• Ford Earned 23 Cents per Share
    Posted by on April 28th, 2015 at 7:44 am

    From the WSJ:

    Ford Motor Co. reported net income was down 7% in the first quarter as profitability in North America and Asia was offset by losses in Europe and South America.

    The Dearborn, Mich., auto maker said it earned $924 million, or 23 cents a share, in net profit for the just-ended quarter, about flat with the $989 million, or 24 cents a share, booked in the same year-ago period when the company had to spend more to recall and fix defective vehicles.

    Revenue totaled $33.9 billion for the quarter, down 6% from a year earlier. Profits before taxes were $1.4 million, about flat from a year earlier.

    Ford’s results missed analysts’ expectations of 26 cents a share, signaling a slow start to a year that Chief Executive Mark Fields has pledged would be more profitable than the last. Ford attributed the miss to analysts factoring in a lower tax rate than the actual rate for the quarter, a difference of about 2 cents.

    Ford’s stock has budged little in the past year, down less than a percentage point through close Monday.

  • Q1 Earnings Calendar
    Posted by on April 28th, 2015 at 7:11 am

    Over the next few weeks, 16 of our 20 Buy List stocks are due to report Q1 earnings:

    Stock Symbol Date Estimate Result
    Wells Fargo WFC 14-Apr $0.98 $1.04
    Signature Bank SBNY 21-Apr $1.59 $1.64
    Stryker SYK 21-Apr $1.08 $1.11
    eBay EBAY 22-Apr $0.70 $0.77
    Qualcomm QCOM 22-Apr $1.33 $1.40
    Wabtec WAB 22-Apr $0.95 $0.99
    Microsoft MSFT 23-Apr $0.51 $0.61
    CR Bard BCR 23-Apr $2.07 $2.10
    Snap-on SNA 23-Apr $1.82 $1.87
    Ford Motor F 28-Apr $0.26 $0.23
    AFLAC AFL 28-Apr $1.54
    Express Scripts ESRX 28-Apr $1.10
    Ball Corp. BLL 30-Apr $0.79
    Moog MOG-A 1-May $0.92
    Cognizant Technology CTSH 4-May $0.70
    Fiserv FISV 5-May $0.87
  • Apple Facts
    Posted by on April 27th, 2015 at 7:22 pm

    After the bell Apple (AAPL) reported blow-out earnings.

    Net income totaled $13.57 billion in its fiscal second quarter ended March 28, versus $10.22 billion in the year-ago period. Earnings per share rose more sharply, to $2.33, from a split-adjusted $1.66, because the company’s stock-repurchase program reduced the share count.

    Revenue rose 27% to $58.01 billion from $45.65 billion in the year-ago period.

    Analysts polled by Thomson Reuters estimated that Apple would post earnings of $2.16 a share on revenue of $56.1 billion.

    The company also raised its quarterly dividend from 47 to 52 cents per share. Apple’s annual dividend is now greater than its share price from 11 years ago.

    Apple’s market value is $0.8 trillion. If (when) it gets to $171.68 per share, Apple will become the world’s first trillion-dollar company. Apple is worth about 90 points in the S&P 500. That’s where the whole index was in 1978.

    Apple has enough cash in the bank ($194 billion) to buy every single team in the NFL, NBA, NHL and major league baseball.

    If that cash reserve were stacked on the floor of the Grand Canyon, it would be like…whoa look at all that money!

  • The Earnings Notch
    Posted by on April 27th, 2015 at 10:58 am

    Here’s an updated look at the S&P 500 and its earnings. The S&P 500 is the blue line and it follows the left scale. The earnings is the gold line and it follows the right scale. The two lines are scaled at a ratio of 16-to-1 which means the P/E Ratio is exactly 16 whenever the lines cross.

    image1470

    The important takeaway from this graph is that right now we’re going through an “earnings notch.” As you can see, the gold is temporarily declining (modestly) for a few quarters.

