Archive for January, 2018

  • Three Charts for this Morning
    , January 30th, 2018 at 10:07 am

    Here are some charts I wanted to pass along.

    The S&P 500 fell 0.67% yesterday. That was its biggest drop since September 5, which was the Tuesday following Labor Day.

    It looks like we may pass that today.

    This shows the S&P 500’s dividend yield in black, being surpassed by both the 10-year (blue) and 2-year Treasury yields (red).

    Yesterday, the VIX rose by 25%. It’s up again today.

  • Danaher Earns $1.19 per Share for Q4
    , January 30th, 2018 at 9:57 am

    Dananher (DHR) had a very good quarter for Q4. The company earned $1.19 per share. They had given us a guidance range of $1.12 to $1.16. Later, the CEO said earnings would be in the upper end of that range. What Danaher called “non-GAAP core revenue” rose by 5.5%.

    For the whole year, Danaher made $4.03 per share. That’s up 11.5% over 2016. Non-GAAP core revenues grew by 3.5%. Danaher had operating cash flow of $3.5 billion.

    The Company generated strong operating cash flow of $3.5 billion for the full year 2017.

    Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “We are very pleased with our strong fourth quarter results. The team delivered 5.5% core revenue growth, solid margin expansion, and double-digit adjusted earnings per share growth. As we reflect back, 2017 was a year of accelerating revenue growth, solid margin improvement, continued growth investment, and great performance at our more recently acquired larger businesses. In addition, mid-teens growth in free cash flow helps position us for more significant capital deployment in 2018.”

    Joyce continued, “As we look ahead, we believe that the strength of our portfolio, combined with the power of the Danaher Business System, provide us with the foundation for long-term shareholder value creation.”

    For Q1, Danaher sees earnings range between 90 and 93 cents per share. For all of 2018, they’re projecting $4.25 to $4.35 per share. Wall Street had been expecting 93 cents and $4.35 per share.

  • Morning News: January 30, 2018
    , January 30th, 2018 at 6:59 am

    China Could Target U.S. Firms If Trump Levies Tarriff

    Federal 5G Network Proposal Is Panned by F.C.C. and Industry

    U.S. Regulator, DOJ Settle ‘Spoofing’ Charges Against European Banks

    Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3%

    Why It’s a Bad Idea to Measure Cryptocurrencies By Their Market Caps

    Dell’s Problem: Bigger Not Always Better

    Waymo Buys ‘Thousands’ More Chrysler Vans for Driverless Service

    Elon Musk Is Selling Flamethrowers

    Blackstone in Talks to Buy Thomson Reuters’ Financial Unit

    JPMorgan Names Daniel Pinto, Gordon Smith as Co-Presidents, COO

    Buy Now, Pay Later Helps JAB Billionaires Build Beverage Empire

    Tyson Foods Has Invested in a Startup That Aims to Eradicate Meat from Live Animals

    Ben Carlson: All-Time Highs, Risk & Consequences

    Michael Batnick: Markets Can Never Be Perfectly Efficient

    Joshua Brown: The Robots are Getting Owned

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  • The 10-Year Breaks Above 2.7%
    , January 29th, 2018 at 10:41 am

    For the first time since 2014, the 10-year is trading north of 2.7%.

    This means the economy is improving while investors are leaving safe assets for riskier ones. Over the last 18 months, the yield on the 10-year has nearly doubled.

  • Savings Rate Falls to 12-Year Low
    , January 29th, 2018 at 10:10 am

    This morning, we learned that personal income rose 0.4% in December. That was 0.1% better than consensus. For the year, personal income increased by 3.1%. That’s up from growth of 2.4% in 2016.

    Personal spending rose by 0.4% last month which matched expectations. The number for November was revised upward to 0.8%. The savings rate fell to 2.4% which is a 12-year low.

