Archive for December, 2010

  • The 2011 Buy List
    , December 31st, 2010 at 9:11 pm

    Here’s my 2011 Buy List. For tracking purposes, I assume it’s a $1,000,000 portfolio and that each position is worth $50,000. When I discuss how well the Buy List is doing, I’m referring to this list. Here’s each stock, ticker, starting price and number of shares:

    Company Ticker Dec. 31 Price Number of Shares
    Abbott Laboratories ABT $47.91 1,043.6235
    AFLAC AFL $56.43 886.0535
    Becton, Dickinson & Co. BDX $84.52 591.5760
    Bed Bath & Beyond BBBY $49.15 1,017.2940
    Deluxe Corp. DLX $23.02 2,172.0243
    Fiserv FISV $58.56 853.8251
    Ford Motor Company F $16.79 2,977.9631
    Gilead Sciences GILD $36.24 1,379.6909
    Johnson & Johnson JNJ $61.85 808.4074
    Jos. A. Bank Clothiers JOSB $40.32 1,240.0794
    JPMorgan Chase JPM $42.42 1,178.6893
    Leucadia National LUK $29.18 1,713.5024
    Medtronic MDT $37.09 1,348.0723
    Moog MOG-A $39.80 1,256.2814
    Nicholas Financial NICK $10.24 4,882.8125
    Oracle ORCL $31.30 1,597.4441
    Reynolds American RAI $32.62 1,532.8020
    Stryker SYK $53.70 931.0987
    Sysco SYY $29.40 1,700.6803
    Wright Express WXS $46.00 1,086.9565

    The five new stocks are Abbott Laboratories (ABT), Deluxe Corp. (DLX), Ford (F), Oracle (ORCL) and JPMorgan Chase (JPM).

    The five 2010 Buy List stocks I’m deleting for this year are Baxter International (BAX), Eaton Vance (EV), Eli Lilly (LLY), Intel (INTC) and SEI Investments (SEIC).

    The average market value of the Buy List is $41.7 billion. The biggest is Johnson & Johnson (JNJ) at $170 billion. JPMorgan (JPM) and Oracle (ORCL) aren’t far behind at $166 billion and $158 billion respectively. The smallest by far is Nicholas Financial (NICK) at $168 million. The second smallest is Jos. A. Banks (JOSB) which is more than nine times larger than NICK.

    The average forward P/E Ratio is 11.5 which is about 13% less than the S&P 500. Twelve of the 20 stocks pay a dividend. The average yield of the dividend-payers is close to 2.6%. Spread over 20 stocks, the Buy List yields 1.54%.

    Only five stocks have remained on the Buy List for all five years: AFLAC (AFL), Bed Bath & Beyond (BBBY), Fiserv (FISV), Medtronic (MDT) and Sysco (SYY).

    That’s it. The list is now “locked and sealed” and I can’t touch it until next year.

  • The 2010 Buy List
    , December 31st, 2010 at 7:10 pm

    The 2010 trading year has come to a close. I’m happy to report that our Buy List had another good year. The 20 stocks on the Crossing Wall Street Buy List gained an average of 14.71%. In contrast, the S&P 500 was up 12.78%. This is the fourth year in a row that we have beaten the market.

    Including dividends, the Buy List gained 16.62% compared with 15.06% for the S&P 500. The dividend yield for the Buy List worked out to 1.67% while it was 2.02% for the S&P 500. For the year, our beta was 0.9479.

    Over the five-year history of the Buy List, we’ve gained 34.03% to the S&P 500’s 11.99%. Our annual turnover has been just 25% which means we’ve only changed five stocks per year. The five-year beta is 0.9420.

    Now I’ll restate the rules of the Buy List. I choose a portfolio of 20 stocks at the beginning of the year. After that, the Buy List is locked for the year and I can’t make any changes until the following year. For tracking purposes, I assume the Buy List is a $1 million portfolio equally divided among the 20 stocks. You can check the performance of the Buy List anytime at our Buy List page.

    My goal is to show investors that by choosing stocks wisely and by sticking with high-quality stocks, they can beat the market—and that’s exactly what we’ve done. I try to beat the market by a few percentage points and to do it with less risk.

