Archive for December, 2017

  • Last Year’s Sells
    , December 26th, 2017 at 12:49 pm

    I’m going to violate one of my rules in this post. I often tell investors not to fret about what happens to a stock that they sold.

    Sure, it can keep going up. They won’t time everything perfectly. The point is to not worry about something that’s already done.

    Having said that, let’s look at the five stocks we sold from the Buy List last year.

    Ford +4.12
    Biogen +22.32%
    Stericycle -11.33%
    Wells Fargo +11.69%
    Bed Bath & Beyond -44.81%

    Those are YTD numbers as of midday today. Three are up, two are down. Poor Bed Bath has been clobbered. Only one of the five has beaten the S&P 500 this year.

    Here’s what I wrote a year ago:

    Bed Bath & Beyond was one of the most frustrating stocks to own. They had a long-time reputation for being a well-run outfit. Unfortunately, they fell behind the times. I simply stayed in this one for too long. I waited for a turnaround that never came. This week, the company released yet another poor earnings report. It’s time to let it go.

    There’s a lot I like about Ford. Overall, I think the company did a good job managing its way through the recession. Ford was never bailed out. They also made an impressive change to aluminum-body trucks. I also liked Ford’s generous dividend, plus their special dividend payment. Unfortunately, the outlook for Ford isn’t as rosy as I had assumed.

    I’m sad to part with Biogen. There’s a lot to like about this biotech, but I think they need to make some big changes first. Sales of Tecfidera have slowed down dramatically, and their broader pipeline is weak. Next year’s spinoff of Bioverativ is a good start. Despite its terrible name, Bioverativ could turn into a winner. I need to see results first, however.

    Stericycle was a mistake from the beginning. I simply missed how poorly organic sales had been performing. Management tried to mask these issues with a series of unwise rollups. This was a massive loser for us this year.

    There’s not much else to be said about Wells Fargo that hasn’t been said before. Fundamentally, WFC is a sound bank, but it’s been tainted by its indefensible behavior. At least, the stock has been a terrible performer this year.

  • Sorry, We Don’t Take Cash
    , December 26th, 2017 at 11:47 am

    From the New York Times on places that no longer accept cash:

    The other day at Dig Inn, a just-opened lunch spot on Broadway and 38th Street in Midtown Manhattan, Shania Bryant committed a consumer faux pas. She placed her order for chicken and brown rice and yams, and when she got to the register, she held out a $50 bill.

    “Sorry,” the cashier told her. “We don’t take cash.” Not, “We don’t take $50s.” No cash. Period.

    “What?” Ms. Bryant asked.

    The cashier patiently explained. Credit and debit cards were fine, as was the easy-to-download Dig Inn phone app. But the almighty dollar was powerless.

    “I’ve never experienced that before,” said Ms. Bryant, 20, an assistant to a designer. “I guess we’re in new times.”

    Indeed. Cashless businesses were once an isolated phenomenon, but now, similarly jarring experiences can be had across the street at Sweetgreen, or two blocks up at Two Forks, or next door to Two Forks at Dos Toros, or over on 41st Street at Bluestone Lane coffee. In Midtown and some other neighborhoods across New York City, cashless is fast on its way to becoming normal.

    I’m not sure what would happen if you refused to pay in anything but cash. If a store took legal action against you, I would assume you’d be entitled to settle in cash “legal tender for all debts, public and private”.

  • New Home Sales and Personal Income
    , December 26th, 2017 at 11:30 am

    I wanted to highlight some good economic reports that came out on Friday.

    The first said that new home sales rose to an annual rate of 733,000 in November. That’s a 10-year high and it’s an increase of 17.5% over October.

    We also learned that personal income rose 0.3% last month while spending rose by 0.6%. Both are good numbers although it means our savings rate dipped a little.

    Finally, durable goods orders rose 1.3% in November which was below estimates of 2%.

    These are pretty good numbers we’re seeing.

  • The Santa Claus Rally
    , December 26th, 2017 at 11:19 am

    We’re right at the historically best time of the year for stocks. Actually, that’s an understatement. Historically, this is the best time of the year by far. Over the last 120 years, one-third of the Dow’s annual gain has come in the next half a month.

    Let me be clear: I don’t think there’s any useful trading information in these historical seasonal patterns. I would never make an investment decision based on the calendar. Plus, if you run enough data, some oddball pattern will emerge. That doesn’t mean it’s real.