    The future part of the gold line is based on Wall Street’s estimate. The “earnings recession” is expected to last one full year; the last quarter of 2014 and the first three quarters of 2015. We’re in the middle of it right now.

    By Q4 2015, the earnings line is expected to resume climbing higher. An earnings notch isn’t unprecedented. We went through a similar espisode, though not as severe, during the last half of 2012 and the first half of 2013. Once it passed, earnings growth returned.

    The valuation of the S&P 500 appears to be elevated given the flat earnings. However, if expectations for 2016 and beyond are correct, then the index is still reasonably valued. (By the way, I don’t mean to imply that 16 times earnings is fair value for the S&P 500. It’s simply a reference point.)

  • Morning News: April 27, 2015
    Posted by on April 27th, 2015 at 7:13 am

    Greeks Add Pressure on Tsipras to Compromise as Talks Resume

    Sure, Greece Can Default Without Leaving The Euro; But Will It Be Allowed to?

    Spain to Lift 2015 Growth Target

    Fitch Downgrades Japan, Joins Moody’s in Warning on Fiscal Policy

    Billionaire’s Daughter Turning CEO Shows What Japan Lacks

    Deflation? Oil’s 45% Rebound Could Be Markets’ Next Headache

    White House Takes Cybersecurity Pitch to Silicon Valley

    Applied Materials, Tokyo Electron Ditch $10 Billion Merger Over Regulatory Snag

    Comcast-Time Warner Cable Deal’s Collapse Leaves Frustrated Customers Out in the Cold

    Deutsche Bank to Streamline Operations to Improve Profit

    Cap Gemini to Buy Igate for $4 Billion to Challenge Accenture

    China Inc. Finds Cure to Debt Hangover in Stock-Market Boom

    Airbus A380 Haunted by Feeble Orders Marks Decade in Skies

    Roger Nusbaum: Social Security & Portfolio Withdrawals; It’s Complicated

    Jeff Miller: Weighing the Week Ahead: Time for an Upside Breakout?

    Be sure to follow me on Twitter.

  • A New High and Other Notes
    Posted by on April 26th, 2015 at 5:44 pm

    On Friday, the S&P 500 closed at a new all-time high. The index finished the day at 2,117.69. That tops the previous high of 2,117.39 from March 2. We went nearly two months without making a new high. That’s the longest “new high” drought since June 2013.

    Since the bull market began in March 2009, the S&P 500 has gained 212.98%. Add in dividends and the index is up 256.17%.

    That actually understates the rally by a little bit since small-caps have done so well. If we look at the Wilshire 5000, which is much broader than the S&P 500, stocks are up 266.96% including dividends. That’s enough to turn $27, 251 into $100,000.

    A few other things. Moog (MOG-A) finally announced that they’ll release their earnings next Friday, May 1.

    Nick Pinchuk, the CEO of Snap-on (SNA) appeared on Jim Cramer’s show Mad Money.

    The tool manufacturer reported its eighth consecutive earnings beat before the market open Thursday.

    Pinchuk explained that the company has succeeded simply by producing tools that make mechanics’ jobs easier. To do this, Snap-on consistently observes mechanics in action to identify and fix their frustrations.

    “One of the big tailwinds behind Snap-on is the changing technology in the marketplace. We go into those workplaces and see what will make work easier for mechanics, technicians and professionals and we translate that back to our product development people, and it brings out new products,” Pinchuk said.

    He added one of the biggest growth areas for Snap-on has been in diagnostics, and also noted the company’s 3,000 vans, its moving retail spaces, have helped drive success.

    Cramer called Snap-on a great American company and said he thinks the stock has more room to go higher.

    Snap-on beat earnings last week by five cents per share.

    On Friday, Ford (F) announced a recall of 390,000 doors that fly open. Ford reports earnings on Tuesday.

