Posts Tagged ‘syy’

  • CWS Market Review – November 16, 2012
    , November 16th, 2012 at 7:17 am

    “Investing is where you find a few great companies and then sit on your ass.” – Charlie Munger

    So true, Charlie. So true. Unfortunately, sitting on our rear ends has been rather unpleasant lately as the stock market has thrown yet another temper tantrum. On Thursday, the S&P 500 broke below 1,350 for the first time since late July.

    For several weeks now, I’ve warned investors to be prepared for a difficult market this autumn. The hour cometh, and now is. The day after the election, the S&P 500 dropped 2.37% for its second-worst day of the year. This was unusual because the electoral results were largely expected. The next day, the index closed below its 200-day moving average for the first time since June. That apparently gave the bears a shot of confidence. Yesterday, the index fell to its lowest level since July 26th.

    In this week’s CWS Market Review, we’ll take a closer look at what has the market so grumpy. The good news is that it shouldn’t last much longer; I expect a strong year-end rally to begin soon. I’ll also highlight Medtronic’s ($MDT) upcoming earnings report. I’m a big fan of this medical devices company which has increased its dividend for 35 years in a row! Plus, I’ll show you some Buy List stocks that look especially good right now. But first, let’s look at why the market’s recent downturn is running out of steam.

    Why This Sell-Off Will End Soon

    Measuring from the market’s closing peak on September 14th, the S&P 500 is now down 7.64%. That’s hardly a horrifying drop especially considering the market’s tremendous run over the last three-and-a-half years, but it caught a lot of professionals off guard. Actually, it’s not even the worst drop this year. We’re still short of the 9.93% sell-off the S&P 500 put on between April 2nd and June 1st.

    If we dig beneath the numbers of this current sell-off, we can see it has been unusual which leads to me believe that it’s a reaction against events rather than a sober judgment of future corporate cash flow. As sophisticated as we may think Wall Street is, the truth is that traders often act like hyperactive children at a swimming pool (“hey, look at me, look at me, are you looking??”). Simply put, this market is an attention whore.

    I’ll give you an example. When the market initially broke down, the Financial sector led the way. That’s to be expected. But what’s interesting is that it didn’t last long. After two weeks, the financials turned around and started leading the market (meaning, not falling as much). That’s unusual. Investors don’t normally turn to financial stocks for comfort during stressful periods.

    Broadly speaking, the cyclicals have had similar reactions. For example, the Industrials have been particularly strong and until very recently, the homebuilders were acting like all-stars. We can also see a lot of strength in the Transportation sector. Again, that’s not the usual pattern that a recession is on the way. The economic data continues to suggest that housing is helping consumer spending get back on its feet.

    Nor has the bond market reacted as strongly as you would expect. The yield on the 10-year Treasury is back below 1.6%, but it is well above the ultra-low yields we saw this summer. Furthermore, the volatility of Treasury bonds has nearly dried up. Despite the problems in Europe, our economy continues to recover, albeit at a tepid pace. Expect to see Treasury yields gradually creep higher as investors migrate towards bargain stocks.

    A worrying market would be when investors bail out of Financials and Cyclicals and crowd into bonds and Defensive stocks. That’s pretty much what we saw during the spring. This time around, the laggards have largely concentrated on the Tech space. This is where things get truly weird. Intel ($INTC) dropped for nine days in a row and now yields 4.5%. Microsoft ($MSFT) is at its low for the year. And look at Apple ($AAPL). Heavens to Murgatroyd! That stock is down more than $180 in less than two months. That’s a loss of $170 billion in market value, or $540 per every American.

    But our Buy List continues to motor along. Since October 15th, the S&P 500 is off by 6.03% while our Buy List is down by 4.40%. Obviously, our goal is to profit, not lose by less, but it’s a good sign that our conservative approach holds up well when Wall Street decides to be a drama queen. We have an excellent shot of beating the market for the sixth year in a row.

    Another reason for optimism is that downward momentum is starting to exhaust itself. An important gauge that a lot of chart watchers like to follow is the 14-day relative-strength index. The 14-day RSI closed below 30 for the first time since June. This may cause some bulls to jump back into the fray. Plus, the earnings outlook is holding its own. While earnings estimates for Q4 have come down, the consensus on Wall Street still expects growth of 9.4% which is a nice change from the earnings decline of 3.5% for Q3.

    Investors are clearly concerned about a number of political factors. For one, there’s the prospect another stand off between the White House and Congress over the impending “fiscal cliff.” Personally, I doubt this will be as serious as some people fear. The business community is clearly not in the mood for more political drama. I have to think that some sort of deal will be reached before any economy-wrecking plans take effect. There’s too much to lose.