    But I do think these patterns are interesting for their own sake. My guess is that the ending of each year brings forth some optimism for the new year.

    Now let’s dig into the numbers. Crunching 120 years’ worth of data we find that from December 21 to January 6, the Dow has gained an average of 2.69%. That’s 16 days and trading is always closed on New Year’s Day. That’s 36.2% of the Dow’s total annual price gain (dividends aren’t included) coming in just 4.4% of the year. What’s also interesting is how meager the gains have been for the rest of the time.

  • Morning News: December 26, 2017
    , December 26th, 2017 at 7:20 am

    China to Overtake U.S. Economy by 2032 as Asian Might Builds

    China’s New Lenders Collect Invasive Data and Offer Billions. Beijing Is Worried.

    Bitcoin Rises 10%, Recovers From Last Week’s Brutal Selloff

    Morgan Stanley Says the True Price of Bitcoin Might Be Zero

    QuickTakes Explain the Year Ahead

    General Electric: An Excellent Long-Term Investment

    Apple Suppliers Drop on Report of iPhone X Demand; Analysts’ Views Mixed

    Hyundai Heavy Industries Group to List Oilbank, Issue $1.2 Billion Rights Shares

    Material World: Movie Theaters Want You Back, So They’re Rushing to Modernize

    In a Year of Nonstop News, a Batch of Business Books Worth Reading

    Steven Cohen Plans a New Hedge Fund. Investors Are Wary.

    Big Tech Succeeded in Getting Bigger in 2017 — But Its Failures to Society Became Much More Apparent

    Jeff Miller: Which Stocks are the Tax Cut Winners (or Losers)?

    Jeff Carter: Regulating Bitcoin

    Howard Lindzon: Predictions for 2018 – Supply, Supply, Supply!

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  • Morning News: December 25, 2017
    , December 25th, 2017 at 8:26 am

    China Central Bank Official Says Bankruptcy May Benefit the Country

    Power Prices Go Negative in Germany, a Positive for Energy Users

    Here’s Why You Should Invest In Bitcoins This Holiday Season

    The Bitcoin Hoax

    The Year in Money

    From Record Bankruptcies to Walmart’s E-Commerce Leaps, the Year In Retail

    Harry Potter and the Magical Profit Margins Under the Tree

    6 Tales of Parents Who Did What It Takes to Snag Must-Have Toys at Christmas

    Blood-Testing Firm Theranos Gets $100 Million Lifeline From Fortress

    Yandex to Expand UberEats in Russia With Local Acquisition

    The Loopholes Drug Companies Use to Keep Prices High

    Amgen Estimates Its U.S. Tax Bill at Over $6 Billion as it Repatriates Cash

    Michael Batnick: These Are the Goods

    Ben Carlson: Constructive Dissatisfaction

    Josh Brown: You’re On Your Own Now

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  • Merry Everything!
    , December 24th, 2017 at 7:09 am

    New York Wall Street "Charging Bull" bronze staue which is up for sale

    I wanted to take this opportunity to wish everyone a Merry Christmas and a happy, healthy and profitable new year.

    This has been an incredible year for us. The blog continues to grow its readership. The newsletter has a record number of subscribers and our Twitter following is growing as well.

    Our ETF turned one year old. I want to thank all our shareholders for their trust and confidence in me.

    I also want to thank my tireless editor, Marcia Hippen. She also posts the invaluable morning news links. I also want to acknowledge some of my fellow financial bloggers Barry Ritholtz, Josh Brown, Morgan Housel, Michael Batnick, Howard Lindzon, Tadas Viskanta, Jeff Miller and many, many others for their continued support.

    I’d also like to thank the people who follow and interact with me each day on Twitter.

    Most of all, I want to thank all of my readers for your continued support.

    Let’s hope 2018 brings us more success!

  • Bard and BDX, It’s Really Happening
    , December 22nd, 2017 at 3:23 pm

    Press Release:

    BD (Becton, Dickinson and Company) (BDX), a leading global medical technology company, issued the following statement regarding today’s clearance by the U.S. Federal Trade Commission (FTC) for BD to acquire C. R. Bard (BCR), contingent on the divestitures of BD’s soft tissue core needle biopsy product line and C. R. Bard’s Aspira® product line of tunneled home drainage catheters and accessories:

    “FTC approval brings us one step closer to full regulatory clearance of the Bard acquisition,” said Vincent A. Forlenza, chairman and CEO of BD. “We currently expect that the Bard acquisition will close in December, pending approval by the Ministry of Commerce of the People’s Republic of China (MOFCOM) and the satisfaction of customary closing conditions.”

