- Posted by Eddy Elfenbein on December 19th, 2014 at 2:52 pm
I’ve always been meaning to assemble this chart. So here it is — all 63 Buy List stocks and which years they’ve made the cut
Thank you to Andrew Ottoson for helping me assemble this table.
CWS Market Review – December 19, 2014
Posted by Eddy Elfenbein on December 19th, 2014 at 7:09 am
“Other guys read Playboy. I read annual reports.” – Warren Buffett
Ladies and gentlemen, here’s the 2015 Crossing Wall Street Buy List:
Ball Corp. ($BLL)
Bed Bath & Beyond ($BBBY)
Cognizant Technology Solutions ($CTSH)
CR Bard ($BCR)
Express Scripts ($ESRX)
Ford Motor ($F)
Hormel Foods ($HRL)
Ross Stores ($ROST)
Signature Bank ($SBNY)
Wells Fargo ($WFC)
Westinghouse Air Brake Technologies ($WAB)
The five new stocks are Ball Corp. ($BLL), Hormel Foods ($HRL), Signature Bank ($SBNY), Snap-on ($SNA) and Westinghouse Air Brake Technologies ($WAB). I’ll have more to say about the new buys in upcoming issues.
To recap, I assume the Buy List is equally weighted among the 20 stocks. The “buy price” for each stock will be the closing price as of December 31, 2014. The new Buy List goes into effect on January 2, 2015, the first day of trading of the new year.
The Buy List is now locked and sealed, and I won’t be able to make any changes for the entire year. I’ll have a complete recap of 2014 at the end of the year. I’ll also have more to say about our new buys, plus I’ll give you new Buy Below prices.
As far as this year’s Buy List goes, there are only eight trading days left in 2014, and it appears that our Buy List will lose to the broader market for the first time in eight years. But it will be close. Through Thursday, our Buy List is up 10.06% YTD, compared with 11.52% for the S&P 500 (not including dividends).
I’m disappointed to lose to the market, but we’re still making a good profit. Our low-turnover, long-term strategy continues to serve us well. I’m excited for 2015, and I’m confident we’ll see more profits next year. Now let’s look at what happened on Wall Street this week.
Janet Yellen Says the Fed Can Be Patient
This was a dramatic week for world finance. The Russian ruble crashed. Oil managed to drop even lower, and the 10-year Treasury got near 2%. Then on Wednesday, everything seemed to reverse course. Oil nearly hit $59 per barrel. Between the Tuesday low and Wednesday high, the Russian ETF ($RSX) soared 27%.
But on Wednesday afternoon, the Federal Reserve released its latest policy statement which gave the bulls a lot more faith. On Wednesday, the S&P 500 had its best day in 14 months. Then on Thursday, it did even better. For the first time in five years, the index rallied more than 2% on consecutive days.
The investing world wanted to see if the Fed would keep its language that it would wait a “considerable time” between the end of its bond-buying program and its first rate increase. The Fed said, “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” The market took the “it can be patient” part to mean that the Fed is in no hurry to raise rates. In her post-meeting presser, Janet Yellen stressed that there’s been no change in policy. The difference is that we’re closer to Rate Hike Day, and that’s no longer a “considerable time.”
The Fed also released updated forecasts for interest rates. Of the 17 members of the FOMC (not all are voting members), 15 think interest rates will rise before the end of next year. Only two members see the first rate increase coming in 2016.
Personally, I think a 2016 increase is a realistic scenario, though not a probable one. The Fed has consistently over-estimated the strength of the economy, and by extension, the timetable for a rate increase. I hope they’re right, but the futures market isn’t on their side. At the end of 2016, two years from now, the consensus at the Fed sees rates at 2.5%. The futures market thinks they’ll be at 1.5%. When in doubt, I side with the market.
The outlook is far from certain, but as long as interest rates remain low, it’s a good environment for stocks. It’s just that simple. Until there’s a pickup in inflation, the Fed is in no hurry to raise rates, and that’s good for us. Now let’s look at a place where inflation is about to get much worse.
The Ruble Gets Crushed
In last week’s CWS Market Review, I criticized the Russian Central Bank for not taking the threat to the ruble seriously. I wrote:
The Russian Fed raised interest rates again this week, but the forex market just laughed at them. I don’t blame them. Despite a lot of talk, the Bank of Russia simply isn’t serious about defending the ruble. The BOR raised rates by 1% to 10.5%. Please. If they’re serious, they would have raised rates by 2% or 3%. That’s what needs to be done.
Perhaps I have some readers inside the Kremlin, because the Russian Central Bank responded with a dramatic 6.5% rate increase. They jacked up short-term rates from 10.5% to 17%. This was an attempt to prevent Russians from yanking their cash out of their local bank and exchanging their rubles for dollars. Once a panic gets going, it’s hard to stop.
