Archive for January, 2016

  • Stryker Earned $1.56 per Share for Q3
    , January 26th, 2016 at 4:13 pm

    Stryker‘s (SYK) earnings are out. For Q4, the company earned $1.56 per share. As I said in Friday’s newsletter, this isn’t such a big surprise since they already told us earnings would be between $1.53 and $1.56 per share.

    Quarterly sales grew 3.7% to $2.7 billion. That’s 7.0% in constant currency.

    “With 2015 organic sales growth of 6.1%, bolstered by a strong fourth quarter increase of 6.4%, our top line results came in above our initial guidance,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “This performance reflects the strength of our diversified revenue model, a commitment to innovation and the competitive advantage of our sales and marketing organizations. Our full year adjusted diluted EPS also exceeded our initial expectation, underscoring our commitment to delivering sales growth at the high end of med tech and leveraged earnings gains. With these results and the current momentum across our businesses, we feel well positioned heading into 2016.”

    For all of 2015, Stryker made $5.12 per share. Just for the record, let’s remember Stryker’s guidance for this year. In January, the initial guidance was $4.90 to $5.10 per share. Then in April it went to $4.95 to $5.10 per share.

    In July, Stryker brought it up to between $5.06 and $5.12 per share. In October, they raised the low end by one penny per share. A few weeks ago, they raised the low end by another two pennies.

    Stryker made $4.73 per share last year.

    Sales for the year rose by 2.8% to $9.9 billion. Again, that’s 7.0% in constant currency.

    Now for guidance.

    We expect 2016 constant currency sales growth in the range of 5.0% to 6.0% and adjusted net earnings per diluted share to be in the range of $1.17-$1.22 and $5.50-$5.70 for the first quarter and full year. If foreign currency exchange rates hold near current levels, we expect net sales in the first quarter and full year of 2016 to be negatively impacted by approximately 1.1% and 1.0% and adjusted net earnings per diluted share to be negatively impacted by approximately $0.02-$0.03 and $0.12-$0.13 in the first quarter and full year.

    This was another solid year for Stryker. Here’s the annual EPS trend for Stryker: $2.95, $3.33, $3.72, $4.07, $4.23, $4.73, $5.12. And now make that $5.50 to $5.70 for next year.

  • Bond Yields and Stock Yields
    , January 26th, 2016 at 9:11 am

    Sorry for the teeny type. Here’s a chart I made showing the yield of the S&P 500 (in blue) along with the yield on the 10-year Treasury (in red).


    For decades, stocks yielded more than bonds. That changed in the mid-1950s when bonds paid better yields than stocks as Americans got used to capital gains.

    That relationship lasted for over 50 years, but during the Financial Crisis stocks again out-yielded bonds. They’ve stayed pretty close to each other over the last four years.

    Here’s some earlier (partial) data I was able to get from FRED.

  • Morning News: January 26, 2016
    , January 26th, 2016 at 7:01 am

    China Stocks Plunge to 13-Month Low Amid Capital Outflow Concern

    African Economies, and Hopes for New Era, Are Shaken By China

    OPEC’s El-Badri Calls on Global Oil Producers to Help Curb Glut

    Russian Entente Nears as Allies Hint at End of Ukraine Sanctions

    Iran’s Sanctions Lift, and the West Goes to Talk Business

    The Five Scenarios Now Facing the Federal Reserve

    Court Hands Administration, Environmentalists A Win In Electricity Supply Ruling

    Hyundai Posts Lowest Profit in Five Years on China Slowdown

    Twitter’s Overhaul of Top Ranks: Analysts React

    So Far, Amazon and Netflix Are Sundance’s Top Buyers

    J&J Sales Fall on Strong Dollar

    U.S. Cruise Lines Look For Growth in China’s Waters

    These Dudes Built An Igloo During The Blizzard And Listed It On Airbnb

    Howard Lindzon: THE BANKS ARE CRASHING….Everyone to the FAZmobile

    Joshua Brown: On Everyone’s Mind

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  • Stocks and Oil Are Correlated
    , January 25th, 2016 at 12:56 pm


    The WSJ notes that stocks and oil are 97% correlated this year. That’s the highest in 26 years.

    The unusually strong link between the two markets partly reflects a common theme driving both: fears that a slowing Chinese economy could tip the global economy into recession. But as traders and investors in each market look at the other for clues as to how bad things are, they have exacerbated the overall bearish mood.

