch on the financial sector. This part of the market has been a bust this year. Outside of a few positions like Nicholas Financial ($NICK) or JPMorgan ($JPM), our Buy List has been pretty light on financials. My feeling is that many financials were a value trap. This is when a stock or sector appears to be cheap based on traditional metrics but that’s only because the share prices correctly anticipated further declines in the fundamentals. I think that’s exactly what happened this year. Now, however, it’s becoming safer to move cautiously into financials. I think it’s very possible that the Financial Sector ETF ($XLF) can be at $16 this time next year.

    The only earnings report next week for our Buy List will come on Tuesday when Oracle ($ORCL) reports its fiscal second-quarter results. The company has told us to expect EPS to range between 56 and 58 cents. Let me reiterate what I said last week. I think Oracle has a good shot of earning 60 cents per share. Their cash flow has been very strong. Their licensing business continues to do well, although I’m a little concerned about the hardware side of the business which is a bit shaky. Bear in mind that Oracle earned 51 cents per share in last year’s Q2 which was very strong. The shares have dropped down to $29 recently which is a very attractive price. Oracle is a buy up to $34 per share.

    That’s all for now. Be sure to keep checking the blog for daily updates. Hopefully Europe will still exist next week. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: December 16, 2011
    Posted by on December 16th, 2011 at 6:50 am

    French Officials Continue U.K. Criticism

    Europe’s Crisis May Hold Seeds of Dealmaking

    Italy’s Monti Faces Confidence Vote on Austerity

    China Imposes New Tariffs on U.S. Vehicles

    The Indian Rupee Is an Abandoned Child

    Fitch Cuts Goldman, Deutsche, Five Other Large Banks

    As Sales Lag, Stores Shuffle the Calendar

    Kinder Morgan’s Major Bet on a Boom in Fracking

    Zynga Raises $1 Billion, Pricing IPO at Top of Range

    FedEx, Profit Rising, Credits Online Shopping

    BMW to Set Up Brazil Plant to Sustain Deliveries

    The Gold Medal Gold Model

    5 Reasons to Ignore Top 10 Stock Lists

    Edward Harrison: The Hidden Meanings of Debt

    Jeff Miller: How Investors Should Think about Europe

    Be sure to follow me on Twitter.

  • RIP: Christopher Hitchens
    Posted by on December 16th, 2011 at 12:15 am

    I’m sorry to hear about the death of Christopher Hitchens. I was a big fan. He lived a few blocks from me and a few years ago, I ran into him. Here was my post from that experience.

    The Hitch and I

    So I was walking down Connecticut Avenue today, and I spotted a man in a bookstore who looked strangely familiar.

    I went in and asked, “excuse me, sir, are you Christopher Hitchens?” The man said, coyly, “who wants to know?” I’m assuming that’s an answer generally given by correctly identified parties. Also, he had a British accent. Yep, it was Hitch. So I tried to mumble something clever about being with George Galloway’s office.

    We chatted for a bit, as I did my best not to come off as Crazed Stalker Guy. Let’s face it: Even when I try to look threatening, it doesn’t come off too well. My coolness must have worked because as Hitchens was leaving the store, he asked if I was going uphill. I wasn’t but said yes anyway, and we chatted a little more.

    I was I could say that we had some fancy highbrow conversation, but it wasn’t that impressive. I mentioned that I had just finished Mark Steyn’s book, America Alone. He thanked me for reminding him that he had been asked to review the book. Those Brits, they have such good manners.

    It turns out that we’re both fans of Steyn. Hitchens said that he’s impressed with the amount of writing Steyn does, which I could imagine most people saying of him. Funny, I thought all these guys knew each other, but Hitchens said he doesn’t recall ever meeting Steyn, although he said that Steyn claims that they had once met.

    I told him that I liked Steyn’s book, but found it a bit alarmist. He said that in the case of Islamism, alarmism is justified. Then we reached his building, said our “good days” and that was it.