    Investors need to be disciplined and not expect the market to gain 20% overnight. Our Buy List is poised to do well, and we just had another good earnings season. Continue to focus on strong dividends, especially companies with long histories of raising their payouts. Speaking of which, we have an earnings report coming next week from one of my favorite dividend champions.

    Medtronic Is a Buy Below $44

    Medtronic ($MDT) is due to report its earnings on Tuesday, November 20th. If you’re not familiar with them, Medtronic makes medical devices such as products that treat diabetes. The company has increased its dividend every year for the last 35 years.

    This earnings report will be for their fiscal second quarter which ended in October. Wall Street currently expects earnings of 88 cents per share which would be a small increase over the 84 cents per share from last year’s second quarter. Medtronic’s earnings reports are usually very close to expectations. If not dead on, it’s rarely more than one or two pennies per share off. In fact, that’s one of the reasons why I like MDT.

    Medtronic used to be a glamour stock but it’s lost a lot of its luster. The P/E Ratio has been massively squeezed but the company still churns out steady earnings growth. I was pleased to see Medtronic’s stock turn a corner earlier this year. As traders got nervous and bailed out of riskier bets, Medtronic’s stability suddenly become attractive. From June 4th to October 4th, MDT jumped 24%, although it has given back 8.5% since then.

    Medtronic sees earnings ranging between $3.62 and $3.70 per share for this fiscal year. That works out to growth of 5% to 7%, and it means the stock is going for 11 times FY 2013 earnings. The company seems to be on track towards hitting their target. This is a very good stock but I don’t want you to chase it. I’m lowering my Buy Below price to $44 per share.

    Some Buy List Bargains

    The market’s recent downturn has given us several attractive stocks on the Buy List. If you’re looking for income, Reynolds American ($RAI) currently yields 5.9%. Nicholas Financial ($NICK) is now below $12 per share which gives the stock a yield above 4%. As I predicted two weeks ago, Sysco ($SYY) raised their dividend by a penny per share. That makes 43 dividend increases in a row. SYY now yields 3.7%.

    Moog ($MOG-A) currently looks very cheap. The stock just dipped to a new 52-week low. That’s odd because Moog just had a good earnings report and they reiterated their earnings guidance of $3.50 to $3.70 per share. I think Moog can be a $45 stock within a year. Just to be safe, I’m going to lower my Buy Below price to $38 due to the recent sell-off.

    Oracle ($ORCL) just dropped below $30 per share. This is a very good company. Oracle is now going for about 10 times next year’s earnings. Oracle is a strong buy up to $35 per share.

    I also want to tighten up a few Buy Below prices due to the market’s recent sell-off. I’m lowering Bed, Bath & Beyond’s ($BBBY) Buy Below to $62. (How’s that for alliteration?) I’m also paring back CA Technologies ($CA) to a strong buy below $24. We have a lot of excellent stocks on our Buy List so per dear old Charlie, sitting on our asses is a wise strategy.

    That’s all for now. Next week should be fairly quiet. The market will be closed on Thursday for Thanksgiving. On Friday, there will be an abbreviated session that ends at 1 p.m. This is usually one of the lightest volume days of the year. 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

  • Sysco Earns 49 Cents Per Share
    , November 5th, 2012 at 10:09 am

    The stock market is down a few points this morning. Obviously, traders are waiting for tomorrow’s election so this is causing some anxiety. Leaving aside any partisan issues, I think investors are nervous that the outcome may be undecided for a few days. That’s probably what concerns people most. I don’t think anyone wants to go through what we had in 2000 again.

    Shares of Nicholas Financial ($NICK) took a beating on Friday. Don’t let that scare you. At Friday’s closing price, the stock yields almost exactly 4%. The company will have no trouble covering its dividend. As I said before, the earnings report was slightly disappointing. Note word slightly. All would have been fine if it was, say, four cents more, so how can a four-cent miss turn into a $1 per share loss? I’m not sure. That’s 25 times missing earnings for a stock going around seven times earnings. Such is the mindset of short-term trading.

    This morning, Sysco ($SYY), the food services outfit, reported fiscal first-quarter earnings of 49 cents per share which was one penny below expectations. Sales rose 4.7% to $10.6 billion which was an all-time record for Sysco. The shares have pulled back some this morning, but I’m not too concerned. Sysco had a one penny share charge for some severance issues. Like NICK, Sysco pays a generous yield and the stock has had a good run since the market’s swoon in May.

  • CWS Market Review – May 11, 2012
    , May 11th, 2012 at 7:40 am

    The stock market finally broke out of its trading range this week. Unfortunately, it was to the downside. More troubles from Europe, including shake-up elections in France and Greece, helped the S&P 500 close Wednesday at its lowest level in nine weeks. However, the initial jobless claims report on Thursday helped us make up a little lost ground.

