Archive for 2013

• Morning News: July 16, 2013
  Eddy Elfenbein, July 16th, 2013 at 6:35 am

  Greece Hit By General Strike to Protest Austerity

  Europe Car Sales Slump as German Sentiment Wanes

  North Korean Ship With ‘Military Cargo’ Held By Panama

  Brokerages See Downside Risks to India’s GDP Growth Forecast

  US ‘Jumbo’ Loan Rates as Cheap as Standard Mortgages

  Gold Swings as Investors Wait for Bernanke’s Testimony

  Dollar Bulls Waver as Fed’s Signals Whipsaw Traders

  Baidu to Buy Mobile App Store for $1.9 Billion

  Citigroup Has an Emerging Markets Headache

  Bullish Leap Options Set to Gain $4.6 Million With Buyout Bid

  Ad Networks Agree New Anti-Piracy Guidelines

  With i3 Electric Car, BMW Tries to Ease Range Anxiety

  Glaxo 20% China Sales Growth in Focus as Police Allege Bribes

  Jeff Carter: The Rise of the Naked Economy

  Roger Nusbaum: Don’t Just Do Something, Stand There

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• At the Lake….
  Eddy Elfenbein, July 15th, 2013 at 9:25 am

  I’m on vacation this week, relaxing at Sebago Lake in Maine. It’s beautiful up here, and the people are very friendly.

  I’ll continue to post this week, but not as often. Just to follow up from Friday, we had good earnings reports from Wells Fargo ($WFC) and JPMorgan Chase ($JPM). Wells came within three pennies of a new 52-week high, which it had set on Tuesday. Analysts seem very pleased with the earnings reports from both.

  Hulu decided to call off its auction of itself, of which DirecTV had been in the running. I’m rather skeptical of how serious DTV was, but now that it’s off the table, I think it’s good news for DTV.

  This morning, the retail sales report for June came in a little below expectations. Wall Street was expecting a 0.8% increase while the actual number was 0.4%.

  The figures show consumer spending, which accounts for about 70 percent of the economy, may take time to accelerate as Americans stay frugal and rebuild savings. At the same time, cheaper borrowing costs, household wealth backed by home and stock prices and an improving job market are helping sustain demand for big-ticket items such as motor vehicles.

  “The consumer was less engaged in the second quarter,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. Price is the second-best forecaster of retail sales over the past two years, according to data compiled by Bloomberg. “The numbers are disappointing in comparison to expectations but the overall picture is still encouraging” given job growth and improved household balance sheets, he said.

  The futures currently indicate the market will open higher this morning.

• Morning News: July 15, 2013
  Eddy Elfenbein, July 15th, 2013 at 6:43 am

  Greeks Wait Tables and Hope for Economic Dawn

  Here Comes the Hardest Challenge Yet for Abenomics

  China Growth Slows to 7.5% as 2013 Target Under Threat

  N.S.A. Leaks Stir Plans in Russia to Control Net

  Gold Extends Best Week Since 2011 as Stimulus Seen Sustained

  China Releases Details of Glaxo Bribery Allegations

  After Goldman and Before Trial, a Global Education for Fabrice Tourre

  AT&T’s Leap Purchase Puts Pressure on Smaller Rivals to Pair Up

  Hulu’s Owners Call Off Auction, Plan to Invest $750 Million

  Loblaw to Buy Shoppers Drug Mart for $11.9 Billion

  Stella International Takes on LVMH to Expand in Paris

  How One Year of Marissa Mayer Has Changed Yahoo

  The All-Time High Stock Market Is About To Get Served A Potent Cocktail Of Economic Data And Fedspeak

  Pragmatic Capitalism: JP Morgan: Don’t Confuse Dovish Comments with “Tapering”

  Jeff Miller: Weighing the Week Ahead: Have Stock Investors Dodged the (Correction) Bullet?

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• JPMorgan Chase and Wells Fargo Beat Estimates
  Eddy Elfenbein, July 12th, 2013 at 12:42 pm

  This morning JPMorgan Chase ($JPM) announced a 31% increase in Q2 earnings. Analysts expected $5.47 billion or $1.44 per share on revenue of $24.84 billion. Yet JPM surpassed that with earnings of $6.5 billion or $1.60 per share and revenue of $25 billion, compared with $22 billion in the period a year earlier. The stock spiked on the news and is now up slightly in mid-day trading.