    The recent pattern marks a shift in the dynamics of oil’s 19-month collapse. Traders who long worried that the oil market was suffering from oversupply are now growing increasingly concerned that demand may be weakening as well.

    “There is a vicious-cycle mentality among investors,” said François Savary, Chief Investment Officer at Prime Partners, a Swiss investment firm managing $2.6 billion of assets. “It is become self-sustaining.”

    In the chart above, red is the S&P 500 and black is oil.

    It seems that we’ve turned a corner where lower oil went from being a net a benefit for the economy (lower gas prices, more consumer spending) to being a net negative for the economy (defaults, etc).

  • My Lousy Timing with McDonald’s
    , January 25th, 2016 at 12:41 pm

    It’s always good to look at my mistakes. In 2014, I added McDonald’s (MCD) to our Buy List. I can’t say I’m a big fan of their food, but I thought the stock was cheap and the company was poised for a turnaround.

    My thesis was correct but my timing was off. The stock went nowhere during 2014 and I decided to boot it from the 2015 Buy List. Then in August 2015, the stock started to move. MCD went from a low of $87.50 in August to high today of $121.90.


    This morning, the fast food joint reported good earnings.

    McDonald’s Corp.’s fourth-quarter profit and revenue soundly beat analysts’ expectations, as the company’s move to all-day breakfast helped drive the best quarterly results in the U.S. in nearly four years.

    Signs that a turnaround under Chief Executive Steve Easterbrook was beginning to take hold emerged in the third quarter, when McDonald’s U.S. division posted its first quarterly increase in same-store sales in two years. That momentum continued into the fourth quarter with the launch of breakfast all day in early October—the company’s biggest strategic change since it rolled out McCafe beverages nationwide in 2009.

    Investors expected all-day breakfast to boost sales, but not this much. Sales at U.S. restaurants open at least 13 months jumped 5.7% in the fourth quarter—far above the 2.7% growth analysts were expecting and the best same-store sales results in the U.S. in 15 quarters. Globally, same-store sales rose 5%, while analysts were expecting growth of 3.2%.

    As Keynes supposed said, “markets can remain irrational a lot longer than you and I can remain solvent.” The guys in The Big Short had to wait and wait for their big bet to pay off as well. But it took time.

  • Mid-Day Market Update
    , January 25th, 2016 at 12:15 pm

    Here on the East Coast, we’re still digging out from the blizzard. Fortunately, the sun is helping us out today.

    The stock market has calmed down today. At noon, the S&P 500 is down about 0.6%, but that’s more subdued than the previous few days. Once again, energy stocks are leading the down swing. Financials are doing poorly as well. On our Buy List, Signature Bank is down about 4%. I suspect that some of that is due to their recent second offering. Still, the important point on SBNY is that their earnings were quite strong.

    So far, healthcare is the only group in the green. CR Bard is our top performer today. It’s up about 1.4%.

  • Morning News: January 25, 2016
    , January 25th, 2016 at 6:50 am

    The Case for the World Economy’s Defense Is Made as Stocks Swoon

    It’s All About Oil as Falling Crude Leads Exporters, Ruble Lower

    Oil Drops as Saudis to Maintain Spending, China Diesel Use Falls

    China Capital Outflows Rise to Estimated $1 Trillion in 2015

    Yellen Losing Dollar Bet as its Rise Slows Growth and Inflation

    Philips Dims Lights on China

    Europe’s Top Digital Privacy Watchdog Zeros In on U.S. Tech Giants

    Wal-Mart: It Came, It Conquered, Now It’s Packing Up and Leaving

    As Jack Dorsey Tries to Reshape Twitter, Revolving Door Takes Another Spin

    Looking For Signs That Apple’s Runaway Growth is Waning

    Did Google Escape Too Lightly With Its U.K. Tax Deal?

    Why Small Businesses Are Getting LinkedIn Wrong

    Second-Year Super Bowl Advertisers Face Their Own Pressures to Succeed

    Cullen Roche: Revisiting Max Pain

    Jeff Miller: A Dovish Tilt From The Fed?

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  • CWS Market Review – January 22, 2016
    , January 22nd, 2016 at 7:08 am

    “It’s waiting that helps you as an investor, and a lot of
    people just can’t stand to wait.” – Charlie Munger

    I know the feeling, Charlie. And it’s been especially painful this week. Compared with Wall Street, The Revenant bear went easy on Leo! The financial bears went marauding down Wall Street this week, wrecking everything in their path.