    In this week’s CWS Market Review, I’ll explain why everyone’s so freaked out (again) by events in Europe. I’ll also talk about the latest revelations from JPMorgan Chase ($JPM). The bank just told investors that it lost $2 effing billion on effing derivatives trades gone effing bad. I’ll have more to say on that in a bit. We also had more strong earnings reports from our Buy List stocks DirecTV ($DTV) and CA Technologies ($CA), and shares of CR Bard ($BCR) just hit a 10-month high.

    Greece Is Bad but the Real Story Is Spain

    But first, let’s get to Greece. Here’s the 411: The bailout deals reached by Greece required them to get their fiscal house in order. The problem is that no one asked the voters. Now they’ve been asked and the voters don’t like it at all. Actually, I understated that—they’re royally PO’d.

    Greece is massively in debt. They owe the equivalent of Switzerland’s entire GDP. Politically, everything has been upended. In Greece, there are two dominant political parties and both got creamed in the recent election. Seventy percent of Greeks voted for parties opposed to the bailouts. Mind you, the supposed beneficiaries of the bailout are the ones most opposed to them.

    Since there was no clear-cut winner in the election, folks are scrambling to build a governing coalition. This won’t be easy. Whatever they do come up with probably won’t last long and they’ll need new elections. As investors, we fortunately don’t need to worry about the minutia of Greek politics. The important aspect for us is that the Greek public wants to ditch the austerity measures into the Aegean, but that means giving up all that euro cash that was promised them.

    My take is that the bigwigs in Greece will do their best to stay in the euro but try to get the bailout terms renegotiated. That puts the ball in Europe’s court, and by Europe, I mean Germany. Too many people have invested too much to see the European project go down in flames. I think the Europeans will ultimately make some concessions in order to keep the euro going. If one country leaves the euro, it sets a precedent for others to leave—and that could start a flood.

    As bad of a shape as Greece is in, they’re small potatoes (olives?). The real story is what’s happening in Spain. For the fourth time, the country is trying to convince investors that its screwed-up banks aren’t screwed-up. The problem is that Spanish banks are loaded down with toxic real estate debt.

    The Spanish government is trying to prop up the banks, but it may delay the problem rather than solve it. It just took control of Bankia which itself was formed when the government forced some smaller banks together in an effort to save them. What’s most troubling about the problems in Spain is that the future is so cloudy. I really can’t say what will happen. Nouriel Roubini said that Spain will need an external bailout. If so, that may lead to a replay of what we’re seeing in Greece, except it would be much, much larger.

    The immediate impact of the nervousness from Europe is that it spooked our markets. On May 1st, the Dow got to its highest point since 2007. The index then fell for six straight days which was its longest losing streak since August. But here’s the key: not all stocks are falling in the same manner.

    Investors have been rushing away from cyclical sectors and towards defensive sectors. For example, the Utilities Sector ETF ($XLU) closed slightly higher on Thursday than it did on May 1st. Low-risk bonds are also doing well. Two months ago, the 30-year Treasury nearly broke above 3.5%. This past week, it dipped below 3%. On Thursday, Uncle Sam auctioned off $16 billion in 30-year bonds and it drew the heaviest bidding in months.

    The trend towards defensive stocks is holding back some of our favorite cyclical stocks like Ford ($F), Moog ($MOG-A) and AFLAC ($AFL). Let me assure investors that these stocks are very good buys right now and I expect them to rally once the skies clear up.

    JPMorgan Chase Reveals Huge Trading Losses

    Now let’s turn to some recent news about our Buy List stocks. The big news came after Thursday’s closing bell when JPMorgan Chase ($JPM) announced a special conference call. CEO Jamie Dimon told investors that the bank took $2 billion in trading losses in derivatives and that it could take another $1 billion this quarter. Jamie, WTF?

    For his part, Dimon was clear that the bank messed up. This is very embarrassing for JPM and frankly, I don’t expect this type of mismanagement from them. The stock will take a big hit from this news, but it doesn’t change my positive outlook for the bank. (Matt Levine at Dealbreaker has the best explanation of the losses: “This was not driven by the market moving against them (though it seems to have); it was driven by them getting the math wrong”).

    As ugly as this is, it’s not a reflection of JPM’s core business operations. Sure, it’s terrible risk-management. But as far as banking goes, JPM is in good shape. Don’t be concerned that JPM faces a similar fate as the banks in Spain. They don’t. In fact, most banks in the U.S. are pretty safe right now. Warren Buffett recently contrasted U.S. banks with European banks when he said that our banks have “liquidity coming out of their ears.” He’s right. JPMorgan Chase remains a very good buy up to $50 per share.

