Archive for January, 2013

  • JoS. A Bank Warns
    , January 28th, 2013 at 7:14 am

    At the end of last year, I decided to take JoS. A Bank Clothiers ($JOSB) off our Buy List. It wasn’t too much of a surprise for long-term readers of our humble blog. The company had not one, but two awful, terrible earnings reports last year.

    As I often point out, business problems aren’t like a sports team in a slump. You can’t just shake them off. If there’s a problem, there’s usually something important driving it and the problem will most likely get worse before its resolved.

    This past Friday evening at 8 pm, JOSB issued a press release. Without knowing too much about PR, you can be pretty sure that anything in a press release going out at that time isn’t going to be good news. And in this case, you would be correct.

    Joey Banks said that net income for FY 2012 would be “approximately 20%” lower than the year before. The silk tie has hit the fan. Neal Black, the CEO, said:

    The fourth quarter started out slowly, as the first two weeks of fiscal November were negatively impacted by the aftermath of Hurricane Sandy, the distractions created by the presidential election and the uncertainty of the fiscal cliff. Going into the critical holiday selling season, starting on Black Friday, we believed we had a strong marketing and promotional strategy for the period. However, many of the promotional items and a large part of our holiday assortment were items that sell best in cold weather and the weather was unseasonably warm.

    Oh dear lord. This is a cartoonish example of someone refusing to take responsibility; Hurricane Sandy, the fiscal cliff, the election and unseasonably warm weather. You gotta be kidding me. I hate to inform Mr. Black that presidential elections aren’t what we call unforeseen events.

    Let’s run some math. Last year, JOSB earned $3.49 per share, so a 20% decline would be earnings to $2.79 per share. For the first three quarters of this fiscal year (which ends at the end of the month), JOSB earned $1.83 per share. So that translates to Q4 earnings of 96 cents per share. How bad is that? Wall Street had been expecting $1.76 per share. In other words, this is a massive shortfall.

    I’m glad we got this dog off the Buy List. Monday’s opening trade will not be pretty.

  • Morning News: January 28, 2013
    , January 28th, 2013 at 6:47 am

    Davos Money Men Say World Emerges From Doldrums Fretting Relapse

    The Great Central-Banking Experiment: Will Unlimited Cash Solve Problems or Cause Them?

    ECB Says Impact of Proposed Banking Rules May Vary Across EU

    Euro Crisis Seen Reaping Social Toll With Record Jobless

    Monti Repeats Backing For Bank Of Italy Over Monte Paschi

    At Fed, Nascent Debate on When to Slow Asset Buying

    Toyota Retakes Global Lead From GM on Disaster Recovery

    Goldman Launches ICBC Selldown Of About $1 Billion

    Japan Eased Safety Standards Ahead Of Boeing 787 Rollout

    Boeing Risks $5 Billion in Revenue on 787 Probe’s Outcome

    Ryanair Boosts Full-Year Profit Forecast on Holiday Sales

    ERA Former Chairman Surprised by Caterpillar’s Siwei Writedown

    Beneath the Calm, SAC Works to Contain Fallout From Inquiry

    Edward Harrison: The Fed Changing Private Portfolio Preferences Through Quantitative Easing

    Jeff Carter: Microeconomics Monday-The Invisible Hand

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  • Frontline: The Untouchables
    , January 26th, 2013 at 7:33 pm

    Watch The Untouchables on PBS. See more from FRONTLINE.

    Watch The Untouchables on PBS. See more from FRONTLINE.

    Watch The Untouchables on PBS. See more from FRONTLINE.

    Watch The Untouchables on PBS. See more from FRONTLINE.

  • The Stock Market Is At an All-Time High
    , January 25th, 2013 at 6:49 pm

    It took us more than five years, but the broadest measure of the U.S. stock market finally closed at an all-time high today. The Wilshire 5000 finished the day at 15,878.72. The previous high close came on October 9, 2007 at 15,806.69.

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    Meanwhile, the more popular S&P 500 still needs to gain another 4.13% before it breaks its all-time high from 62 months ago. The reason for the difference between the two indexes is that small-cap stocks have done much better than large-caps.

    Since the S&P 500 is limited to the very largest stocks on Wall Street, it tends to lag when mega-caps are out of favor. Other small-cap indexes like the Russell 2000, the S&P 600 Small-Cap and S&P 400 Mid-Cap have already made all-time highs.

    Since the previous high, dividends have added 11.4% to the Wilshire’s total return while inflation has totaled 9.9%.

  • Ackman Vs Icahn
    , January 25th, 2013 at 2:11 pm

    CNBC had a surreal moment today when billionaires Carl Icahn and Bill Ackman traded insults.