Instead of rallying, the big rate increase caused panic selling. All over the world, traders were dumping rubles. At one point, the ruble dropped as low as 1.3 cents. Three weeks ago, it was at 2.2 cents. What a mess! Russia’s budget is balanced when oil is at $100 per barrel. Vladimir Putin warned that oil could go as low as $40. So far, Russia has spent $87 billion to prevent the ruble from collapsing. All of it failed.
I’m afraid the pain in Russia is just beginning, but I’m concerned about potential spillover effects. For example, Carlsberg, the Danish brewer, took a 6.6% hit earlier this week. One-third of their profits come from Russia. Google ($GOOGL), a 16-year-old company, now has a larger market value than the entire Russian stock market.
Any spillover effect from Russia on the U.S. economy will be slight. Russia makes up just 1% of our trade volume. Instead, my concern has to do with any hidden financial fallout. For example, did some bank or insurance company load up on Russian debt? Or did they loan money to a rogue trader who did that? I suspect this might be an issue for some German banks. Until this week, I had no idea that BP ($BP) owns 20% of Rosneft. “Only when the tide goes out do you discover who’s been swimming naked.”
There’s been some talk that lower oil prices will curtail demand for Ford’s new line of cars and trucks. The aluminum bodies are more fuel-efficient, but for now, I doubt that will have a significant impact. It’s something to key an eye on, and lower oil probably caused some of the recent weakness in Ford. But don’t get rattled. Ford is a solid stock.
So far, no one is willing to hold back production of oil. Not OPEC, and not here. As for American drillers, they’ve already spent their money, so they might as well produce. ExxonMobil ($XOM), the biggest energy company on the planet, plans to increase production next year. Last year, it cost Exxon $12.72 to extract a barrel of oil. In other words, this ain’t over. Oil can go much lower from here.
Oracle Soars 10%
After the closing bell on Wednesday, Oracle ($ORCL) reported fiscal Q2 earnings of 69 cents per share. That beat Wall Street’s estimate by a penny. This was their first earnings beat in a year. On Thursday, the shares rocketed 10% higher to $45.35 per share. That’s Oracle’s highest close in 14 years, and it’s not far from the all-time high close of 46.31 per share.
Three months ago, Oracle told us to expect earnings between 66 and 70 cents per share. In last week’s issue, I said that’s about right. Overall, this was a solid quarter for Oracle. I should add that this is the first one since Larry Ellison stepped down as CEO (his current role is Chief Technology Officer). Quarterly revenue came in at $9.6 billion, which also topped Wall Street’s consensus of $9.51 billion.
Oracle is doing especially well with its cloud business. That division saw its revenue rise 45% last quarter. Critics have claimed that Oracle has been lagging behind with its cloud service. But the company has responded aggressively. Over the last ten years, Oracle has spent more than $50 billion to buy 100 businesses.
Larry Ellison said that Oracle is on track to pull in $1 billion in new cloud subscriptions next year. He added, “We’re catching up to them, and catching up very quickly.” Yes, you are. This week, I’m raising Oracle’s Buy Below to $48 per share.
That’s all for now. The stock market will close at 1 p.m. on Wednesday and will be closed all day on Thursday for Christmas. Friday will be a full workday, but don’t expect a lot of trading. Despite the shortened schedule, there will be a few important economic releases next week, such as Durable Goods and GDP (on Tuesday). Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review. I hope everyone has a wonderful holiday season!
Morning News: December 19, 2014
Posted by Eddy Elfenbein on December 19th, 2014 at 7:00 am
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Best Back-to-Back Days in Five Years
Posted by Eddy Elfenbein on December 18th, 2014 at 7:38 pm
Yesterday was the best day for the S&P 500 in 14 months, and today was even better. This was the first time the S&P 500 rose more than 2% on consecutive days since March 2009, shortly after the bull market began. We haven’t done it for three straight days since August 2002.
The big winner today was Oracle ($ORCL) which soared more than 10% in today’s session. The stock touched a 14-year high and is close to making a new all-time high. The current all-time high was set in July 2000.
Morning News: December 18, 2014
Posted by Eddy Elfenbein on December 18th, 2014 at 7:22 am
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Oracle Earns 69 Cents per Share
Posted by Eddy Elfenbein on December 17th, 2014 at 11:57 pm
The shares jumped more than 5% in the after-hours market, and that comes on top of a 1.3% gain during the day session. This was the first earnings report without Larry Ellison as CEO. Three months ago, the company gave us a range of 66 to 70 cents per share. Revenues came in at $9.6 billion which was more than the forecast $9.51 billion.
