Archive for 2013

  • Strong Opens for Microsoft and CA
    , October 25th, 2013 at 12:14 pm

    Both Microsoft ($MSFT) and CA Technologies ($CA) opened strongly this morning. Both are paring their gains but are still up on the day.

    big.chart10252013a

  • CWS Market Review – October 25, 2013
    , October 25th, 2013 at 7:08 am

    “The stock market is designed to transfer money
    from the active to the patient.” – Warren Buffett

    We’re now at the peak of third-quarter earnings season. So far, the results have been quite good. According to numbers from Bloomberg, 77% of companies in the S&P 500 have exceeded their earnings expectations, while 53% have topped their sales forecasts. For Q3, the S&P 500 is on track to see 2.5% earnings growth and 2.2% sales growth.

    I’m happy to say that our Buy List stocks are continuing to report very strong earnings. The star from this past week was CR Bard, which beat Wall Street’s estimate by 10 cents per share. The stock gapped up 7% on Wednesday to reach a new all-time high (check out the amazing 12-month chart below). Then on Thursday, Ford Motor beat estimates by seven cents per share, and the stock cracked $18 for the first time in nearly three years. After the close on Thursday, we also got very good reports from CA Technologies and Microsoft.

    big.chart10252013

    On Tuesday, the Labor Department finally released the September jobs report, which had been delayed due to the government shutdown. The report showed that the economy created a disappointing 148,000 jobs last month. We’re in an odd situation where bad economic news results is good market news. The reason is that traders think, correctly in my view, that this bad economic news will cause the Federal Reserve to hold off on any tapering plans. As a result, the S&P 500 jumped to a new all-time high on Tuesday.

    In this week’s CWS Market Review, I’ll run through our latest Buy List earnings reports. We also have a big batch of earnings coming our way next week, including AFLAC, Fiserv and Harris. Plus, we have another Fed meeting next Tuesday and Wednesday, but I strongly doubt we will hear anything new. The tapering plans have apparently been tapered. But first, let’s look at the great earnings report from CR Bard.

    CR Bard Is a Buy up to $140 per Share

    In last week’s CWS Market Review, I raised our Buy Below on CR Bard ($BCR) from $119 to $126 per share. Thanks to a very strong earnings report, the stock tore right through that mark and raced to a new all-time high.

    Let’s run through the numbers. In July, Bard told us to expect Q3 earnings to range between $1.37 and $1.41 per share. Apparently, business is going much better than expected. On Tuesday, the medical-equipment company reported earnings of $1.50 per share, which was a full ten cents higher than Wall Street’s forecast.

    Third-quarter sales were up 3%, and sales outside the U.S. rose by 8%. Once we adjust for currency, non-U.S. sales were up 6%. Looking at Bard’s numbers is a little tricky because we have to adjust for some acquisitions costs. But the best news from Bard was that they’re raising their earnings guidance for this year. Before, Bard expected full-year earnings of $5.55 to $5.60 per share. Now they see 2013 earnings coming in between $5.70 and $5.75 per share. That translates to Q4 earnings ranging between $1.34 and $1.39 per share.

    Bard’s CEO said, “We are pleased with the results this quarter, exceeding expectations on both the top and bottom line. Consistent with our plan, we continue to focus on shifting the mix of the portfolio to faster revenue growth through targeted investments and acquisitions. Our business development activities, together with the results this quarter and other recent events, represent important steps in helping us improve the growth profile of the business going forward.”

    Another thing I love about Bard is that they’ve raised their dividend every year since 1972, including a 5% increase in June. This week, I’m raising my Buy Below to $140 per share. Bard is an excellent stock.

    Ford Motor Does It Again

    On Thursday, Ford Motor ($F) reported third-quarter earnings of 45 cents per share, which was seven cents more than Wall Street’s consensus. This was Ford’s 17th profitable quarter in a row. The automaker also raised its earnings forecast for this year.

    Before, Ford had said they expect pre-tax earnings for this year to match the results from 2012. Now they expect earnings to exceed last year’s results. I was also impressed to see that Ford’s losses in Europe were less than expected. Europe has been an anchor dragging on Ford’s business, but the company has been working to change that.

    CEO Alan Mulally and his team have tried to apply to Europe the same turnaround strategy that’s worked so well in North America. Ford lost $228 million in Europe last quarter, which is a whole lot better than the $468 million they lost in last year’s Q3. It looks like Ford will be profitable in Europe by 2015.

    Ford’s quarterly revenues rose 12% to $36 billion. In North America, Ford made a cool $2.3 billion. Interestingly, Mulally said that he’d “be pleased” to stay at Ford through the end of 2014, which should end speculation that he’s about to take the top job at Microsoft. Shares of Ford opened Thursday’s trading at $18.02. That was the first time since January 2011 that Ford has topped $18 per share.