    This weekend’s Barron’s contains this nugget:

    As an alternative, Merrill Lynch strategist Savita Subramanian recommends looking for “high quality” companies rather than judging a stock by the size of its price swings. Characteristics that equate to quality include stability of earnings, balance-sheet strength, and sustainability of dividends. Those traits are hard to come by among utilities and telecoms but are prevalent in sectors that are decidedly not low-beta, including industrials and tech. Among the cheap, high-quality, high-beta stocks in the Standard & Poor’s High Quality Index are insurer Aflac (AFL), which trades at a price/earnings ratio of 10; engine maker Cummins (CMI), at 12.2 times; and software provider Oracle (ORCL), at 14.4 times.

    You’ve probably heard me go on and on about high-quality stocks. Two of the three listed, AFLAC (AFL) and Oracle (ORCL), are members in good standing on our Buy List.

  • Microsoft +10%
    Posted by on April 24th, 2015 at 4:48 pm

    Huge day for Microsoft (MSFT). Thanks to yesterday’s big earnings beat, the stock jumped $4.53 per share today which is a gain of 10.45%.

    big04242015g

    CR Bard (BCR) also reported after yesterday’s close. The shares opened 2.7% higher, at a new 52-week high, but they gradually lost ground during the day and closed down 0.5%.

    Our Buy List gained 0.24% today which was a wee bit better than the 0.23% gain for the S&P 500.

    For the year, our Buy List is up 4.39% to the S&P 500’s 2.86% (not including dividends).

  • The Nasdaq Divided By the Russell 3000
    Posted by on April 24th, 2015 at 11:07 am

    Here’s a simple graph that says so much: The Nasdaq Composite divided by the Russell 3000.

    At its peak, the Nasdaq was going for 3.5 times the Russell 3000. Today it’s at 2.2, and that’s been rising.

  • CWS Market Review – April 24, 2015
    Posted by on April 24th, 2015 at 7:08 am

    “To achieve satisfactory investment results is easier than most people realize;
    to achieve superior results is harder than it looks.” – Benjamin Graham

    After 15 years, it finally happened. On Thursday, the Nasdaq Composite closed at an all-time high. The index finished the day at 5,056.06. That’s 0.15% higher than the previous all-time high of 5,048.62, which came on March 10, 2000. Back then, the Nasdaq was going for 190 times earnings. Now it’s going for 30 times earnings.

    Also on Thursday, the S&P 500 briefly touched a new all-time intra-day high of 2,120.49. But the S&P 500 couldn’t hold on. In the last 40 minutes of trading, the index pulled back to close at 2,112.93. It’s now been 37 days since the S&P 500 made a new high. That’s the longest “new high” drought in nearly two years.

    big.chart04242015c

    This issue will be all about earnings. Due to the strong dollar, Wall Street analysts slashed their earnings estimates going into this earnings season. The good news is that the impact isn’t as bad as feared. So far, 76% of companies that have reported earnings have beaten expectations. Imagine a high jumper lowering the bar to one foot off the ground, then stepping over the bar and expecting raucous applause. That’s sort of where we are.

    I’m happy to report that the earnings reports for our Buy List have been quite good. All nine of our Buy List stocks have beaten Wall Street’s earnings estimates. Some like Signature Bank (SBNY) and eBay (EBAY) gapped up on the news. In this week’s CWS Market Review, I’ll run down all of our recent earnings reports. I’m raising Buy Below prices for five of our stocks. I’ll also highlight four more earnings reports we have coming next week.

    Eight Buy List Earnings Reports

    On Tuesday morning, Signature Bank (SBNY) reported Q1 earnings of $1.64 per share. That’s a very impressive number, five cents more than Wall Street had been expecting. Traders loved the news. Shares of SBNY spiked 6% in Tuesday’s trading, and hit a new all-time high on Wednesday.

    I like this bank a lot. Signature’s CEO, Joseph J. DePaolo, said, “2015 is off to an outstanding start as we again set records in both earnings and loan growth while also delivering very strong deposit growth.” Deposit growth is up 31.2% in the last year.