  • The Market Is Going for Eight in a Row
    , January 25th, 2013 at 10:33 am

    The S&P 500 is looking to close higher for the eighth day in a row. That would be the longest winning streak in more than eight years. The index has been as high as 1,502.26. Yesterday’s intra-day high was 1,502.27.

    I noticed that Microsoft ($MSFT) is having a decent morning following yesterday’s earnings report. The shares are up about 1.7%. What’s interesting is that the stock was actually down in yesterday’s after-hours market. It’s wise not to place too much faith in those prices.

    I also see that JPMorgan ($JPM) got to a new 52-week high earlier today.

    As far as earnings season goes, the most recent numbers show that nearly 75% of the 143 companies in the S&P 500 that have reported so far have topped expectations.

  • Moog Lowers Guidance
    , January 25th, 2013 at 9:57 am

    We got our first disappointment of this earnings season. Moog ($MOG-A) said today that it’s lowering its full-year guidance. The previous range was $3.50 to $3.70 per share. The new range is $3.50 to $3.60 per share. That’s honestly not that bad and the CEO was quite candid:

    “We’re off to a slow start in 2013,” said John Scannell, CEO. “The weakness in the major economies around the world is affecting our industrial business. On the other hand, the aircraft market is strong. We have moderated our forecast for the year slightly but we are still projecting growth in both sales and earnings in 2013, despite the headwinds in our industrial markets.”

    Quarterly revenues were up 3% to $621 million. Net earnings dropped 6% to $34 million. On a per-share basis, Moog made 75 cents last quarter. Since no one follows them, I can’t say if that beat or missed expectations.

    At one point early in today’s trading, Moog was as low as $40.06 which is a drop of 11.6%. The stock, however, quickly recovered and is now down 60 cents which is a loss of 1.3%. If you own Moog, there’s no need to worry about today’s news. The stock still looks good for the long-term.

  • CWS Market Review – January 25, 2013
    , January 25th, 2013 at 8:18 am

    “Most investors want to do today what they should have done yesterday.”
    – Larry Summers

    In the CWS Market Review from two months ago, I wrote: “But with the election behind us, the clouds have cleared, and I see a strong year-end rally ahead of us. In fact, I think the S&P 500 can break 1,500 by the early part of 2013.” Well, it took the index just 24 days into 2013 to vindicate our prediction.

    On Thursday, the S&P 500 indeed broke through the 1,500 barrier for the first time since December 12, 2007. The index has now risen for seven days in a row, which is its longest winning streak since 2006. The Dow is off to its best start in more than a quarter of a century.

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    In this week’s CWS Market Review, I want to focus on the Q4 earnings parade which continues to help our Buy List beat the market. Through Thursday, we’re up 6.62% for the year, which is 1.81% ahead of the S&P 500. All 20 of our stocks are up for the year, and five have already logged double-digit gains.

    But I have to warn you: I think the market’s rally is starting to look a bit tired in the near-term. I don’t see any major problems on the horizon, but I don’t want investors thinking the last few weeks are “normal.” They’re not. There’s still a lot of trouble out there for stocks that can’t deliver. An example would be Apple’s $250 plunge since September. Our Buy List is doing well, and it’s not due to luck: it’s due to quality.

    Buy CA Technologies up to $27 per Share

    Last week, I said that CA Technologies ($CA) should be able to beat Wall Street’s earnings forecast, and that’s exactly what happened. On Tuesday, CA reported fiscal Q3 earnings of 63 cents per share, which was two cents better than Wall Street’s forecast. Quarterly revenue came in at $1.2 billion, which was also ahead of the Street at $1.17 billion.

    This is considered to be a rather dull company, and some people think it’s behind the times. But I see a good value. The day after the earnings report, the shares responded by rallying as high as $25.57 before pulling back some. If you recall from last week’s issue, I raised the Buy Below price from $24 to $27. This is a solid stock, and it pays a generous dividend, but I don’t want you chasing it if it continues to rally. I’m keeping my Buy Below price where it is. CA Technologies remains a good buy up to $27 per share.

    We got more good news on Tuesday when Wells Fargo ($WFC) announced that it’s increasing its dividend by 14% (I also saw this coming). The bank is raising the quarterly payout from 22 cents to 25 cents per share. Bear in mind that the Federal Reserve still has many of these banks on double-secret probation, so any dividend increase must be approved by Bernanke and Friends. Earlier this month, Wells reported record quarterly earnings, and it beat Wall Street’s forecast. Wells Fargo currently yields 2.84% and is a solid buy up to $37.

    Stryker ($SYK), the orthopedic implant maker, reported very good quarterly earnings on Wednesday. To be fair, the company had already told us to expect good news, yet the market continues to reward shares of SYK. With a 15.74% YTD gain, it’s the #1-performing stock on our Buy List. Consider this fact: Shares of Stryker have lost ground only twice in the last 17 trading days.