    The turnaround at Ford has been stunning. The company had junk-rated debt for eight years. Now all the major ratings agencies give Ford investment-grade status. My view: Ford continues to be a very good buy up to $18 per share.

    Very Strong Earnings from Microsoft and CA Technologies

    After the close on Thursday, we got very good earnings reports from two of our tech stocks, CA Technologies and Microsoft.

    For their fiscal Q2, CA Technologies ($CA) earned 86 cents per share, which was 13 cents more than Wall Street had been expecting. The company also raised their full-year guidance for revenues and earnings. Previously, they saw non-GAAP diluted earnings rising by 16% to 20%. Now that range is 17% to 20%. Small, but we’ll take it. The new forecast works out to an earnings-per-share range of $2.96 to $3.03. Wall Street had been expecting $2.97 per share.

    Two years ago, CA raised their quarterly dividend fivefold, to 25 cents per share. It’s been there ever since, but this latest report suggests to me that another increase may be on the way. The stock currently yields 3.2%. This was a great quarter. I’m raising my Buy Below on CA Technologies to $33 per share.

    Microsoft ($MSFT) reported earnings of 62 cents per share, which was eight cents better than the Street’s consensus. Sales rose 16% to $18.5 billion, which was $700 million more than estimates. The software giant earned 53 cents per share one year ago.

    While it’s true that Microsoft has been clobbered in the mobile-phone market, the company still does huge business with the corporate world. Microsoft’s commercial revenue rose 10% to $11.2 billion. I think people lose sight of how profitable they are. In July, Microsoft announced a major reorganization. Then last month, the company reached a deal to buy Nokia’s handset business for $7.2 billion (a very bad move, in my opinion).

    I was particularly impressed when Microsoft recently raised their quarterly dividend by 21.7% to 28 cents per share. That shows a lot of confidence. Going by Thursday’s close, MSFT yields 3.3%. Microsoft remains a very good buy up to $37 per share.

    Upcoming Buy List Earnings Reports

    Next week is going to be a busy week for our Buy List. We have several earnings reports coming. Let me preview them now.

    On Tuesday, October 29, AFLAC, Fiserv and Harris are due to report third-quarter earnings. Shares of AFLAC ($AFL) have been doing well lately, and the stock hit a five-year high this week. I’ve been impressed by their performance this year. In July, AFLAC reported very good results for Q2.

    However, the duck stock’s big problem this year has been the dollar/yen exchange rate, which has eaten into their bottom line. Forex knocked 22 cents off their earnings in Q2. That smarts. Fortunately, the exchange rate has stabilized over the past few months. For Q3, AFLAC sees earnings coming in between $1.41 and $1.51 per share. For all of 2013, they see earnings ranging between $5.83 and $6.37 per share. AFLAC remains a solid buy up to $70 per share.

    Fiserv ($FISV) has been one of our steady winners this year. On Tuesday, the stock got as high as $106.39, which is an all-time high. In July, the company said they expect full-year earnings between $5.84 and $6.03 per share. For the first half of the year, Fiserv has already made $2.83 per share, which is a 16% increase over last year’s first half. Wall Street expects $1.51 for Q3 and $1.65 for Q4. That’s very doable. Fiserv remains a good buy up to $108 per share.

    Harris ($HRS) stole the show last earnings season when they creamed estimates by 26 cents per share and soared 8% the following day. The communications-equipment company continued to rally and broke $61 per share this week. Harris is due to report earnings again next Tuesday, October 29. Will Harris repeat their performance from July? I’m not expecting such a big earnings beat, but I think it’s very likely Harris can top the Street’s view of $1.13 per share. Technically this will be for Harris’s fiscal first quarter. Harris has said they expect full-year earnings (ending next June) to range between $4.65 and $4.85 per share. I rate Harris a good buy up to $62 per share.

    WEX Inc. ($WEX) will release its earnings on Wednesday, October 30. Three months ago, WEX said that earnings for Q3 will be between $1.16 and $1.23 per share. That’s up from $1.08 per share for last year’s Q3. For all of 2013, WEX sees earnings ranging between $4.27 and $4.37. WEX Inc. is a buy up to $89 per share.

    Moog ($MOG-A) is due to report earnings next Friday, November 1. The maker of flight-control systems is our biggest winner on the year, with a 47.2% gain. The stock hit another 52-week high on Thursday. This earnings report will be for Moog’s fiscal fourth quarter. Moog said that earnings for the entire year should be $3.25 per share, and earnings for the current fiscal year will range between $3.90 and $4.10 per share. The shares are still quite reasonable here. Moog remains a buy up to $61 per share.