  • Morning News: January 29, 2018
    , January 29th, 2018 at 7:09 am

    How to Launder $500 Million in Digital Currency

    Tech Giants Brace for Europe’s New Data Privacy Rules

    London’s Bankers Haven’t Been This Gloomy Since 2008

    India Does Not Rule Out Fiscal Consolidation Pause This Year

    U.S. Considers Building 5G Network Amid China Concerns

    Oil Boom Gives the U.S. a New Edge in Energy and Diplomacy

    Tanker Carrying LNG from Russian Arctic Arrives in Boston

    Born From Frozen Camel Blood, Ablynx Is $4.8 Billion Prize

    Shares in Prince Alwaleed’s Firm Soar, But Banks Remain Cautious

    ‘Jackpotting’ Targets U.S. ATMs to Make Them Spit Out Cash

    VW Customers Don’t Give a Monkey’s About Diesel Cheating

    Jeff Carter: Risks For Audit Are Too High

    Roger Nusbaum: What The Hell Is Going On With Asset Prices? & Can 80/20 Replace 60/40?

    Cullen Roche: 3 Things I Think I Think – Wrong!

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  • Give It Time…
    , January 26th, 2018 at 6:29 pm

    The S&P 500 had a big day today and the index closed at another all-time high. I was impressed that AFLAC and Alliance Data Systems both rebounded off their drops.

    AFLAC was at $91.69 before the article came out. It got as low as $83.70. Today, AFL closed at $90.99.

    At one point yesterday, shares of ADS were down 5.6% on what I thought were good earnings. So much for my opinion. ADS rallied later yesterday and continued to rally today. Now the stock is up 0.87% from Wednesday’s close.

    Here’s a nice report on Danaher.

    We had new Buy List highs today from INGR, SYK, FISV, FDS, TMK, DHR, ROST, BDX and MCO.

  • Q4 GDP = +2.6%
    , January 26th, 2018 at 8:41 am

    This morning, the government reported that the U.S. economy grew, in real annualized terms, by 2.6% in the fourth quarter of 2017. That’s below expectations of 2.9%. I thought there was a good chance the number would fall between 3.5% and 4%.

    Despite the miss, some of the details look pretty good.

    For now, consumers are driving the growth. Consumer spending rose at a 3.8% in the period, an increase last exceeded in late 2014. Spending on long-lasting items known as durable goods rose at the fastest rate since 2009. That likely reflects, in part, Americans buying new cars and other goods to replace items damaged in the storms.

    Meanwhile, a key category of business spending also broke out. Nonresidential fixed investment—reflecting spending on commercial construction, equipment and software—climbed at a 6.8% rate. For the year, such investment rose by a similar margin, posting the best 12-month gain in three years.

    For the year, the economy grew by 2.5% which is pretty mediocre but it’s up from 2015 and 2016. The year-over-year GDP growth rate has now improved for six straight quarters.

  • CWS Market Review – January 26, 2018
    , January 26th, 2018 at 7:08 am

    “Nobody ever lost money taking a profit.” – Bernard Baruch

    How good is this market? Consider than in 17 trading days this year, the S&P 500 has fallen just four times. Our fifth-worst day this year was a gain! On Thursday, the S&P 500 closed at another record high. The index is already up over 6% this year.

    The Dow Jones Industrial Average also closed at a record high. The index is less than 200 points away from being 20,000 points above its March 2009 low. In less than nine years, the Dow nearly added 20,000 points.

    I’m pleased to report that our Buy List is also doing well. Signature Bank, which gave us a great earnings report last week, is already up 13% this year. We have a total of four 10% gainers on the year, and the fifth one (Cognizant) is very close.

    This week, we had two earnings reports. One was pretty good and the other was kinda blah. I’ll give you all the details. Plus, we have five more earnings reports next week. We also got a nice 15% dividend increase from Moody’s. Get ready, because earnings season is about to kick into high gear.

    Earnings from Alliance Data and Sherwin-Williams

    We had two Buy List earnings reports on Thursday morning. (Let me remind you that we have a Buy List earnings calendar.)

    Alliance Data Systems (ADS) had a very strong fourth quarter. Revenue rose by 15% to $2.11 billion, and core EPS rose 34% to $6.26 per share. The recent tax-reform law boosted ADS’s Q4 bottom line by $1.02 per share. Even adjusting for that, Alliance’s results were still well above Wall Street’s consensus of $5 per share.

    Also due to tax reform, Alliance raised its full-year guidance for 2018. Earlier, ADS said to expect full-year earnings of $21.50 per share. Now the company says core EPS should range between $22.50 and $23 per share. Alliance also boosted its quarterly dividend by 10% to 57 cents per share. That’s good to see.