    The deal calls for BCR shareholders to get $222.93 in cash plus 0.5077 shares of BDX for each share of BCR they own. Today that comes to $330.50, which is about 80 cents above BCR’s current share price.

  • CWS Market Review – December 22, 2017
    , December 22nd, 2017 at 7:08 am

    Ladies and gentlemen, here are the 25 stocks for the 2018 Crossing Wall Street Buy List:

    AFLAC (AFL)

    Alliance Data Systems (ADS)

    Carriage Services (CSV)

    Cerner (CERN)

    Check Point Software Technologies (CHKP)

    Church & Dwight (CHD)

    Continental Building Products (CBPX)

    Cognizant Technology Solutions (CTSH)

    CR Bard (BCR) soon to be Becton, Dickinson (BDX)

    Danaher (DHR)

    FactSet Research Systems (FDS)

    Fiserv (FISV)

    Hormel Foods (HRL)

    Ingredion (INGR)

    Intercontinental Exchange (ICE)

    Moody’s (MCO)

    Ross Stores (ROST)

    RPM International (RPM)

    Sherwin-Williams (SHW)

    Signature Bank (SBNY)

    JM Smucker (SJM)

    Snap-on (SNA)

    Stryker (SYK)

    Torchmark (TMK)

    Wabtec (WAB)

    The five new stocks are Carriage Services (CSV), Check Point Software Technologies (CHKP), Church & Dwight (CHD), FactSet Research Systems (FDS) and Torchmark (TMK).

    I’ll have more details on the new buys in next week’s issue.

    The five sells are Axalta Coating Systems (AXTA), Cinemark Holdings (CNK), Express Scripts (ESRX), HEICO (HEI) and Microsoft (MSFT).

    To recap, I assume the Buy List is equally weighted among the 25 stocks. The buy price for each stock will be the closing price on Friday, December 29, 2017. The new Buy List goes into effect on Tuesday, January 2, 2018, 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 2017 in next week’s issue. I’ll also have more to say about our new buys, and I’ll give you new Buy Below prices.

    With a week to go, we’re running neck-and-neck with the S&P 500. Through Thursday, our Buy List is up 20.75% for the year compared with 19.91% for the S&P 500. Including dividends, which is what counts, our Buy List is up 21.96% which is a tad below the S&P 500’s total return of 22.29%. We still have a few more days to catch up.

    I want to add a few points about this year’s market. One is that had Axalta taken the $37-per-share offer from Nippon Paint, then we’d be in a better position today (about 0.7% for the entire portfolio). Also, the market this year has been distorted due to the surge in large-cap tech stocks. Apple, Amazon and Facebook are all up more than 50% this year. As a result, the median performer in the S&P 500 this year trails the overall index by more than 3%. That’s not normal, and it makes it more difficult to beat the overall market.

    Our 12-year track record against the market is still quite good. I’ll have complete details in next week’s issue.

    Our Five Sells

    Let me add a few words on the sells. My belief is that each new buy should last a few years. I turn against a stock when it turns out to be something quite different from what I originally believed, or if the share price is just too high.

    Axalta Coating Systems (AXTA) is a tough one to sell because I still think my original thesis was correct. However, it was a big mistake for them to shoot down the offer from Nippon Paint. According to some sources, the offer was for $37 per share. They should have taken it. They got greedy and lost out.

    Cinemark Holdings (CNK) was a mistake. My bad. I don’t think I fully realized how much the business is at the mercy of the film industry. If there’s nothing pulling in moviegoers, then their business will suffer. There’s not much you can do. The last two earnings reports were not encouraging.

    It’s probably not a surprise that I’m ditching Express Scripts (ESRX). This has been such a good business for so long, but the game is changing for them. The loss of Anthem didn’t help. At least we’re getting out after an impressive rebound since October. I suspect they’ll be bought out sometime in 2018.

    HEICO (HEI) may be the toughest one for me to sell. I like this company a lot, and it’s been a big winner for us. This one just comes down to math. HEICO is simply too expensive. The shares are going for 44 times the fiscal year, which ended in October (I’ll summarize the earnings report in a bit). If the company grows its earnings by 12% for the next two years, which is very reasonable, and the stock stays the exact same, then it’s still expensive. HEICO doubled for us in two years.