Combined sales in Oracle’s cloud software, platform and infrastructure businesses were $516 million, up 45 percent from a year earlier. The company started disclosing cloud revenue two quarters ago.
“The stock is trading on that cloud growth,” Morgan said.
Analysts and money managers are looking at the performance of Oracle’s cloud products to gauge the company’s ability to change its core businesses to compete with Salesforce, Workday Inc., Amazon.com Inc. (AMZN)’s Web services unit and other cloud-computing providers. Oracle spent more than $50 billion to acquire about 100 companies in the past decade to bolster its core businesses of database, hardware and business-applications, and help it gain share in the cloud.
Oracle is on track to sell more than $1 billion of new cloud subscriptions next fiscal year, Ellison said on a conference call. The company is also catching up to Salesforce in new cloud subscriptions, said Ellison, who is now Oracle’s chairman and chief technology officer.
“Stay tuned, it’s going to be close,” Ellison said. “We’re catching up to them, and catching up very quickly.”
For Q3, Oracle expects revenue growth of 4% to 8%, earnings to range between 69 and 74 cents per share. The company added the forex could ping them for four cents per share this quarter. Wall Street had been expecting earnings of 73 cents per share.
S&P 500’s Best Day since October 2013
Posted by Eddy Elfenbein on December 17th, 2014 at 9:26 pm
Thanks to the Fed’s announcement, today was the stock market’s best day in 14 months. The S&P 500 gained 2.04% for its biggest surge since October 10, 2013. This was the second-best day in nearly two years. The gains were led by the energy sector and small-caps.
In short, things that had been doing poorly did very well today. Between yesterday’s low and today’s high, the Russia ETF ($RSX) gained 27%. Oil rose to $55.81, although it nearly hit $59 earlier in the session.
I think the market had a hard time deciding whether today’s news from the Fed was good or bad. Check out today’s action in the five-year Treasury:
Ultimately, the market fell into the “good” camp. Regarding how long it will be before they raise rates, the FOMC removed the words “considerable time” and replaced that with saying “it can be patient.” Despite the new language, Janet Yellen stressed that there’s been no change in policy. The difference is that we’re now further away from the end of QE, so the length of time is no longer considerable although the date remains the same.
I suppose this can be considered a “dovish” statement, but what strikes me is the distance between the Fed and the market on interest rates. The Fed sees rates at 2.5% at the end of 2016 while the market sees rates at 1.5%. Frankly, I’m on the market’s side. For what it’s worth, Yellen also thinks the slide in oil is transitory.
One note on today’s Cuba news: The CUBA Beverage Company ($CUBV) closed 78% higher today on volume that was 513 times normal. It’s an energy drink company that has nothing to do with the island nation. Yet there are people who still believe in efficient markets.
Today’s Fed Statement
Posted by Eddy Elfenbein on December 17th, 2014 at 2:01 pm
In today’s Fed policy statement, the FOMC removed the words “considerable time” in referring to how long it will take to raise interest rates. The FOMC now says “that it can be patient.” The stock market likes the news. The S&P 500 jumped from 1,995 to 2,010 within a few minutes.
Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.
Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate; Narayana Kocherlakota, who believed that the Committee’s decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target; and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements.
The Fed’s interest rate forecast (the blue dots) remain largely the same. Only two of 17 members see no rate increase next year. The other 15 do. The median forecast sees rates at 1% by the end of next year, and at 2.25% by the end of 2016.
Big Rebound for Energy
Posted by Eddy Elfenbein on December 17th, 2014 at 1:03 pm
It’s too early to call this a trend, but energy is bouncing back today. The S&P 500 is currently up 21 points, or 1.08%. The Energy Sector ETF ($XLE) is up more than 4.5%.
Stocks Rally Ahead of the Fed
Posted by Eddy Elfenbein on December 17th, 2014 at 10:15 am
The stock market did a big about-face yesterday. Stocks opened lower, then rallied, then gave it all back. On Tuesday, the S&P 500 closed at its lowest level since October 27. The yield on the 10-year bond got as low as 2.05%. There seems to be a good chance it could fall below 2%. In the summer of 2012, the 10-year got to 1.43% which I believe is an all-time low. I didn’t think we could ever get that low again. Now I’m not so sure. Yesterday, oil dropped down $53.60 per barrel before closing at $55.51.
Stocks are up again this morning but it seems much more cautious out there. Energy is leading the way while most of the broader market is up on small gains.
The Fed meets later today. I don’t expect much but they will update their projections. Last time, only two of the 17 members said they expect interest rates to rise in 2016, meaning the central bank will hold its powder dry all year. I’ll be curious if more members feel that way now.
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