    Signature is a great little bank that’s not so little anymore. Thanks to the excellent earnings report, I’m raising my Buy Below on Signature by $7. Signature Bank is a buy up to $140 per share.

    Last week, I told you that I thought Stryker (SYK) was being conservative with its guidance and that I expected a modest earnings beat. That’s exactly what happened. On Tuesday, Stryker reported earnings of $1.11 per share. That beat estimates by three cents per share.

    The orthopedic company also raised the low end of its full-year forecast by five cents. Stryker now expects full-year earnings to range between $4.95 and $5.10 per share.

    “We are pleased with our first quarter results, with another strong quarter of nearly 6% organic sales growth and disciplined expense management,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “We expect this momentum, which is balanced across segments and regions, to continue and are raising the low end of full-year sales and earnings guidance.”

    I suspect that more Baby Boomers are gradually falling apart, blowing out their knees and hips, so that’s good news for us. For this year, Stryker said they expect constant-currency sales growth of 6% to 7%. They see Q2 earnings coming in between $1.15 and $1.20 per share. That’s in line with Wall Street’s consensus of $1.17 per share, but I expect the consensus will creep higher. Stryker should have little trouble hitting $5 per share this year.

    big.chart04242015b

    Shares of SYK jumped nearly 2% on Wednesday and kept rallying into Thursday as well. The stock has gained exactly $5 total in the last five sessions, and it appears to have broken out of its trading range. I’m going to bump up my Buy Below price, but I’m keeping it fairly tight. Stryker is now a buy up to $101 per share.

    Wabtec (WAB) did our favorite two-step, “the beat-and-raise shuffle.” On Wednesday, the company reported Q1 earnings of 99 cents per share, which was four cents better than estimates. The company also raised its full-year guidance from $4.05 to $4.10 per share.

    Raymond T. Betler, Wabtec’s president and chief executive officer, said: “With a strong first quarter, we’re off to a good start for the year. We will continue to face challenges during the year, including global economic uncertainty and foreign currency-exchange headwinds, but we expect to benefit from our strong backlog, and from ongoing investment in freight-rail and passenger-transit projects around the world. We’re also pleased with our long-term growth prospects, which are driven by our diversified business model, balanced strategies and rigorous application of the Wabtec Performance System.”

    In last week’s issue, I said a strong earnings report could push WAB over $100 per share, and that’s what happened. WAB even broke $105 before coming back down to $98.27 per share at Thursday’s close. This has been our second-best performing stock YTD. I’m raising my Buy Below on Wabtec to $103 per share.

    Now for Qualcomm (QCOM), our most troublesome stock. On Wednesday, the company had another solid earnings report, but guidance was lousy. For the March quarter, which is the company’s fiscal Q2, Qualcomm earned $1.40 per share. That was seven cents better than expectations. Quarterly revenue came in at $6.89 billion which was better than the Street’s expectations of $6.83 billion.

    The problem was guidance. Wall Street had been expecting earnings of $1.14 per share on revenue of $6.5 billion. Not even close. Qualcomm said fiscal Q3 earnings should range between 85 cents and $1 per share, while revenue should range between $5.4 billion and $6.2 billion. That’s a big miss.

    The good news for Qualcomm is that the issue with the Chinese government is now behind them. But they may have more investigations to face in the United States and in South Korea. Qualcomm is also dealing with increasing pressure as companies like Samsung and Apple make their own chips for their devices.

    Qualcomm is our worst performer of the year (-8.1%). I think the activist pressure from Jana Partners is making an impact. The stock dropped on Thursday, but by less than 1%. Don’t give up on Qualcomm. There’s a lot of potential here. I’m keeping my Buy Below at $72 per share.

    In last week’s CWS Market Review, I wrote:

    Shares of eBay (EBAY) have been weak recently, and I think they’re a good value here. The online auction house gave weak guidance for Q1: 66 to 71 cents per share. I think that’s too low, and I expect a solid earnings beat.