  Wells Fargo ($WFC) also announced strong earnings this morning. WFC reported a 19% profit increase for Q2, which reflected the 14th-straight quarterly profit increase and the ninth-straight record report. Net income was $5.5 billion or 98 cents per share compared to $4.6 billion or 82 cents per share for the Q2 one year ago. Analysts had been expecting 93 cents per share. Revenue was roughly flat at $21.4 billion and this also exceeded expectations. The stock is up 1.8% in mid-day trading.

• CWS Market Review – July 12, 2013
  Eddy Elfenbein, July 12th, 2013 at 7:06 am

  “I guess I should warn you, if I turn out to be particularly clear,
  you’ve probably misunderstood what I’ve said.” – Alan Greenspan

  What a difference six days make. The S&P 500 has rallied for the last six days in a row, and on Thursday, the index reached an all-time high close, although we’re still a bit short of the all-time intra-day high. The small-cap Russell 2000 is at an all-time high and the Nasdaq Composite is at its highest point in 13 years. Check out how poorly the S&P 500 has performed compared with the Russell 2000.

  

  What’s the cause for the about-face? It all comes down to the Federal Reserve—or more specifically, people’s expectation of what the Fed is thinking. After throwing a minor temper tantrum, Wall Street has apparently reconciled itself to the fact that the Fed will start tapering its bond purchases in September.

  In this week’s CWS Market Review, we’ll take a closer look at what this means and how it impacts our portfolios. We’ll also take a look at some upcoming earnings reports for our Buy List. Speaking of which, our Buy List has been en fuego lately. Just look at Cognizant Technology ($CTSH). Two weeks ago, I spotlighted CTSH as an especially good buy, and the stock is up 13% since then. I’m raising my Buy Below for Cognizant to $76 per share. Thanks to the rally, I have several more updated Buy Below prices. Before we get to those, let’s look at why the markets are so happy this week.

  Bernanke Calms the Market’s Panic Attack—Which He Created

  In last week’s CWS Market Review, I said traders were on the lookout for this week’s release of the minutes from the Fed’s June meeting. It was in June that Ben Bernanke’s post-meeting press conference sent the stock market into a quick dizzy spell.

  Traders read far too much into the Fed’s caution that their bond buying program will, at some point, slowly wind down. Ever since that press conference, the central bank has been hard at work trying to calm the market down. Ben and Friends want to make it absolutely clear that they’re not going to pull the rug out from the economy.

  One piece of encouraging news came last Friday when the government reported that the economy created 195,000 new jobs in June. That was 30,000 more than expected. How’s this for consistency: According to the government, 199,000 jobs were created in April, and 195,000 were created in May. These are decent numbers, though there’s a lot of room for improvement. Still, we had a seven-month run last year where every report was less than 170,000.

  An improving labor market is important for several reasons. It obviously means more folks drawing paychecks who are eager to buy more things. While Corporate America has done a great job cutting back on expenses, you can’t improve profit margins forever. At some point, you need more bodies in the door.

  Mr. Bernanke has often pointed out that helping the jobs market is part of the Fed’s mandate, and he’s pledged to add monetary stimulus until there’s substantial improvement in the economy. In a Q&A on Wednesday, Bernanke said that the current unemployment rate probably understates the strength of the jobs market due to low workforce participation. In English, that means we don’t really know how bad things are, because a lot of folks have simply stopped looking for work.

  Bernanke also did something interesting in those remarks. He made it clear that short-term interest rates will remain low for a long time after any bond buying starts to taper off. I think he sees rates staying low into 2015, and perhaps beyond. Of course, this will be long after he’s left D.C. The important thing is that QE is not the same as holding down short-term rates, and the Fed sees these as two distinct policies.

  A lot of market watchers have been concerned about the rapid run-up in long- and intermediate-term interest rates. The five-year Treasury jumped 95 basis points in two months. In effect, the economy is tightening credit on itself. Bernanke is clearly concerned about this, but any concerns that the housing market is about to be slammed shut are very premature (although there have been some big cracks in a number of mortgage finance stocks).

  The odd thing is that a lot of investors have reacted as if the Fed has suddenly changed its game plan. That’s not the case at all. Looking at the details, the central bank has been pretty consistent. The market’s reaction, however, has been wildly inconsistent. While the stock market has made back all of its losses, the five-year Treasury has fallen only 20 basis points from its 95-point surge.

  Looking at the makeup of the market also gives us some clues. For example, the Consumer Discretionary Sector ($XLY) has now risen for 12 days in a row. That’s exactly what we would expect to see when knowing that the Fed is on the side of the stock market. The Discretionaries include companies like Bed Bath & Beyond ($BBBY) and Ford Motor ($F). Basically, it’s stuff that people would like to buy, not what they have to buy. This is important because strength here points to broader optimism.