    At one point on Wednesday, the S&P 500 was down more than 3.6%. The index had erased all of its gains of the past two years. The S&P 500 was more than 13% below last month’s low.

    But that was only the morning. Once the S&P 500 hit 1,812—what I’m calling the “Tchaikovsky low”—the big cannons came out. The market turned around and promptly rallied 3.5% Wednesday afternoon. That’s usually the kind of action you see spread over a week, not your lunch break.


    Fear not. In this week’s CWS Market Review, I’ll break down what’s got everyone so frazzled. The good news is that earnings season is here, and we’ve already had good results for our Buy List. I’ll highlight our two bank stocks that just beat Wall Street’s consensus.

    Next week is going to be a busy week for us. Six of our Buy List stocks are due to report earnings, including four next Thursday. Plus, the Federal Reserve meets again next week. (Don’t expect them to do anything.) We’ll also get our first look at Q4 GDP. But first, let’s look at the damage the angry bear has done.

    The Fed’s Plans Have Come Undone

    One of the most basic truths of investing is that financial markets move in two gears—either slow and boring, or everyone freaking out. We’re now in the latter gear.

    We hit a similar patch last summer. You may recall that I sounded an “all-clear” signal once the VIX fell below 20. That proved to be accurate.

    This time around, I’m afraid I can’t be so optimistic. The reason is that the market has been getting battered for more consequential reasons. The decline in energy prices has turned from a slump into a decline and now into an all-out crash.

    The price for February WTI (that’s how the cool kids refer to the futures contract for West Texas Intermediate) fell as low as $26.41 on Wednesday. The oil crash has been astounding, and it’s wreaking havoc on world economies. Consider this fact: Russia’s budget would be balanced if oil were at $82 per barrel. We’re not even close to that. In response, currency traders gave the ruble a super-atomic wedgie. Russia isn’t the only one in trouble. This week’s CPI report showed that the price for motor fuel plunged 38% last month. Later on, I’ll talk about energy defaults at Wells Fargo.

    The market turmoil has led folks to believe that Janet Yellen’s rate increase last month was a big mistake. I want to be precise in how I state this. I don’t think the Fed’s rate increase was an obvious mistake, and I don’t see how a small rate increase could cause such mayhem.

    But investing forces pragmatism upon us. We have to deal with the market we have, not the one we wish for. The simple fact is that the futures market has completely walked away from the idea of the Fed raising rates a few more times this year. Odds for a March rate hike dropped from even money at the start of the year to 19% today. A good proxy to watch for Fed policy is the yield on the two-year Treasury. Ever since the Fed raised rates last month, the two-year yield (below in black) has synced up with the S&P 500 (in red). That’s a major tell. Stocks are dropping in perfect harmony with the Fed’s plans coming undone.


    Like I said, I don’t see the Fed’s move as obvious policy error, but the market clearly thinks otherwise. Falling energy prices and a surging dollar will help keep the lid on inflation. In a sense, oil and currency traders are doing the Fed’s job for them. Several currencies like the pound, ruble and rupee are at multi-year lows against the greenback. There’s even talk of the Fed’s next move being a rate cut.

    The reassessment of Fed policy has ruptured the stock market. The market has traded red for at least part of the session every day this year. In 14 days, the S&P 500 shed 10.5%. At the end of the day on Wednesday, more than 400 of the stocks in the S&P 500 were below their 200-day moving average. On the NYSE, 1,492 stocks hit a new 52-week low. Except for the hysteria in late 2008, that’s a 20-year low. Nineteen out of 20 stocks in the S&P 500 are trading below their 20-day moving average.

    The intra-day swings have been remarkable. Look at Southwestern Energy (SWN). On Wednesday, the shares went from being down 10% in the morning to being up 14% in the afternoon. This isn’t some penny stock—it’s a multi-billion-dollar outfit that’s getting treated like a hand in blackjack.

    The rising dollar doesn’t just impact commodities. It also hits the bottom line at many companies. IBM (IBM) said that the strong dollar cost them $7 billion last year, and they project that forex will cost them another $1.3 billion this year.

    This highlights an important fact about the market. There’s been a growing divide between cyclical stocks and everybody else. By cyclical, I mean sectors like Energy, Materials and Industrials. If your job involves sliding off a dino into your car, then you probably work for a cyclical.