    We were helped this year by having a well-diversified Buy List. Fourteen of the 20 stocks rose for the year, while six stocks (mostly healthcare) saw losses. We were over-weighted in healthcare which didn’t work to our benefit. Fortunately, some strong performers helped us out.

    For the second year in a row, our smallest stock, Nicholas Financial (NICK), was our biggest winner. NICK gained 48.62% for the year. The second-biggest winner was Jos. A. Banks Clothiers (JOSB) which gained 43.35%.

    Stock Number of Shares 12/31/2009 Beginning
    12/31/2010 Ending
    AFL 1,081.0811 $46.25 $50,000.00 $56.43 $61,005 22.01%
    BAX 852.0791 $58.68 $50,000.00 $50.62 $43,132 -13.74%
    BDX 634.0350 $78.86 $50,000.00 $84.52 $53,589 7.18%
    BBBY 1,295.0013 $38.61 $50,000.00 $49.15 $63,649 27.30%
    EV 1,644.1960 $30.41 $50,000.00 $30.23 $49,704 -0.59%
    LLY 1,400.1680 $35.71 $50,000.00 $35.04 $49,062 -1.88%
    FISV 1,031.3531 $48.48 $50,000.00 $58.56 $60,396 20.79%
    GILD 1,155.5350 $43.27 $50,000.00 $36.24 $41,877 -16.25%
    INTC 2,450.9804 $20.40 $50,000.00 $21.03 $51,544 3.09%
    JNJ 776.2770 $64.41 $50,000.00 $61.85 $48,013 -3.97%
    JOSB 1,777.6725 $28.13 $50,000.00 $40.32 $71,676 43.35%
    LUK 2,101.7234 $23.79 $50,000.00 $29.18 $61,328 22.66%
    MDT 1,136.8804 $43.98 $50,000.00 $37.09 $42,167 -15.67%
    MOG-A 1,710.5713 $29.23 $50,000.00 $39.80 $68,081 36.16%
    NICK 7,256.8940 $6.89 $50,000.00 $10.24 $74,311 48.62%
    RAI 1,887.8610 $26.49 $50,000.00 $32.62 $61,582 23.16%
    SEIC 2,853.8813 $17.52 $50,000.00 $23.79 $67,894 35.79%
    SYK 992.6544 $50.37 $50,000.00 $53.70 $53,306 6.61%
    SYY 1,789.5490 $27.94 $50,000.00 $29.40 $52,613 5.23%
    WXS 1,569.3660 $31.86 $50,000.00 $46.00 $72,191 44.38%
    Total $1,000,000 $1,147,118 14.71%

    JOSB split 3:2 on August 19. The original purchase of 1,185.1150 shares at $42.19 became 1,777.6725 shares at $28.126666.
    RAI split 2:1 on November 16. The original purchase of 943.9305 shares at $52.97 became 1,887.8610 shares at $26.485.

    Here’s how the Buy List did throughout the year:

  • CWS Market Review – December 31, 2010
    , December 31st, 2010 at 8:38 am

    We have only today left in 2010! Before I get into the meat of today’s CWS Market Review, I want to wish everyone a happy, healthy and prosperous New Year. Our Buy List is about to close out its fourth-straight market-beating year, and I’m excited to continue our streak in 2011.

    Today I want to discuss an issue that isn’t getting a lot of coverage in the financial media: the stunning drop in the stock market’s volatility . I can’t think of a previous period where the market has moved from such frenetic trading to such placid behavior in such a short period of time. If the financial crisis can be said to have a “denouement,” the last three months have been it.

    Let’s look at some numbers. The average daily changes for this week so far have been (in order) +0.06%, +0.08%, +0.10% and -0.15%.

    I apologize if those numbers just put you to sleep, but this is about as dull a market can get. Personally, I don’t mind dull. Lack of news is good news and the best news is that the market has been going up…albeit very, very slowly. Before Thursday’s pullback, the market had advanced for 17 out of 20 sessions.

    Let me put some of this volatility in perspective. During the craziest period of the financial crisis, which is roughly the two months following the implosion of Lehman Brothers, the S&P 500 was rising or falling by more than 4% per day roughly half of the time. In other words, it was perfectly normal for the Dow to swing by more than 500 points on any given day.