    Unfortunately, the stock lost about 2.6% in Thursday’s trading. That may be due to their lower revenue guidance. I’m not sure what the market is thinking, but I’m impressed by these results. I’m dropping my Buy Below on ADS down to $272. This is a good stock.

    The numbers for Sherwin-Williams (SHW) are a little complicated due to the recent acquisition of Valspar. Not including that, Sherwin’s sales were up 6.9% last quarter. Adjusting for several items, the company made $2.95 per share for Q4 which was below Wall Street’s consensus of $3.12 per share.

    Commenting on the financial results, John G. Morikis, Chairman, President and Chief Executive Officer, said “2017 was a year of record sales, net income, earnings per share, cash and EBITDA, but it will best be remembered as the year in which we joined forces with Valspar. The enormous amount of effort and energy invested over the past seven months in bringing these two great companies together, strengthening our customer relationships, defining the right organizational structure and building momentum in every line of business is transforming Sherwin-Williams into a faster-growing, financially stronger and more profitable enterprise. These efforts will continue throughout 2018 with similar effect.

    I’m not too concerned by the earnings miss since the company is still adjusting to the big merger. For 2018, Sherwin-Williams expects earnings in the range of $16.05 to $16.45 per share. The shares lost about 1% in Thursday’s trading. I’m raising my Buy Below on Sherwin-Williams to $442 per share.

    Five Upcoming Buy List Earnings Reports

    Earnings season starts to heat up next week as five of our Buy List stocks are due to report. On Tuesday, January 30, Danaher and Stryker kick things off.

    In October, Danaher (DHR) reported Q3 earnings of $1.00 per share. That beat Wall Street’s forecast by five cents per share. Previously, the company told us to expect Q3 earnings to range between 92 and 96 cents per share.

    Back in July, Danaher raised its full-year guidance range to $3.85 to $3.95 per share. Before the last earnings report, I said “there’s a decent chance they’ll revise that higher next week,” and I was right. Danaher raised its full-year guidance to a range of $3.96 to $4.00. Working out the math, that means they expect $1.12 to $1.16 per share for Q4. Danaher’s CEO recently said he sees earnings coming in at the higher end of that range.

    The stock recently broke $102 per share and touched yet another new high. In 1982, you could have picked up DHR for a nickel (adjusted for splits). Danaher now expects 2018 earnings to range between $4.25 and $4.35 per share.

    In October, Stryker (SYK) reported Q3 earnings of $1.52 per share, two cents better than estimates. For Q4, they expect $1.92 to $1.97 per share. Stryker sees full-year earnings in the range of $6.45 to $6.50 per share. Forex costs will be about 10 cents per share for the year.

    Stryker recently raised its quarterly dividend by 11%. The payout went from 42.5 to 47 cents per share. The orthopedics company has raised its dividend every year since 1993.

    Remember when that nasty article knocked AFLAC (AFL) for a big loss? I told you not to worry. It’s two weeks later, and AFLAC has regained more than 70% of what it lost. The duck stock will report earnings on Wednesday, January 31. The CEO said that if the yen averages between 110 and 115 to the dollar, they expect Q4 earnings between $1.42 and $1.66 per share. Wall Street expects $1.55 per share. For 2018, they see operating earnings between $6.65 and $6.95 per share. That’s based on the yen averaging 112 to the dollar this year.

    Shares of Check Point Software (CHKP) got clobbered when the last earnings report came out. The Q3 earnings were fine, but the outlook wasn’t so hot. In fact, it was the selloff that helped convince me to add CHKP to this year’s Buy List. For Q4, Check Point sees earnings between $1.45 and $1.55 per share and revenue between $485 million and $525 million. I’m not expecting a blowout report on Wednesday, but the long term looks very good for Check Point.

    On Thursday, February 1, Ingredion (INGR) is set to report Q4 results. Three months ago, they had big earnings and raised guidance. Frankly, the company didn’t have a strong year in 2017, but it looks like things are improving. I was especially impressed to see them hike their dividend by 20% in September. INGR sees Q4 ranging between $1.67 and $1.82 per share. On Thursday, INGR reached a new 52-week high.

    One more note: After the bell on Wednesday, Moody’s (MCO) announced a 16% dividend hike. The quarterly payout will rise from 38 to 44 cents per share. The dividend will be payable on March 12 to stockholders of record at the close of business on February 20.