    Microsoft (MSFT) is similar to HEICO. I like the company a lot, and they’ve done a great job in turning the ship around. We also got lucky because the market favored big-cap techs this year. We added Microsoft to the Buy List five years ago. At the time, MSFT was going for $26.71. Today, it’s at $85.50. Thank you, Satya!

    Strong Earnings Finale from HEICO

    Even though we’re getting rid of HEICO next year, I wanted to cover their earnings report this week. After Monday’s closing bell, HEICO (HEI) reported fiscal-Q4 earnings of 62 cents per share. That’s up from 52 cents per share in last year’s Q4. HEICO doesn’t give per-share guidance, but I ballparked theirs at 55 to 59 cents per share. The consensus on Wall Street was for 57 cents per share, so this was a very good quarter for HEICO.

    For the fiscal year, HEICO made $2.14 per share which is up from $1.83 per share last year. Quarterly sales rose 18% to $421.2 million. Operating margin increased to 21.2%.

    Laurans A. Mendelson, HEICO’s Chairman and CEO, said:

    HEICO’s record fiscal 2017 fourth quarter and full-year results were principally driven by continued organic growth, exemplary execution by our subsidiaries and the acquisition of profitable, well-managed businesses within both our Electronic Technologies Group and Flight Support Group.

    (…)

    As we look ahead to fiscal 2018, we anticipate net sales growth within the Flight Support Group’s commercial-aviation and defense-product lines. We also expect growth within the Electronic Technologies Group, principally driven by demand for the majority of our products. During fiscal 2018, we will continue our commitments to developing new products and services, further market penetration, and an aggressive acquisition strategy while maintaining our financial strength and flexibility.

    Based on our current economic visibility, we are estimating 10% – 12% growth in full-year net sales and in full-year net income over fiscal 2017 levels. We anticipate our fiscal-year 2018 consolidated operating margin to approximate 20%, depreciation and amortization expenses of approximately $75 million, capital expenditures to approximate $50 million and cash flow from operations to approximate $290 million. These estimates exclude the impact of any pending tax reforms that are currently being legislated in Congress. Furthermore, these estimates exclude additional acquired businesses, if any.

    Through Thursday, HEICO is up 53.18% YTD for us. That trails only Moody’s. I really like HEICO, but I don’t see much upside from here.

    Before I go, a heads-up that RPM International (RPM) will release its fiscal Q2 earnings report on January 4. I’ll have more to say about this next week. Wall Street expects 59 cents per share.

    That’s all for now. The stock market will be closed on Monday, December 25 for Christmas. Trading resumes on Tuesday, and the final day of trading for 2017 will be on Friday, December 29. The next issue of CWS Market Review will be on Sunday, December 31. I’ll have a complete summary of how we did in 2017, plus I’ll list the starting prices for 2018. 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

    P.S. Shareholders of my AdvisorShares Focused Equity ETF (CWS) should have received proxy voting materials in mid-November. For many shareholders, proxy materials are available online through the brokerage firm where the account is located.

    It is very important to record your vote. As noted in the materials, the Board of Trustees recommends voting “For” each proposal. For assistance, or to have your votes quickly accepted by phone, please call Alliance Shareholder Communications at 855-973-0090. You may also call the team at AdvisorShares at 877-843-3831 if you have additional questions.

  • Morning News: December 22, 2017
    , December 22nd, 2017 at 7:02 am

    The Year in Money

    Tax Bill Is Great for Accountants – Unless They Have Holiday Plans

    Congress Averts a Shutdown But Now Faces a Messy Start to 2018

    Bitcoin Price Drops Below $14,000 as Cryptocurrency Competition Heats Up

    Goldman Is Setting Up a Cryptocurrency Trading Desk

    Trade Group Warns Investors of Bitcoin Pump & Dump Scams

    Can You Spot the Latest Blockchain Stock? It’s a Long Island Beverage Maker

    Eric Schmidt to Step Down as Alphabet’s Executive Chairman

    A Boeing-Embraer Tie-Up Is Hardly A Surprise, But It Sure Would Make Things Interesting

    Ho, Ho, Ho, Xiaomi

    Papa John’s Funder to Step Down as CEO

    Lotte Chief Gets Suspended Prison Sentence; Free to Run Firm

    Jeff Carter: Additions to the Tax Bill I’d Like to See

    Mark Hines: Stock Exchange: Is This Trend Really Your Friend?

    Cullen Roche: The State of the Trump Bubble

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