    The trading was so crazy that there were two separate 10% rallies just two weeks apart. A few days after that, there were four-straight sessions of changes by 6% or more. We hadn’t seen that kind of volatility in decades.

    Slowly, however, the volatility began to fade. During 2009, the S&P 500 had an average daily swing of 1.7%. For this year thru October, the average daily swing was just 1.2%. There was a minor rise in volatility over the summer. To the Double Dip crowd, it was a clear warning sign that disaster was imminent. Fortunately, cooler heads prevailed and now we can see that it was merely a transient blip.

    Despite how much volatility has fallen, it’s gotten even lower recently. Over the last 19 trading sessions, the average daily swing has been less than 0.3%. During that time, the market hasn’t gone up or down by more than 0.6%. So in the last four weeks, we haven’t had one single daily swing reach half of what the market was averaging for the year! Wow.

    What does this lack of volatility mean for us? I think the role of volatility is overvalued in the stock market. Commentators often portray high volatility as bad and low volatility as good, but I don’t think it works that way. I view volatility as the perceived chance that a trend will continue, but it’s not a comment on what that trend is.

    For example, a high volatility period may reflect growing disagreement among market participants that the economy will or won’t enter a Double Dip. As the infighting becomes more intense, volatility increases. Once market participants reach a broad consensus, volatility recedes. That’s what I think has been happening. Investors now broadly agree that the recession has passed and that we’re in a slow recovery with inflation well-contained. Volatility will rise again once a new narrative asserts itself.

    The economic news continues to be hopeful. The latest report from the Chicago Purchasing Managers Index showed the highest reading since 1988. This index only covers folks in Indiana, Illinois and Michigan, but it’s usually a good bellwether for how the rest of the country is doing.

    There are two economic reports coming next week that will tell us more about how the recovery is proceeding. First, on Monday, we’ll get a look at the ISM Index. I expect a reading between 55 and 57, perhaps higher.

    Second, on Friday we’ll get the important jobs report. This is a toughie; I really don’t know what to expect. The jobs market continues to be dismal. We haven’t seen much positive data, though jobless claims just fell to a two-year low. I think Wall Street will be paying close attention. As I’ve said before, higher profit margins have been good, but we need to see top-line growth soon and that means we need to see more jobs.

    Wall Street is definitely becoming more optimistic for next year. JPMorgan Chase recently raised its GDP growth forecast for 2011 from 3% to 3.5%. Goldman Sachs raised its forecast from 2.6% to 3.5%. The Federal Reserve now expects growth between 3% and 3.6%.

    S&P currently expects the S&P 500 to earn $94.79 next year. Based on current prices, that translates to a forward P/E ratio of 13.3. Flip that over and you get an earnings yield of 7.5% which is more than twice the yield on the 10-year Treasury bond. The message is clear: Stocks are still the safe place to be.

    Let me also remind you that the new Buy List goes into effect on Monday morning (you can see the new list at the website). For tracking purposes, I consider each yearly Buy List to be a separate universe, so I assume the Buy List begins afresh as a $1 million portfolio invested equally in the 20 different stocks. The gains or losses from the previous year don’t carry over though 15 of the stocks remain the same.

    Once all the numbers are in, I’ll have a complete summary of how well the Buy List did in 2010. That’s all for now. I’ll have more market analysis for you in the next issue of CWS Market Review!

    Best – Eddy

  • Morning News: December 31, 2010
    , December 31st, 2010 at 8:19 am

    Stock Indexes Headed Lower on Last Day of Year

    Oil Heads For Highest Annual Close Since 2007

    Dollar Weakens for Third Day as Emerging Markets Gain; Cotton, Copper Soar

    Tax Breaks May Boost Paychecks by $40 Per Week

    Sugar Rebounds in New York on Shortage Outlook; London Ends 2010 Up 9.5%

    Estonia Joins Euro Club Riven by Crisis, Others Wary

    Rousseff Is No Lula as Brazil Stocks Slump Before Inauguration

    Kenyan Stocks, sub-Sahara’s Second-Best, Gain a First Year in 4 on Economy

    Skype Could Be Designated Illegal in China

    U.S. Unveils Plan to Sell Stake in Ally, Once GMAC

    Borders Delays Payments to Vendors

    New Interview with John Maynard Keynes

  • The Plunge In Volatility
    , December 30th, 2010 at 4:36 pm

    It’s hard to show the market’s plunging volatility, but here’s a good chart. This is the S&P 500 since the beginning of November. While the market has gone up, notice the trend in the difference between the daily high and low (the top of each bar and its bottom).