    Nicholas Financial ($NICK) hasn’t said when they’re going to report earnings, but there’s a very good chance it will be next week. The stock has done very well for us lately. The current environment is just about perfect for NICK. Interest rates are low, so it’s easy for them to borrow. The economy is slowly improving, and that helps keep payments coming in on time. I think Nicholas can keep churning out quarterly earnings of 45 cents per share, give or take, for the indefinite future. I also think there’s a good chance we’ll see another dividend increase in December after the shareholder meeting. NICK remains a very good buy up to $18 per share.

    That’s all for now. We’re going to have many more earnings reports next week. Also, the Federal Reserve meets again on Tuesday and Wednesday. I think the market is pretty much convinced that there will be no tapering news in the post-meeting policy statement. On Monday, we’ll finally get the Industrial Production report, which was supposed to come out on October 17. The Industrial Production index is getting very close to its peak from six years ago. I’ll be very curious to see if we can set a new high. 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: October 25, 2013
    , October 25th, 2013 at 6:04 am

    Bank of England to Offer Banks More Help at Lower Cost, Says Mark Carney

    German Business Confidence Unexpectedly Falls

    U.K. Economy Accelerates to Fastest Growth Since 2010

    New Claims by Jobless Fall Less Than Hoped

    Mortgage Declines Spread the Pain

    Twitter Sets I.P.O. Price at $17 to $20 Per Share

    Southwest CEO Opens Door to Baggage Fees

    Microsoft Relying on Gamers to Cloud Users as PC Sales Slump

    Semiconductors Bolster Record Samsung Profit

    Amazon Posts Another Loss As Revenue Soars

    Icahn Amps Up Pressure on Apple, but His Stake Limits His Leverage

    Volvo Posts Surprise Quarterly Profit Drop on Krona Gain

    The Bullish Case for Stocks in One Sentence

    Roger Nusbaum: Back When Taleb Was Useful

    Howard Lindzon: Twitter…The Anti-Froth IPO!

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  • Excellent Earnings from Microsoft
    , October 24th, 2013 at 4:39 pm

    Microsoft ($MSFT) reported a 17% earnings increase last quarter. For July, August and September, Microsoft earned 62 cents per share which easily beat the consensus estimate of 54 cents per share.

    The world’s largest software maker is undergoing unprecedented changes, conducting its first-ever CEO search and starting a major organizational overhaul aimed at bolstering sales by focusing on devices and services. Demand for Microsoft’s Office productivity software has helped compensate for declining consumer purchases of PCs running Windows, and the company has been cutting costs to shore up profit.

    “Business has been driving the train,” said Colin Gillis, an analyst at BGC Partners LP in New York, who recommends holding the shares. “Most people are really looking through the quarter to the new CEO.”

    MSFT is also up about 5% after hours.

  • CA Technologies Earns 86 Cents Per Share
    , October 24th, 2013 at 4:19 pm

    Great earnings report from CA Technologies ($CA). For Q3, the company earned 86 cents per share which was 13 cents more than Wall Street’s estimate.

    CA also raised its full-year growth forecast by a small bit. Previously, they saw non-GAAP diluted earnings rising by 16% to 20%. Now that range is 17% to 20%. That works out to an earnings-per-share range of $2.96 to $3.03. Wall Street had been expecting $2.97 per share.

    “I am pleased with our overall second quarter results,” said Mike Gregoire, CA Technologies chief executive officer. “We over performed on both the top line and the bottom line, enabling us to increase our full year guidance for revenue and GAAP and non-GAAP earnings per share. This is clearly a beginning, but we still have work to do to get the aggregate portfolio growing.

    “To drive growth at CA we are investing in our business. In the second half of the fiscal year we will increase our research and development spend and accelerate our investment in marketing, all within the expense guidance we outlined at the outset of the fiscal year,” Gregoire said. “This will enable us to continue to deliver disruptive new products like our recently announced Nimsoft Monitor Snap – a SaaS monitoring solution that provides an entirely new customer experience – and the next generation of mainframe products. Accelerating innovation, delivering differentiated products and focusing our marketing is the path to getting CA on a growth trajectory.”

    The stock is up about 5% after hours.

  • More Strong Earnings for Ford
    , October 24th, 2013 at 11:57 am

    Ford Motor ($F) reported another solid quarter this morning. This was Ford’s 17th profitable quarter in a row. Excluding another round of charges, Ford earned 45 cents for the third quarter which topped Wall Street’s consensus of 38 cents per share.

    From the NYT:

    “It was a really, really great quarter,” Robert L. Shanks, Ford’s chief financial officer, told reporters at the automaker’s Dearborn headquarters. The company’s performance was “encouraging from a number of perspectives,” with growth in wholesale volume, revenue and market share in North America, South America, Europe and Asia-Pacific.