  The message from Bernanke is crystal clear even though some folks are desperate to hear something different. The Federal Reserve will continue to be on the side of stocks and not bonds. Bernanke just watched a big drop in bonds and did nothing to stop it. What does that tell you? Keep focusing on our Buy List names, and ignore any market hiccups. That’s just part of being an investor. This will be another good earnings season for us. Now let’s look at our Buy List.

  Our Buy List Is up 21.27% for the Year

  Our Buy List has been punching like champ lately. We’re now up 21.27% for the year, and it’s not even the All-Star Break yet. I want to run down some of our big winners and give you some new Buy Below prices. Our #1 performer this year is quiet little Moog ($MOG-A), which is inches away from being our first 40% winner for the year. Of our 20 stocks on the Buy List, 13 are up more than 20% this year, including six that are up more than 30%. This week, I’m raising my Buy Below on Moog to $57.

  Several of our stocks have been hitting new highs lately, like Ford Motor ($F). On Thursday, shares of F came within one penny of hitting $17 per share. The upcoming earnings report could be a home run. Ford continues to be a great buy up to $18 per share.

  It seems like it was only a week ago that I raised my Buy Below on WEX Inc. ($WEX) and Bed, Bath & Beyond ($BBBY). Actually, it was only a week ago, but both stocks have powered right through to new highs. This week, I’m raising WEX to $86, and BBBY to $79.

  AFLAC ($AFL) continues to do well for us. On Thursday, the stock got as high as $59.38, which is the highest price in more than two years. AFL is still going for less than 10 times this year’s earnings estimate. I’m looking forward to another good earnings report at the end of this month. I’m raising AFL’s Buy Below to $63 per share.

  Last month, traders panicked due to our FactSet’s ($FDS) terrible, awful, horrible earnings. In other words, FactSet merely met the Street’s earnings forecast. At the time, I said FDS “is doing just fine.” Sure enough, the stock has since made back everything it lost and broken out to another new high. (If it weren’t for panicky traders, we wouldn’t have any traders at all.) I’m raising our Buy Below on FactSet to $112 per share.

  I have three more Buy Below changes: I’m raising CA Technologies ($CA) to $31 per share, Harris ($HRS) to $53 and CR Bard ($BCR) to $115. Earnings for all three will be coming soon.

  I also want to mention that DirecTV ($DTV) is bidding to buy Hulu, which is an online video service. This is a pretty high-profile bidding war for Hulu. I don’t have any new info, but I’ll add that DTV tends to be pretty conservative in these matters, and I know they’re not afraid to walk away from a deal if it’s not a good fit.

  I’ll warn you that the bidding war may cause some near-term volatility for DTV. If they lose, which is probable, the stock will probably rally. Incidentally, DTV got a nice bump on Thursday when Liberty Media’s Chairman John Malone said that DISH and DTV should merge. I really don’t see that happening. Either way, DirecTV remains an excellent buy up to $67 per share.

  Upcoming Earnings from Microsoft and Stryker

  Before we get to the next week’s earnings, I have to make a correction. Last week, I said that JPMorgan ($JPM) and Wells Fargo ($WFC) were due to report earnings on Thursday, July 11th. That’s incorrect. Both banks will report on Friday, the 12th, which is just after the deadline for this week’s issue. No need to worry. I’ll cover the earnings report in next week’s CWS Market Review. Also, I previewed the earnings in last week’s issue, which you can see here. My apologies for any confusion.

  Assuming my calendar is right, this Thursday, July 18th, Microsoft ($MSFT) and Stryker ($SYK) are due to report Q2 earnings. For Microsoft, the June quarter is the fourth quarter of their fiscal year. Both have been excellent stocks for us this year.

  In April, Microsoft had a very good earnings report, and this news came at a time when a lot of big-name firms were disappointing Wall Street. The software giant earned 72 cents per share, which was four cents more than estimates.

  It’s true that MSFT is being hurt by slower PC sales, and Windows 8 didn’t blow people away. But lots of other areas are going well for them. Microsoft’s corporate business is picking up, and Xbox biz looks quite good. The company generates an astounding cash flow.

  On Thursday, Microsoft announced a major reorganization. They’re revamping their eight divisions into four. The new structure is designed to offer more collaboration and diminish rivalries. Steve Ballmer has said he wants Microsoft to be known as a “devices and services” firm.

  I tend to be a bit skeptical about high-profile reorganizations. They can be done, but reorgs are usually more difficult than originally assumed. On Thursday, MSFT came within one penny of a new 52-week high. Wall Street currently expects 75 cents per share for next week’s earnings report. That’s almost certainly too low. I’m going to bump up my Buy Below price to $38 per share. Microsoft remains a very good buy.