    Bed Bath & Beyond ($BBBY) surprised us this week by buying Cost Plus ($CPWM) for a half billion dollars. The deal is all-cash which is what I like to hear. The best option for any company is to pay for an acquisition without incurring new debt.

    BBBY said they expect the deal to be slightly accretive. That means that BBBY is “buying” CPWM’s earnings at a price less than the going rate for BBBY’s earnings. As a result, the deal will show a net increase to BBBY’s bottom line for this year. The press release also said: “Bed Bath & Beyond Inc. continues to model a high single digit to a low double digit percentage increase in net earnings per diluted share in fiscal 2012.” I’m keeping my buy price at $75.

    Now let’s look at some earnings. On Monday, Sysco ($SYY) had a decent earnings report although the CEO said the results “fell short of our expectations.” Sysco is a perfect example of a defensive stock since the food service industry isn’t adversely impacted by a downturn in the business cycle. The key with investing in Sysco is the rich dividend. The company has increased their payout for 42 years in a row, and I think we’ll get #43 later this year, although it will be a small increase. Going by Thursday’s close, Sysco yields 3.87%. Sysco is a good buy up to $30.

    DirecTV ($DTV) reported Q1 earnings of $1.07 per share. That’s a nice jump over the 85 cents per share they earned a year ago. DirecTV’s sales rose 12% to $7.05 billion which was $10 million more than consensus. The company has done well in North America, but they see their future lying in Latin America. DTV added 81,000 subscribers in the U.S. last quarter. In Latin America, they added 593,000. Yet there are more than twice as many current subscribers in the U.S. as there are in Latin America. Last year, revenue from Latin America revenue grew by 42%.

    DirecTV has projected earnings of $4 per share for this year and $5 for 2013. This earnings report tells me they should have little trouble hitting those goals. The shares are currently going for less than 11 times this year’s earnings estimate. They’re buying back stock at the rate of $100 million per week. DirecTV is a solid buy below $48 per share.

    On Thursday, CA Technologies ($CA) reported fiscal Q4 earnings of 56 cents per share. That’s a good result and it was four cents better than Wall Street’s estimates. For the year, CA made $2.27 per share which is a nice increase over the $1.92 from last year. For fiscal 2013, CA sees revenues ranging between $4.85 billion and $4.95 billion and earnings-per-share ranging between $2.45 and $2.53. I’m impressed with that forecast, but Wall Street had been expecting revenues of $5 billion and earnings of $2.50 per share. The stock was down in the after-hours market on Thursday, but I don’t expect any weakness to last. CA is going for less than 11 times the low-end of their forecast.

    A quick note on Oracle ($ORCL): The stock took a hit this week on the news of Cisco’s ($CSCO) lousy outlook. Oracle is also in the middle of a complicated intellectual property trial with Google ($GOOG). I doubt the trial will go Oracle’s way, but the dollar amounts involved are pretty small compared with the size of these two firms. On Thursday, Oracle fell below $27 for the first time since January. That’s a very good price. The stock is a good buy up to $32.

    That’s all for now. Wall Street will be focused on Facebook’s massive IPO scheduled for next Friday. The stock might fetch 99 times earnings. I’m steering clear of this one. 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

  • Sysco Earns 49 Cents Per Share
    , May 7th, 2012 at 9:10 am

    First-quarter earnings season will soon be coming to a close, but there are still a few key reports left. This morning, Sysco ($SYY) reported adjusted earnings-per-share of 49 cents. Although that was five cents better than Wall Street’s consensus, Sysco’s CEO said the earnings “fell short of our expectations.” It was a one-penny increase over last year.

    Let’s dig into the numbers a bit. Sales rose 7.6% to 10.5 billion which is a record for the company. The March quarter was Sysco’s fiscal third. For the first three quarters of the fiscal year, Sysco has earned $1.50 per share compared with $1.38 last year.

    Sysco said that food cost inflation is running at 5.5%. I think it’s interesting to note that commodity inflation tends to weigh heavily on low-income consumers. Sysco noted that inflation in meat and poultry is over 10%. The company also said that foreign currency exchange rates knocked 0.2% off their sales growth.

    Last November, Sysco raised the quarterly dividend by one penny to 27 cents per share. That was the 42nd-straight annual dividend increase. I don’t know if they’ll raise their dividend again this year. I’m assuming they will to keep the streak alive, but it will most likely be another one-penny increase.

    The important part is that Sysco is clearly able to cover their dividend. A dividend decrease is certainly not in the works. Going by Friday’s close, Sysco yields 3.87%.