    Sometimes my own brilliance surprises even me. For Q1, eBay earned 77 cents per share, which topped estimates by seven cents per share. The stock jumped 3.8% on Thursday.

    Unfortunately, this call wasn’t due to my brilliance. It’s been pretty obvious how well eBay’s business has been going.

    “We had a strong first quarter, with eBay and PayPal off to a good start for the full year,” said eBay Inc. President and CEO John Donahoe. “I feel very good about the performance of our teams at eBay and PayPal. Each business is executing well with greater focus and operating discipline as we prepare to separate eBay and PayPal into independent publicly traded companies. We are moving forward with clarity and speed, with a smooth separation expected in the third quarter. We are deeply committed to setting up eBay and PayPal to succeed and to deliver sustainable value to our shareholders.”

    Now for guidance. For Q2, eBay sees earnings ranging between 71 and 73 cents per share. For the whole year, they forecast earnings between $3.05 and $3.15 per share. Those are good numbers and very doable. I’m raising my Buy Below on eBay to $62 per share.

    On Thursday morning, Snap-on (SNA) reported Q1 earnings of $1.87 per share. That was five cents better than estimates. Revenues rose 5.1% to $827.8 million, which was below consensus of $834.42 million. Despite that, I was particularly impressed with their organic sales growth of 10%. That’s very good, especially for a tool company.

    Nick Pinchuk, Snap-on’s chairman and CEO, said, “We believe these results confirm Snap-on’s unique capabilities in providing valued productivity solutions to a growing range of professional customers performing critical tasks in workplaces of consequence. Additionally, we achieved a 120-basis-point improvement in operating margin before financial services, further demonstrating our ability to realize ongoing benefits from our Snap-on Value Creation Processes.“

    big.chart04242015a

    The shares rose 2.4% on Thursday to reach a new 52-week high. I really like these dull stocks. Snap-on is up more than 520% since the Nasdaq peak 15 years ago. I’m raising my Buy Below on Snap-on to $159 per share.

    Three months ago, CR Bard (BCR) said they see Q1 earnings coming in between $2.04 and $2.08 per share. After the bell on Thursday, Bard reported Q1 earnings of $2.10 per share. That topped estimates by three cents per share. Sales rose by 3%, but the number rises to 5% when you exclude the impact of forex. (Side note: Bard reported their earnings on Shakespeare’s birthday.)

    Timothy M. Ring, Bard’s chairman and CEO, said, “Our results in the first quarter represented a good start to what is an important year of execution for us, as we once again exceeded our expectations for both sales and earnings per share. In 2015, we expect the returns from our strategic investment plan to begin to contribute to the improved long-term growth profile of the business.”

    For Q2, Bard sees earnings ranging between $2.15 and $2.19 per share. Wall Street had been expecting $2.18 per share. The company kept its full-year guidance the same at $8.95 to $9.05 per share. Not much to say here, which is how I like it. CR Bard remains a good buy up to $184 per share.

    I got another one right with Microsoft (MSFT). Last week, I said “I expect to see an earnings beat here.” Boy did they beat. For the March quarter, their fiscal Q3, Microsoft earned 61 cents per share. That beat estimates by 10 cents per share.

    By the way, all investors should reflect on the fact that Microsoft is one of the largest and most-studied companies in the world. Yet the Wall Street consensus missed its profit forecast by 20%.

    Quarterly revenue rose 6% to $21.7 billion, $630 million more than expectations. If it hadn’t been for those meddling currency costs, sales would have risen 9%. The details of the report look quite good. Amy Hood, Microsoft’s CFO, summed it up nicely: “We did a little bit better in lots of places.” One area that’s growing exceptionally well is their commercial cloud business. Sales jumped 106% last quarter. But like so many other companies, Microsoft got dinged by the strong dollar.