    For Q4, Stryker earned $1.14 per share, which was two cents more than Wall Street’s estimate. For all of 2012, the company made $4.06 per share, which is a healthy increase over the $3.72 per share from 2011. That’s very good growth for a sluggish economy.

    I was particularly impressed that Stryker reiterated its full-year forecast for earnings to range between $4.25 and $4.40 per share. Frankly, that’s probably too conservative, but it’s smart to play it safe so early on in the year. Don’t be surprised to see higher guidance from Stryker later this year.

    Two weeks ago, I raised my Buy Below on Stryker to $62 per share. Even though the stock has run beyond that, I’m going to hold my Buy Below here. Again, I don’t want investors to chase after good stocks. As always, our investment strategy involves discipline.

    Microsoft Isn’t the Disaster Everyone Thinks

    After the closing bell on Thursday, Microsoft ($MSFT) reported fiscal Q2 earnings of 76 cents per share, which was a penny ahead of expectations. I think these results were decent despite widespread claims that Windows 8 has been a bust.

    For the quarter, Microsoft’s profits dropped by 4% compared with last year. Quarterly revenue rose 3% to $21.46 billion, which was just shy of Wall Street’s forecast of $21.53 billion. The Windows division makes up about one-quarter of Microsoft’s overall business, and sales there rose by 11%. However, the company is getting slammed in its entertainment and office divisions.

    To be sure, Microsoft has its share of problems. The online division is a financial black hole, and Xbox revenue is falling rapidly. On the plus side, Microsoft is doing better with business customers. That’s often been a tough nut for MSFT to crack. They were able to sign up more customers to long-term contracts, which bodes well for future business.

    The problems Microsoft is having are plaguing the entire PC sector, and that’s one of the reasons why the company has joined a possible deal to take Dell ($DELL) private. I think one analyst summed it up well when he said, “Microsoft is evolving really into an enterprise software company.”

    The bottom line is that Microsoft is a company with a lot of problems. But the share price is well beneath the fair value. The stock is currently going for less than 10 times this fiscal year’s earnings. Microsoft remains a good buy up to $30.

    More Buy List Earnings Next Week

    We had some more good news this week from other Buy List stocks. I was pleased to see Bed Bath & Beyond ($BBBY) get a 4.4% lift on Thursday thanks to an upgrade from Oppenheimer. BBBY is still a good buy up to $60 per share.

    Ross Stores ($ROST) got a 3.5% boost on Thursday after it was upgraded to outperform by Credit Suisse. They raised their price target on ROST from $60 to $68. Ross Stores is an excellent buy up to $62.

    I’m writing this early Friday, and later today Moog ($MOG-A) will report earnings. In the CWS Market Review from November 16, when Moog was going for $34, I said it could “be a $45 stock within a year.” Try within ten weeks. Moog just broke $45, but don’t chase it if it crosses $46.

    Next week, we get earnings reports from Ford ($F), Harris ($HRS) and CR Bard ($BCR). I’m especially looking forward to strong results from Ford. The consensus on Wall Street is for earnings of 26 cents per share, and Ford should beat that by a lot. I haven’t heard details yet from Nicholas Financial ($NICK), but it’s very likely they’ll also report next week.

    That’s all for now. Earnings season continues next week. The government will also give us a first look at Q4 GDP report. Next Friday will be the important jobs report. The jobless claims reports have been quite good recently, so that may be a harbinger of a strong jobs number. 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: January 25, 2013
    , January 25th, 2013 at 7:02 am

    Chinese Graduates Say No Thanks to Factory Jobs

    UK Slides Back Towards Recession

    German Business Confidence Gains Third Consecutive Month

    Credit Bubble Seen in Davos as Cohn Warns of Repricing

    Fed Pushes Into ‘Uncharted Territory’ With Record Assets

    Geithner Exits Treasury as Lew Prepares for Senate Vote

    A Signal to Wall Street In Obama’s Pick For Regulators

    Jobless Claims in U.S. Decrease, Prolonging Seasonal Swings

    Kerry Says Will Make ‘Appropriate Judgement’ on Keystone

    AT&T Adds Wireless Users But Trails Verizon

    Nokia Reports Profit but Fails to Soothe Investors

    Starbucks Reports 13% Rise in Profit

    Cisco Sells Home Networking Business To Belkin

    Roger Nusbaum: Is Risk Parity A Savior Strategy?

    Cullen Roche: About That Global Secular Bear Market

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  • S&P 1,500!!
    , January 24th, 2013 at 10:09 am

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    The last time we were above 1,500 was on December 12, 2007. The first time was March 22, 2000.