  • Finally, Some Volatility
    , March 6th, 2012 at 11:31 am

    This may come as a shock, people, but we actually have some volatility today. Unfortunately, it’s the bad kind. The market is again worried about concerns from Europe. (Will 2011 ever end?)

    The S&P 500 is currently down 17 points or 1.3%. If that holds up, it will be the biggest fall all year and it will be nearly twice as big as the second-biggest fall this year.

    There’s also a major divide in this market and it closely resembles the opposite of what we’ve seen most of this year. (Today is the opposite of what’s been happening this year which was the opposite of what happened late last year. So today resembles much of last year.)

    So far, 2012 has been characterized by low volatility, rising stocks prices led by cyclicals and small-caps. Today, cyclicals, small-caps, financials and gold are getting hit the hardest. Financials are the worst-performing sector. AFLAC ($AFL) is down about 4%.

    The only areas that are doing well are the defensive stocks. This means staples, utilities and many dividend stocks. On our Buy List, Reynolds American ($RAI) is slightly up while Sysco ($SYY) is slightly down.

  • Sysco Earns 46 Cents Per Share
    , February 6th, 2012 at 1:10 pm

    I don’t get why Sysco ($SYY) is down so much today. The restaurant supplier reported fiscal second-quarter earnings of 46 cents per share which was two cents better than Wall Street’s forecast. Revenue also was a little better than expectations. The company said that it squeezed by higher food inflation. Still, Sysco’s stock is off about 5% today.

    Here are some details on their second quarter. It looks good to me:

    Sales for the second quarter were $10.2 billion, an increase of 9.2% compared to sales in the same period last year. Food cost inflation, as measured by the estimated change in Sysco’s product costs, was 6.3%. Inflation continued to be broad-based, but was impacted most significantly by increased prices for meat, canned/dry and frozen products. This compares to inflation of 4.5% in the prior year period, and 7.3% in the first quarter of fiscal 2012. In addition, sales from acquisitions (within the last 12 months) increased sales by 0.7%, and the impact of changes in foreign exchange rates for the second quarter decreased sales by 0.1%. Case volume for the company’s Broadline and SYGMA operations combined grew 3.6% during the quarter including acquisitions, and 2.8% excluding acquisitions.

    Gross profit for the second quarter was $1.8 billion, an increase of 4.8%, compared to the prior year. Operating expenses in the second quarter increased $94 million, or 7.1%, compared to operating expenses in the prior year period. This was due mainly to a $58 million increase in payroll expense, a $12 million increase in gross business transformation expenses, a $10 million increase in fuel expense and a $9 million lower benefit from COLI, partially offset by a $7 million decline in expenses for the corporate-sponsored pension plan. Excluding gross business transformation expenses and the impact of COLI, adjusted operating expenses increased 5.5%. Management believes that excluding these items better represents the company’s underlying business performance.

    Operating income was $427 million in the second quarter, decreasing $10 million, or 2.3% compared to operating income in the prior year. Excluding gross business transformation expenses and the impact of COLI, adjusted operating income increased 2.5%.

    Net earnings for the second quarter were $250 million, a decrease of $8 million, or 3.1%, compared to net earnings in the prior year. Diluted EPS in the second quarter of fiscal 2012 was $0.43 which included a $0.03 negative impact from gross business transformation expenses. Last year’s second quarter EPS was $0.44, which also included a $0.03 negative impact from gross business transformation expenses, partially offset by a $0.02 benefit from COLI. Excluding gross business transformation expenses and the impact of COLI, second quarter fiscal 2012 adjusted EPS was $0.46, an increase of 2.2% compared to the prior year.

  • CWS Market Review – November 18, 2011
    , November 18th, 2011 at 9:06 am

    Despite coming off a record earnings season, the stock market is still in a sour mood. On Thursday, the S&P 500 closed at 1,216.13 which was its lowest close in nearly one month. Since October 28th, we’re down 5.3%.

    The S&P 500 fell by more than 1.6% on both Wednesday and Thursday this week and it’s now hovering just above its 50-day moving average (the NASDAQ Composite is already below it). The index has closed above its 50-DMA every day since October 10th. I try to avoid “timing” the market but I’ll note that the 50-DMA is often an important demarcation line separating bull markets from bear markets.

    In this week’s CWS Market Review, I want to discuss a major change that’s happening in the market that’s not getting much attention. More importantly, I’ll tell about some of the best places to invest your money right now.