    Check out the chart below of different S&P 500 sectors. The bottom three performers are Energy, Materials and Industrials. They’ve been getting creamed, especially Energy, while the top four lines (Tech, Healthcare, Staples and Discretionaries) are down but not by much.


    The downturn has particularly affected small-cap indexes which skew toward domestic manufacturing companies. In the last seven weeks, the Russell 2000 is down more than 17%.

    The good news for us is that our Buy List doesn’t have many cyclicals. It’s obviously very early, but our Buy List has already opened up a lead against the S&P 500 (we’re down, but not by as much). While I can’t sound an all-clear signal for you, I urge you to focus on high-quality stocks like those on our Buy List. Some names that stand out at the moment are Biogen (BIIB), Ford Motor (F) and Snap-on (SNA). Now let’s look at some recent earnings reports from our Buy List.

    Earnings Beats from Wells Fargo and Signature Bank

    Wells Fargo (WFC) kicked off earnings season for us last Friday. The big bank reported Q4 earnings of $1.03 per share which topped Wall Street’s consensus by a penny per share. This is a very well-run bank, but don’t expect massive gains here. It’s a slow and steady winner. (Remember, Warren Buffett owns a big stake.)

    Frankly, this has been a tough time for a lot of banks. The results from Wells may not sound so impressive, but considering the environment, they’re quite good. Compared with Q4 of 2014, Wells’s profit increased by just one penny per share, but the bank increased its assets by 6%. Management’s plan has been to acquire assets ahead of the Fed’s interest rate increase.

    Looking at Wells’s numbers, the weak spot isn’t hard to find: energy loans. Wells got stung here just like everybody else. No matter where you look in the financial world, you see the impact of falling oil. Last quarter, the bank lost $118 million on defaults to energy companies. That sounds bad, but it’s just 2% of Wells’s overall portfolio. Still, the numbers here are going to be a drag on the bottom line for at least a few more quarters.

    Right now, their retail and wholesale banking business is basically flat, but wealth management is doing well. Wells’s mortgage business is also on the rebound, but it’s a lot smaller than it was a few years ago.

    The stock’s been a weak performer of late (-11.68% YTD) but I still like WFC a lot. The environment won’t always be so tough on banks. Going by Thursday’s close, WFC yields more than 3.1%. This week, I’m lowering my Buy Below on Wells Fargo to $52 per share. There’s nothing wrong with it. I simply want our Buy Belows to reflect the current market.

    In last week’s CWS Market Review, I wrote on Signature Bank’s (SBNY) upcoming earnings report: “Wall Street expects $1.93 per share. Guess what? They’ll beat that.” Guess what? I was right. For Q4, Signature earned $2.01 per share.

    I’m surprised more people don’t know about SBNY. The numbers continue to be amazing. Net income was up over 26% last quarter. For all of 2015, the bank earned $7.27 per share. That’s a nice increase over the $5.95 per share they made in 2014. Net interest margin, which is the key metric for any bank, was 3.30% for Q4. That’s quite good.

    “2015 was another record year in which Signature Bank demonstrated its ability to deliver exemplary results. Once again, we set records across all of our key metrics, including deposits, loans and earnings, reporting our eighth consecutive year of record earnings. And, for the first time, the Bank earned more than $100 million in one quarter,” explained Joseph J. DePaolo, President and Chief Executive Officer.

    Signature was also named to Forbes magazine’s list of the “Best Banks in America” for the sixth year in a row. Like Wells, SBNY’s stock has been taking a beating lately. In fact, it has done even worse then Wells. In late November, the shares were over $163, but they got as low as $131.21 last week. Fortunately, the good earnings report helped a little. The bank also plans to raise money by floating 2.2 million shares. I like SBNY a lot. I’m lowering my Buy Below on Signature Bank to $150 per share. Again, like Wells, I want to be more in line with the current price.

    Six Earnings Reports Next Week

    Get ready for a busy week next week. Six of our Buy List stocks are due to report earnings. You can see our complete Earnings Calendar. Bear in mind that some dates may change. We’ll update the calendar as best as we can.

    On Tuesday, Stryker (SYK) is due to report its Q4 earnings, but this won’t be much of a surprise because the company already told us to expect good results. Last week, the medical device-maker raised its full-year guidance to a range of $5.09 to $5.12 per share.