  • Ever Wonder What It’s Like to Fly Your Own Drone Over New York City?
    , December 30th, 2010 at 2:37 pm

    Wonder no more:

  • One Day Left
    , December 30th, 2010 at 1:56 pm

    Unfortunately, the 2010 Buy List is limping to the finish line. We’re still ahead of the market, but our lead has closed some over the last few weeks.

    The problem is that the Buy List is fairly light on cyclical stocks so we didn’t catch the biggest part of the recent updraft. We don’t have any energy stocks and that area has done especially well.

    Since November 5, the S&P 500 is up 2.77% while the Buy List is up just 0.28%. Honestly it’s not that bad, but it takes some luster off what’s been a very good year.

    Still, through yesterday’s close the Buy List is up 14.86% to the S&P 500’s 12.97%. That doesn’t include dividends. I’ll have the complete numbers this weekend, but dividends will add about 2% to the S&P 500 and about 1.65% for our Buy List.

  • Business Activity in U.S. Grows at Fastest Pace in Two Decades
    , December 30th, 2010 at 1:43 pm

    More good economic news:

    Businesses in the U.S. expanded in December at the fastest pace in two decades, adding to evidence the world’s largest economy is accelerating heading into 2011.

    The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 68.6 this month, exceeding the most optimistic forecast of economists surveyed by Bloomberg News and the highest level since July 1988. Figures greater than 50 signal expansion.

    Gains in business investment on new equipment and growing exports to emerging economies will keep factories churning out goods in the coming year, contributing to the recovery. Reports showing consumer spending is also picking up mean retailers will need to restock shelves, giving manufacturing a further lift.

    “The economy is gathering momentum,” John Silvia, chief economist at Wells Fargo Securities Inc. in Charlotte, North Carolina, said in an interview on Bloomberg Television. “New orders will follow the better business confidence that is showing up. Once the American consumer starts kicking in, we will see stronger orders data.”

    The median forecast of 49 economists surveyed by Bloomberg News projected the gauge would fall to 61. Estimates ranged from 59 to 63.7.

    I’m starting to think that the Q4 GDP growth number is going to come in very strong, possibly 5% or more.

  • Jobless Claims at Two-Year Low
    , December 30th, 2010 at 11:08 am

    More good news for the economy: the number of Americans who filed for their first week of jobless claims fell below 400,000 for the first time in over two years.

    For the week that ended on December 25, 388,000 thousand Americans filed first-time claims. That’s down by 34,000 from the week before. This is very good news, but I’m not ready celebrate just yet. We’ll get more information with next Friday’s employment report.

    While the economy has definitely pulled out of recession, the growth hasn’t filtered down much to the employment sector. For businesses to continue to see improvement in profits, sales need to start growing and that means more jobs. Today’s news is good, but we need to see a lot more of this.

  • Morning News: December 30, 2010
    , December 30th, 2010 at 7:52 am

    World Stocks Eye Two-year High

    M&A Bankers Forecast India Deal Volumes to Surpass Record 2010

    Chinese PMI Drops But Shanghai Composite Keeps Rolling

    Pope Benedict Binds Vatican to European Money-Laundering Laws

    Natural Gas Boom Coming—But So Are Major Obstacles

    Three Hedge Funds Got Inside Data From Consultant, U.S. Says

    U.S. Snowstorm Cost Retailers $1 Billion

    Groupon Draws New Investors and Works on an I.P.O.

    GE Leads $3 Trillion in Company Bond Sales as Yields Fall

    PAA Natural Gas Storage to Buy Mississippi Facility for $750 Million

    Paul Kedrosky: Scientists are Now Cornucopian Economists?

    Howard Lindzon: My 2011 Predictions…