    And another thing. The Federal Reserve meets again next week. I’ll spare you my lengthy, penetrating and typically brilliant analysis and tell you—they ain’t changing rates. Not at this meeting. But there’s a very good chance they’ll hike rates in March. Rate hikes aren’t yet a threat to the economy, but we’re slowly moving closer.

    That’s all for now. Next week will be a big one for investors. We’ll have lots more earnings reports, plus the Fed meeting. This is a two-day affair that begins on Tuesday. This meeting is also Janet Yellen’s finale. The policy statement will come out at 2 pm on Wednesday. We may get some clues as to what the central bank is thinking. Then on Friday, we’ll get the jobs report for January. 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

    Syndication Partners

    I’ve recently teamed up with the folks at Investors Alley to feature some of their content. I think they have really good stuff. Check it out!

    3 Stocks to Sell Under Trump’s New Tax Law

    It seems like most U.S. financial media cannot quit gushing about the new tax laws. The coverage is universally positive – I’m waiting to hear that the tax cut will cure the common cold.

    However, the media ignores the fact that some companies will end up paying higher tax bills. All thanks to the provision in the law that limits deductions on interest payments.

    The law limits deductions for interest payments to 30% of EBITDA earnings (earnings before interest, tax, depreciation and amortization) between 2018 and 2021. The restriction become even tighter from 2022 onward with deductions limited to 30% of earnings before interest and taxes.

    This is a major negative for any companies with a heavy debt load.

    As David Fann, CEO of the private equity advisory firm Torrey Cove Capital Partners LLC, told Reuters, “It [the new tax law] is a deviation from what has been allowed in the last 50 years. This is a radical change.”

    The new restrictions on interest deductibility will mean that companies that have EBITDA less than double their interest payments will see “little or no benefit” from the tax reform package, according to Standard & Poor’s, the credit rating agency. And some firms will suffer under the new rules. S&P Global Ratings estimates that about 70% of companies whose debt amounts to more than five times EBITDA would be negatively affected by the interest deductibility cap.

    Prime among the companies affected will be those shaped by private equity which loves to saddle companies with lots of debt. According to Moody’s around a third of all leveraged buyouts will be worse off under the new tax system.

    3 Stocks for Real Blockchain Investors, Not Speculators

    The latest buzzword on Wall Street is blockchain. There is a logic to the interest since the research firm Markets & Markets forecasts that the market for blockchain-related products and services will reach $7.7 billion in 2022. The market for such products was a mere $242 million in 2016.

    That has led investors to jump on anything and everything even remotely connected to blockchain technology. That can be seen in the soaring stock prices for companies that have said they are “investing” into blockchain and therefore have added blockchain to their name.

    I shouldn’t have to tell you this, but I will anyway… do not buy any of these companies – one of the biggest red flags you will ever see surrounding companies in the stock market is waving now! Instead, look at companies that have legitimate blockchain businesses. Or that at least are legitimately pursuing practical applications of blockchain technology.

    For a hint about what companies you should be looking at, see what firms have either applied for, or have already received patents on blockchain technology. Not surprisingly (since blockchain can make transactions faster and more efficient), banks are among the leaders here.

  • Morning News: January 26, 2018
    , January 26th, 2018 at 7:02 am

    Bitcoin Is Dropping Again. This Time, Look to Japan

    Solar Tariff Shapes Up As Speed Bump, Not Wall, For Development

    Dell Technologies Considering IPO, Other Options

    Qualcomm Signs $2 Billion Sales MOUs with Lenovo, Xiaomi, Vivo and OPPO

    American, Southwest Post 4Q Profits; Airline Execs Seek To Calm Investors’ Fear Of A New Fare War

    Walmart To Launch Online Grocery Delivery In Japan

    A Kroger-Alibaba Deal Could Thwart Amazon’s Whole Foods Ambitions

    Starbucks Falls Out of Step

    ‘Riots’ Break Out in France Over Supermarket Chain’s Nutella Promotion

    Ackman’s Pershing Square Takes Stake in Nike

    FDA Panel Rejects Philip Morris’s Claim That Tobacco Stick Is Safer Than Cigarettes

    Howard Lindzon: Robinhood Goes Crypto

    Joshua Brown: Bang! & Living That Coin Lyfe

    Mark Hines: What Can Traders Learn From Poker AI?

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