    Since they already made $3.56 per share for the first three quarters of 2015, that means that Q4 should range between $1.53 and $1.56 per share. (That’s compared with $1.44 from Q4 2014.) Stryker remains a very good stock. Remember that they raised their dividend by 10% last month.

    On Wednesday, Biogen (BIIB), one of our new guys, is due to report. This stock has been beaten up lately. This earnings report probably won’t be that great, but Wall Street isn’t expecting much. Our view on Biogen is that the future quarters will look much better. I’ll be curious to hear if they provide guidance for 2016. Biogen is going for about 14 times this year’s earnings estimate. There’s a lot of potential here.

    Thursday is our big day as four of our stocks are due to report: Alliance Data Systems, CR Bard, Ford Motor and Microsoft.

    When they reported Q3 earnings, Alliance Data Systems (ADS) said they expect earnings-per-share of $15 for 2015 and “at least” $17 for 2016. I think they should be able to hit both numbers.

    CR Bard (BCR) is an outstanding company. They’ve bumped up their dividend every year since 1972. For Q4, Bard expects earnings to range between $2.38 and $2.42 per share. That means full-year earnings will come between $9.03 and $9.07 per share.

    The recent drop in Ford Motor (F) has been stunning. Before the last earnings report, the stock had closed at $15.68 per share. This week, the stock was trading under $12 per share. Last week, the automaker announced a special 25-cent dividend. Ford also said earnings this year will be the same or better than 2015’s. For Q4, Wall Street expects earnings of 46 cents per share.

    Microsoft (MSFT) has held up relatively well in the recent sell-off. The stock is still above $50 per share. The software giant has been in the midst of an impressive renaissance. Wall Street expects fiscal Q2 earnings of 71 cents per share. The last three earnings reports beat estimates by 7%, 13% and 19%. You can see why investors have taken notice.

    That’s all for now. Get ready for a lot of earnings reports coming our way next week. Also, the Federal Reserve meets again next week, but don’t expect any moves in interest rates. The policy statement will come out on Wednesday afternoon. On Thursday, the durable goods report comes out. The report for November was flat. Then on Friday, we get our first look at the Q4 GDP report. I’m expecting something around 1.7%, give or take. 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 22, 2016
    , January 22nd, 2016 at 6:57 am

    PBOC Said to Tell Banks to Cancel Repos With Excessive Rates

    Everyone’s Got a China Call As Markets Grapple With Who’s Right

    Draghi’s Market Dialog Moves to Davos After ECB’s Groundhog Day

    Euro Area Hit By Market Volatility as ECB Mulls March Action

    U.S. Is Hiding Treasury Bond Data That’s Suddenly Become Crucial

    This Time, Cheaper Oil Does Little for the U.S. Economy

    Freeport-McMoRan Battles the Oil Slump

    Schlumberger Reports Big 4Q Loss, Says Cut 10,000 More Jobs

    Cable Acquisitions by Charter Communications Face Rising Opposition

    United, Southwest Buy 73 Boeing Jets in Blow to Bombardier

    Funds Roll In For Start-Up Harnessing Bitcoin Tech

    Dimon’s Pay Jumps 35% to $27 Million

    AmEx Shares Fall as 2016 Earnings Outlook Disappoints

    Jeff Carter: Startups And Corporates

    Roger Nusbaum: Bear Market Confirmed?

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  • Good Earnings from Signature Bank
    , January 21st, 2016 at 1:45 pm

    Before the bell, Signature Bank (SBNY) reported Q4 earnings of $2.01 per share. That was eight cents better than estimates. For the year, SBNY made $7.27 per share.

    Deposits for the 2015 fourth quarter rose $162.6 million, or 0.6 percent, to $26.77 billion at December 31, 2015. Overall deposit growth in 2015 was 18.4 percent, or $4.15 billion, when compared with deposits at the end of 2014.


    “2015 was another record year in which Signature Bank demonstrated its ability to deliver exemplary results. Once again, we set records across all of our key metrics, including deposits, loans and earnings, reporting our eighth consecutive year of record earnings. And, for the first time, the Bank earned more than $100 million in one quarter,” explained Joseph J. DePaolo, President and Chief Executive Officer.

    SBNY has been unusually weak lately. The stock was over $163 last November and was recently as low as $131.21 on Friday. It’s back near $140 today.