    For the last several weeks, the U.S. stock market has been heavily dependent on what’s been happening in Europe. This is hardly surprising but it’s also been very frustrating because…well, Europe’s economy is massively screwed up. On top of that, the political situation seems to favor ignoring the issues rather than solving them. However, my biggest fear is that we’ll never see a rally here until the mess is over over there.

    Lately, however, we’re starting to see the first signs that our market is disentangling itself from the European malaise. This is very important. Let me explain: Over the last few months, the U.S. stock market has been unusually highly correlated with the euro-to-dollar trade. Whenever the euro has rallied, stocks here have been very likely to rise, and when the euro has sunk, U.S. stocks have gone south. These two lines have moved together like waltzing partners.

    About 18% of the profits for the S&P 500 comes from Europe. Yet at the end of October, the 30-day correlation between the Dow and the EURUSD hit an incredible 0.958. By the end of last week, it slipped to 0.834 and lately, it’s been as low as 0.498. That’s a big turnaround and I think there’s a very good chance it will continue.

    The reason is that the U.S. economy is starting to show signs of life. Make no mistake, we’re not ripping along, but the recent news is somewhat optimistic. For example, this week’s report on industrial production showed a 0.7% gain last month. That was much better than Wall Street’s forecast of 0.4%. The inflation news continues to look good. We also had a decent report on retail sales which is often a glimpse at the confidence of consumers. Jobless claims fell to the lowest level since May. There’s clearly no Double Dip at hand.

    Economists up and down Wall Street have been revising their economic growth estimates higher. JPMorgan Chase ($JPM) just raised its estimate for Q4 GDP growth from 2.5% to 3%. Morgan Stanley ($MS) thinks it will be 3.5%. Joe LaVorgna, the chief economist at Deutsche Bank ($DB), said that he wouldn’t be surprised if Q4 growth topped 4%. Bespoke notes that this earnings season showed the highest “beat rate” this year. What we’re seeing is a fundamentally healthy economy that’s fighting off a housing sector mired in a depression—and as bad as housing is, even that’s showing some slight glimmers of hope.

    If the U.S. stock market can finally shake off the daily gyrations caused by our friends across the pond, I think we can see a nice year-end rally. Consider how fearful the market is right now. Shares of Microsoft ($MSFT) are trading at just over eight times next year’s earnings estimate. Wall Street currently thinks the S&P 500 can earn $109.30 next year which means the index is going for just over 11 times earnings. The yield on the 30-year Treasury is back below 3% and the yield on the 10-year is below 2%. In other words, the risk trade continues to be swamped with folks afraid to put their money to work in stocks.

    Now let’s turn our attention to the Buy List which continues to lead the overall market this year. I especially want to highlight some of our higher-yield stocks because they’re the best way to protect yourself in a fragile market like this.

    In last week’s CWS Market Review, I said that I expected to see Sysco ($SYY) raise its quarterly dividend for the 42nd year in a row, but only by one penny per share. On Wednesday, the company proved me right. Going by the new dividend, Sysco currently yields 3.95%. The stock is a good buy up to $30 per share.

    Our only Buy List stock to fall short of its earnings expectation this past earnings season was Reynolds American ($RAI). I told investors not to worry since the quarterly earnings game doesn’t matter so much to a conservative stock like Reynolds. Sure enough, the stock broke out to a fresh 52-week high this week. I wasn’t thrilled by the company’s recent share buyback announcement but it’s clearly given a lift to the stock. Reynolds is now our second-best performer on the year; only Jos. A Bank Clothiers ($JOSB) has done better. At the current price, Reynolds yields 5.27%. The shares are a strong buy below $42.

    Some other stocks on the Buy List that look particularly good right now include AFLAC ($AFL), Moog ($MOG-A), Ford ($F), Fiserv ($FISV) and Oracle ($ORCL).

    Next Tuesday, Medtronic ($MDT) will report its fiscal second-quarter earnings. The company has said to expect earnings for this fiscal year (which ends in May) to range between $3.43 and $3.50 per share. Wall Street expects a quarterly report of 82 cents per share which seems about right to me. I think they can beat by a penny or two, but not by much more. Either way, Medtronic is cheap. The stock is currently going for less than 10 times the company’s own earnings forecast.

    That’s all for now. The stock market will be closed next Thursday for Thanksgiving. For reasons I’ll never understand, the stock market is open on the Friday after Thanksgiving but it will close at 1 p.m. This completely pointless session is usually one of the lowest volume days of the year. 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

  • Sysco Raises Dividend
    , November 16th, 2011 at 9:51 am

    In our last CWS Market Review, I said that I expected Sysco ($SYY) would soon raised its quarterly dividend by a penny per share:

    Here’s the important part: Sysco has raised its quarterly dividend for the last 41 years in a row, and I expect to see #42 very soon. However, the increase will probably be very modest. My guess is that the board will bump up the quarterly dividend from 26 cents to 27 cents per share. That would give the shares a yield of close to 4%. In this environment, that’s not bad. Sysco is a good buy up to $30 per share.