  Stryker exploded out of the gate for us this year. SYK was up 16% before the end of January. The medical-devices company has said that it expects $4.25 to $4.40 per share this year. It’s still early, but I think SYK should easily clear $4.30 per share this year. Stryker earned $1.03 per share for Q1, and their result for Q2 is usually very close to what they earned in Q1. Sure enough, Wall Street’s consensus for Q2 is for $1.03. Stryker remains a very good buy up to $71 per share.

  That’s all for now. Earnings season rolls on next week. We’ll get reports from Microsoft and Stryker. There will also be several key economic reports. Retail sales is on Monday; on Tuesday, we’ll get a look at consumer inflation; and industrial production is on Wednesday. Then housing starts on Thursday. 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: July 12, 2013
  Eddy Elfenbein, July 12th, 2013 at 6:37 am

  U.S. and China Talks Move Forward

  Europe, U.S. Strike Peace on Cross-Border Swap Rules

  PC Shipments Fall for 5th Quarter Even as U.S. Decline Slows

  U.S. Posts Record June Budget Surplus

  S&P 500 Erases Loss as Bernanke Eases Stimulus Concern

  Senators Introduce Bill to Separate Trading Activities From Big Banks

  House GOP Outlines Plans for Mortgage Finance

  Rate Surge Catches Banks Off Guard

  Walmart’s Anti-Union Wage Plans Earn a Cold Shoulder From Big Cities

  Microsoft Overhauls, the Apple Way

  Google’s Schmidt Says Relationship With Apple Has Improved

  Billionaire Icahn Says He’ll Sweeten Dell Offer With Warrant

  Schneider Electric Offers $5 Billion for Invensys Takeover

  Credit Writedowns: The Wastefulness of Automation

  Jeff Miller: How to Profit from the Shiller Cape Ratio

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• My RIMM Warning from December
  Eddy Elfenbein, July 11th, 2013 at 10:48 am

  Last December, when $RIMM (now $BBRY) was at $14.12, I warned folks about it:

  When you short a rally, you get upset. When you get upset, you’ll buy any stock. When you buy any stock, you buy $RIMM. Don’t buy $RIMM.

  The shares are now at $9.28.

  

• Bernanke (Again) Lifts the Market
  Eddy Elfenbein, July 11th, 2013 at 10:44 am

  The stock market is rallying strongly again today. If this holds up, it will be the fifth-straight advance for the S&P 500. The index is currently very close to its all-time high close of 1,669.16 from May 21st. It spiked to an intra-day high of 1,687.18 the next day.

  Yesterday’s Fed minutes were see as quite dovish. The Fed has apparently won its battle against those who have seen hawkish views in the Fed’s recent comments. Confirming this view is that gold is up quite strongly today.

  Our Buy List is now up over 20% for the year. Stocks like Medtronic ($MDT), AFLAC ($AFL), Fiserv ($FISV), Stryker ($SYK), CR Bard ($BCR) and Bed Bath & Beyond ($BBBY) are at new highs today.

• Morning News: July 11, 2013
  Eddy Elfenbein, July 11th, 2013 at 7:00 am

  Japan’s Economy on Road to Recovery, Central Bank Says

  Rajoy Punishes Exporters Sustaining Spain’s Economy

  Greece Will Become The First-Ever Country To Lose Its ‘Developed Market’ Status

  Brazil Signals World’s Biggest Key Rate Increase Far From Over

  Law Spoils Tobacco’s Taste, Australians Say

  Gold Is Surging, and One Analyst Says It’s Now in the Sweet Spot

  Bernanke Supports Continuing Stimulus Amid Debate Over QE

  SEC Ends Ban on Private Fund Advertising

  PC Shipments Fall for 5th Quarter Even as U.S. Decline Slows

  Fallout From Apple’s Loss on E-Books

  China Says GlaxoSmithKline Executives Confess to Bribery Charges

  Icahn Calls on Dell Holders to Seek Appraisal of Shares

  Wal-Mart in Store Showdown in Washington

  Jeff Carter: Time For You to Give Ycharts a Try

  Phil Pearlman: How to Play Gold Here: Interview With Grafite Capital’s Mihir Dange

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• Indefinite Pronouns in Today’s Fed Minutes
  Eddy Elfenbein, July 10th, 2013 at 2:09 pm

  Your only source for such info.

  Most – 5
  Some – 4*
  Several – 3
  A couple of – 3
  A number of – 3
  A few – 2
  One – 2
  Many – 1

  * Includes one “some other”