    Shares of Microsoft were up 3.3% in Thursday’s after-hours market. That suggests the stock will open well on Friday. Since I’m writing this to you before Friday’s opening bell, I’m going to keep my Buy Below on Microsoft at $45 per share. But I may raise it soon. Microsoft continues to be an undervalued stock.

    Let me again mention Moog’s (MOG-A) earnings report. As much as I like this company, I never know when the Q1 earnings report will come. It’s usually the last Friday in April, but I can’t say for certain. Don’t worry. Whenever the report comes, I’ll have full details on the blog. Wall Street expects earnings of 92 cents per share. Moog is a good, conservative stock.

    Four Buy List Earnings Reports Next Week

    More earnings reports are coming next week. On Tuesday, three Buy List stocks are due to report.

    Shares of AFLAC (AFL) have perked up recently. Last week, the stock briefly pierced $65 per share and hit a new 52-week high. Since the yen has somewhat stabilized at 120, give or take, to the dollar, that bodes well for AFLAC. Roughly speaking, every one yen up in the yen/dollar ratio knocks off two cents per share on AFLAC’s full-year operating earnings. Right now, AFLAC is on track to earn between $5.90 and $6.20 per share. Wall Streets expect Q1 earnings of $1.54 per share.

    Three months ago, Express Scripts (ESRX) missed earnings by a penny. Fortunately, they gave pretty good guidance for this year. ESRX expects earnings to range between $5.35 and $5.49 per share. That’s a 10% to 13% increase over last year’s earnings. The stock has been buoyed lately by deals in its sector. I’m always impressed by how steady their earnings growth is.

    Ford Motor (F) continues to be one of the cheapest stocks on our Buy List. The shares can’t seem to get any momentum above $16 per share. The story for Ford is simple: The U.S. is doing well, but Europe is not. I won’t venture to guess how much that’s changed in their Q1 report, but the long term looks good for Ford. The automaker has stuck by its 2015 forecast for a pretax profit between $8.5 billion and $9.5 billion. Going by Thursday’s close, Ford yields 3.8%.

    Last earnings season, Ball Corp. (BLL) was our big winner. But it wasn’t their earnings report—that was one penny below estimates. Instead, it was Ball’s announcement that they were in talks to buy Rexam. The stock jumped 9% on the news. A few days later, Ball and Rexam made it official as they announced a $6.8 billion merger deal. The stock jumped again, but has since settled in the low 70s.

    That’s all for now. More earnings next week. The Federal Reserve also meets on Tuesday and Wednesday. They’ll release their policy statement on Wednesday afternoon. You can expect Wall Streeters to over-analyze every semicolon. On Wednesday morning, the government will release its first estimate for Q1 GDP growth. 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: April 24, 2015
    Posted by on April 24th, 2015 at 7:02 am

    Greece’s Varoufakis Says Talks With Euro Zone Have Made Progress

    Diverging Fortunes for Comcast and AT&T Deals

    Why You Shouldn’t Celebrate The Collapse Of Comcast’s Bid For Time Warner Cable

    HSBC to Weigh Moving Headquarters From London

    Sharif Lends support to Saudi Territorial Integrity During State Visit

    Oil at $65 Seen Freeing 500,000 Barrels From Shale Fracklog

    Amazon Lifts Curtain on Secretive $5 Billion Cloud Business

    United, Southwest and Alaska Air Soar on Strong U.S. Demand

    AstraZeneca Insists Celgene Deal About Strategy, Not Cash

    U.S. Sues Quicken Loans, Accuses It Of Mortgage Lending Violations

    Xerox Cuts 2015 Profit Forecast Due To Strong Dollar

    Crash Boys

    The Private Equity Firm That Grew Too Fast

    Joshua Brown: Funds Aren’t Cutting Fees, Investors Are

    Howard Lindzon: The Apple Watch Launches as Nasdaq Hits All Time Highs…Coincidence?

    Be sure to follow me on Twitter.