    Sure enough, I got it right. Sysco just announced that it’s raising its dividend by a penny to 27 cents per share. Going by yesterday’s close and the new dividend, the current yield comes to 3.92%.

  • CWS Market Review – November 11, 2011
    , November 11th, 2011 at 8:49 am

    Just when I thought the market was getting back to something resembling normal, the S&P 500 got hit for a 3.67% loss on Wednesday. In the five weeks preceding that (more precisely, from October 3rd to November 8th), the index gained 16.1% which is an impressive rally for such a short period of time. But once again, Europe’s mess is our pain.

    The latest worry is Italy and truthfully, the story in Italy is basically the same as the story in Greece, except that it’s much larger which means that it’s potentially far worse. If need be, Greece can be tossed aside. Italy can’t. It’s perfectly positioned in no man’s land: too big to fail and too big to save. Italy is the third-largest economy in Europe and it holds $2.6 trillion in debt. That’s more than Greece, Ireland, Spain and Portugal combined. If that’s defaulted, well…people notice that sort of thing.

    Investors have grown very weary of holding Italian bonds and I don’t blame them. The yield on the ten-year bond there shot up past 7% which is the trigger point at which other countries have sought bailouts. In the realm of international finance, the bond market is the court of no appeal; once that’s turned against you, the end is certainly near. Your business or economy can be a complete wreck but as long as someone is willing to lend you money, you can stay alive. But once the money train ends, you’re done. James Carville, the former political advisor to President Clinton, once said that he’d prefer to be reincarnated as the bond because “you can intimidate everybody.” He’s right.

    To their credit, the Italian government has gotten intimidated. They’ve promised to fast-track reforms and that helped the markets recover a bit on Thursday. The European Central Bank has jumped in, starting to buy Italian debt in an effort to push down yields. Also, Prime Minister Berlusconi has promised to step down after a new budget deal is reached. Yesterday the Italian government auctioned off some one-year debt and that went much better than expected.

    As I said last week, my fear is that all these moves merely treat the symptoms without curing the disease which is an inherently dysfunctional currency union. In fact, I’m not sure that the ECB can ultimately help Italy. We might really be seeing the end of the euro. In last week’s CWS Market Review, I said that the currency might be able to survive in a smaller union. Now we learn that France and Germany have been talking about exactly that for the past several months. For the euro to live, the periphery of Europe needs to start growing again and soon, and that won’t be easy with their new-found austerity. For now, I think the most-probable path will be a much weaker euro. This mess is going to get worse before it gets better.

    One beneficiary of the nervousness in Europe is the U.S. bond market. Two weeks ago, the yield on the 10-year note broke above 2.4%, and that was a move I was happy to see. Investors are well-advised to shift out of these safe assets in exchange for riskier assets like high-yielding stocks. On Wednesday, however, the yield on the 10-year got as low 1.93%. Things could be changing. On Thursday, the Treasury auctioned off a new batch of 10-year notes and the demand was the lowest it’s been in nearly two years.

    Now let’s turn to our Buy List. Some of the higher-yielding stocks I like right now include AFLAC ($AFL), Johnson & Johnson ($JNJ), Reynolds American ($RAI) and Sysco ($SYY). This week we had a last trickle of earnings reports for this earnings season. On Friday, Moog ($MOG-A) delivered a great earnings report. For their fiscal fourth quarter, Moog made 83 cents per share which was 10 cents more than Wall Street’s estimate. That also represented 17% growth over last year.

    The more I look at Moog’s number, the more I like them. For all of 2011, Moog earned $2.95 per share. For 2012, the company sees sales increasing by 8% to $2.52 billion and EPS rising 12% to $3.31. Wall Street had been expecting $3.25 per share.

    As a business Moog is very profitable, but as a stock it’s dull as dirt and that suits me just fine. The shares are basically flat for the year, but if you’re able to get MOG-A for less than $40 (which is 12 times forward earnings), then you’ve gotten yourself a good deal.

    On Monday, Sysco ($SYY) reported quarterly earnings of 55 cents per share which topped Wall Street’s estimates by thee cents per share. Overall, the company had a very good quarter though demand wasn’t nearly as strong as I’d like. The good news, though not for consumers, was that Sysco’s bottom line was helped by higher food prices. I’m not so worried about factors that may impact Sysco’s business in the short term.