    The automaker posted a combined profit for regions outside of North America for the first time since the second quarter in 2011. A $159 million pretax operating profit in South America beat Wall Street’s expectations, while a $126 million profit in Asia-Pacific, though a third-quarter record for the company, came in below an analyst consensus.

    Ford’s market share in South America, where Mr. Shanks said inflation in Venezuela and Argentina could pose a problem, grew more than a full percentage point to 9.5 percent.

    Ford now expects to record a total company pretax profit and automotive-related operating margin higher than last year. Previously, the company had said it expected its performance to be on a par with 2012.

    “The progress and the direction is what’s really exciting,” Mr. Shanks said.

    Ford also raised its outlook for this year. Before they said that this year’s pre-tax profit will match last year’s. Now they say it will beat it. I was also impressed to hear that their losses in Europe will be less than what they had last year.

    Alan Mulally also said that he’ll be on the job, at least through the end of next year. The stock cracked $18 per share this morning. Shares of Ford were last over $18 in early 2011.

  • Stryker Pays $13.2 Million to Settle Charge
    , October 24th, 2013 at 11:50 am

    Stryker ($SYK) has agreed to pay $13.2 million to settle charges of overseas bribery.

    The Securities and Exchange Commission said that the company tried to mask its $2.2 million bribes in Argentina, Greece, Mexico, Poland and Romania by booking them as legitimate expenses for charitable donations, travel costs and commissions.

    The fine is hardly a backbreaker, but I find these allegations troubling.

  • Morning News: October 24, 2013
    , October 24th, 2013 at 6:06 am

    China’s Manufacturing Strengthens in Boost to Recovery

    Euro Hedging Jumps as Europe Exporters Bemoan Gains

    SEC Crowdfunding Plan Wins Fans

    Jury Finds Bank of America Liable in Mortgage Case

    Caterpillar Races to Cut Back

    McKesson Agrees to Buy Celesio for $5.4 Billion

    Pinterest Raises $225 Million, as Valuation Jumps to $3.8 Billion

    Daimler Profit Beats Estimates as CLA Boosts Car Sales

    Unilever Pinched by Slowdown in Emerging Markets

    AT&T 3rd-Quarter Net Rises 4.9% as Subscriber Count Grows

    LG Electronics’ Third Quarter Hurt By Handset Competition

    Hyundai Motor Posts First Profit Gain This Year On China, Brazil Sales

    Starbucks Opens Its First Tea Bar As CEO Schultz Bets On $90 Billion Market

    Jeff Miller: What Happened to the Part-time Employment Story?

    Joshua Brown: Beta Managers, This is Your New Benchmark

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  • The 10-Years Falls Below 2.5%
    , October 23rd, 2013 at 12:12 pm

    The bond market was rocked earlier this year as the yield on the 10-year Treasury jumped from 1.6% in early May to nearly 3% by September. How things have changed. The yield has gradually drifted lower over the past few weeks, and the yield finally dipped below 2.5% today.

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    If the yield falls to 2.46%, that will match a four-month low.

  • CR Bard’s Q4 Guidance
    , October 23rd, 2013 at 11:14 am

    Shares of CR Bard ($BCR) are rallying in the wake of yesterday’s good earnings report. BCR has been as high as $137 today which is a 7.9% gain from yesterday’s close.

    Here’s a look at what Bard had to say about guidance on their conference call (courtesy of Seeking Alpha):

    Now moving to financial guidance. For Q4, we are expecting constant currency sales growth between 1% and 3%. This includes the impact of the Q4 acquisitions and the divestiture of EP, which essentially offset each other in the quarter.

    Although our Q3 organic revenue growth was a bit stronger than that, we remain cautious about the sales environment, particularly in the U.S. We have seen the same survey data that you have that suggests no reliable improvement in physician office visits or hospital admissions, and we have some tough comps in Q4, specifically in biopsy and soft tissue repair. Of course, recognizing the Gore royalty as revenue now looks like a 2014 event.

    From an EPS standpoint, excluding items affecting comparability, our 2013 guidance after our acquisition call on September 4, including the $0.10 of dilution from EP and the acquisitions and excluding Gore, was between $5.55 and $5.60. On the back of the Q3 beat, we are raising the full year 2013 adjusted EPS guidance to between $5.70 and $5.75 a share, which puts Q4 between $1.34 and $1.39 per share.

    Q4 is obviously a little muddy with EP moving out of the P&L and the adjustments we are making around that, while at the same time integrating the new businesses and the start-up costs associated with those transactions. We’re very pleased that with all of these moving parts, excluding the Gore royalty, we’re on track to bring the year in where we said we would from both the sales and profitability perspectives.