    Here’s the important part: Sysco has raised its quarterly dividend for the last 41 years in a row, and I expect to see #42 very soon. However, the increase will probably be very modest. My guess is that the board will bump up the quarterly dividend from 26 cents to 27 cents per share. That would give the shares a yield of close to 4%. In this environment, that’s not bad. Sysco is a good buy up to $30 per share.

    After the closing bell on Tuesday, Leucadia National ($LUK) reported a loss of $291 million for the third quarter. I have to explain that LUK refuses to play the quarterly earnings game. Since no analysts on Wall Street cover the stock, which is basically a large closed-end fund, the earnings report can be misleading. What’s hurt Leucadia lately is its holding of Jefferies ($JEF). LUK’s stock dropped more than 12% on Wednesday.

    That’s all for now. The bond market will be closed on November 11th in honor of Veterans’ Day. Next week will be the last full week of trading before Thanksgiving. 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

  • Sysco Earns 55 Cents Per Share
    , November 7th, 2011 at 9:58 am

    Sysco ($SYY) just reported earnings for its fiscal first quarter of 55 cents per share which was three cents better than estimates. Quarterly revenue rose 8.6% to $10.59 billion which was $140 million over consensus.

    First Quarter Fiscal 2012 Highlights

    * Sales were $10.6 billion, an increase of 8.6% from $9.8 billion in the first quarter of fiscal 2011.

    * Operating income was $509 million, an increase of 0.6%, compared to $506 million in last year’s first quarter, and Sysco’s highest first quarter on record.

    * Adjusted1 operating income increased 6.1%, excluding gross business transformation expenses and the impact of corporate-owned life insurance (COLI).

    * Diluted earnings per share (EPS) were $0.51, which included a $0.04 negative impact from gross business transformation expenses. Last year’s first quarter EPS was also $0.51, but included a $0.02 benefit from COLI and a $0.02 negative impact from gross business transformation expenses.

    * Adjusted diluted EPS was $0.55, an increase of 7.8%, excluding gross business transformation expenses and the impact of COLI.

    “I am encouraged by our underlying business performance during the quarter as softening consumer sentiment contributed to ongoing challenges for the foodservice industry,” said Bill DeLaney, Sysco’s president and chief executive officer. “Our associates remain committed to supporting our customers by meeting and exceeding their expectations each and every day.”

    First Quarter Fiscal 2012 Summary

    Sales for the first quarter were $10.6 billion, an increase of 8.6% compared to sales in the same period last year. Food cost inflation, as measured by the estimated change in Sysco’s product costs, was 7.3%. Inflation continued to be broad-based, but was impacted most significantly by increased prices for dairy, meat and canned/dry products. This compares to inflation of 3.3% in the prior year period, and 5.9% in the fourth quarter of fiscal 2011. In addition, sales from acquisitions (within the last 12 months) increased sales by 0.7%, and the impact of changes in foreign exchange rates for the first quarter increased sales by 0.7%. Case volume for the company’s Broadline and SYGMA operations combined grew nearly 2% during the quarter including acquisitions, and more than 1% excluding acquisitions.

    Gross profit for the first quarter was $1.9 billion, an increase of 5.5%, compared to the prior year. Operating expenses in the first quarter increased $98 million, or 7.3%, compared to operating expenses in the prior year period. This was due mainly to a $40 million increase in payroll expense, a $16 million increase in gross business transformation expenses, a $14 million increase in fuel expense and a $13 million lower benefit from COLI, partially offset by a $7 million decline in expenses for the corporate-sponsored pension plan. Excluding gross business transformation expenses and the impact of COLI, adjusted operating expenses increased 5.3%. Management believes that excluding these items better represents the company’s underlying business performance.

    Operating income was $509 million in the first quarter, increasing $3 million, or 0.6% compared to operating income in the prior year. Excluding gross business transformation expenses and the impact of COLI, adjusted operating income increased 6.1%.

    Net earnings for the first quarter were $303 million, an increase of $4 million, or 1.2%, compared to net earnings in the prior year. Diluted EPS in the first quarter of fiscal 2012 was $0.51, which included a $0.04 negative impact from gross business transformation expenses. Last year’s first quarter EPS was also $0.51, but included a $0.02 benefit from COLI and a $0.02 negative impact from gross business transformation expenses.Excluding gross business transformation expenses and the impact of COLI, first quarter fiscal 2012 adjusted EPS was $0.55, an increase of 7.8% compared to the prior year.

    Cash Flow and Capital Spending

    Cash flow from operations was $255 million for the first quarter of fiscal 2012. Capital expenditures totaled $227 million for the first quarter, including $45 million related to the company’s business transformation project. The primary areas for investment included facility replacements and expansions, replacements to Sysco’s fleet, and technology.