Archive for 2013

  • Buffett’s 2012 Shareholder Letter
    , March 1st, 2013 at 4:16 pm

    Warren Buffett’s lastest shareholder letter is out. It usually contains a great deal of investing wisdom.

  • S&P 500 Divided By Gold
    , March 1st, 2013 at 4:05 pm

    The S&P 500 is nearing parity with gold. The index is now 96.3% of the price of gold. Eighteen months ago, the ratio was down below 60%.

    sc03012013

  • AFLAC “Is One of the Cheapest Stocks in the S&P 500 Right Now”
    , March 1st, 2013 at 11:23 am

    Teresa Rivas at Barron’s make the case for AFLAC ($AFL):

    The Aflac duck endures many misfortunes in the insurance company’s goofy advertisements, from scorched feet to a broken bill. Now the stock is taking a beating as well, following a drop in Japan’s currency, and this has created an opportunity for investors.

    (…)

    “This is one of the cheapest stocks in the S&P 500 right now, especially among companies that are going to report earnings, not losses,” says Bill Smead, portfolio manager of the Smead Value Fund. “This is a premier financial services and insurance company—a storm doesn’t come in and turn a company upside down. If you look at the 2011 tsunami, even though 75% of Aflac’s revenue comes from Japan, [the disaster] didn’t really have any impact.”

    (…)

    “It has low price-to-earnings and price-to-book [ratios], and yet the company is going to be turning in a fairly healthy return on equity in 2013, so there’s a disconnect between the price today and the returns the company is providing.”

    (…)

    Still, the stock price doesn’t reflect Aflac’s long-term potential. Its premium brand name is an asset in Japan, where it has long enjoyed a stellar reputation, and, thanks to the duck, it is well known in the U.S.

    “If you put 100 people in a room and give them the generic category of supplemental health insurance, I don’t think anyone would be able to say any name other than Aflac,” says Smead. “If savvy people can’t tell you who a company’s No. 2 competitor is, they’ve won the game before it starts.”

  • February ISM = 54.2
    , March 1st, 2013 at 10:05 am

    Very good ISM report for February of 54.2. We saw a nice increase last month to 53.1 so it’s good to see some confirmation. Since 1948, the ISM has printed between 53.0 and 55.0 a total of 104 times. Only twice have been during recessions.

    fredgraph03012013

    The other news today is that personal income plunged 3.6% in January although spending rose by 0.2%. The income number was impacted by some calendar effects. A number of companies paid dividends and bonuses late last year which increased December’s number, so the January number was moving back to correct for that.

    We also learned that the University of Michigan consumer sentiment index rose last month to 77.6 from 73.8 in the month before. Economists were expecting an increase to 76.3.

  • CWS Market Review – March 1, 2013
    , March 1st, 2013 at 6:52 am

    “Business, more than any other occupation, is a continual dealing with the future;
    it is a continual calculation, an instinctive exercise in foresight.” – Henry R. Luce

    The stock market had a rather raucous few days this week, which included our worst single-day plunge since November, thanks to, of all things, unexpected election results in Italy. But after some good earnings and positive economic reports, plus bullish comments from Mr. Bernanke, the stock market regained its legs; the Dow is now only steps away from an all-time high. You know, it’s a wonder what pumping in a few trillion dollars can do for a market’s spirits.

    fredgraph02282013b

    Here’s an interesting fact: The S&P 500 has risen in both January and February. Since 1945, the S&P 500 has been positive for the first two months of the year 26 times. Every single time that’s happened, the index has closed higher for the year. No exceptions. In fact, it’s usually closed a lot higher. The average total gain, including dividends, has been 24%. If the S&P 500 were to rack up a 24% total return this year, the index would have to be well over 1,700 by the end of the year.

    Of course, I’m not predicting such a move. We’re too smart to play the price targets game around here, but I do think this market will continue to be tricky. Frankly, earnings estimates are too high, and I see a lot of lousy stocks gaining ground. That’s not a good sign. On the plus side, the economic recovery is starting to gain some momentum, and our Buy List continues to be an oasis in a troubling climate. As usual, our strategy is to ignore the noise and remain focused on high-quality stocks.

    We didn’t have any earnings reports this week, so I’m going to discuss some broader themes impacting the market. First, let’s look at what had the market so grumpy earlier this week.

    Reports of the Euro’s Death Are Greatly Exaggerated

    The early news on Monday showed that it looked like Pier Luigi Bersani’s left-of-center party was going to win the election in Italy. But as the results came in, both Beppe Grillo and Silvio Berlusconi, who are, respectively, a former comedian and a former Prime Minister, did much better than expected. The better they did, the worse stocks did.

    In other words, the ditch-the-euro-and-bury-austerity crowd is still pulling in a lot of votes. As it turns out, Italians prefer governing themselves and not having Germany tell them what to do. Who knew? In fact, Grillo and Berlusconi did so well that due to the rules of Italy’s legislature, probably no one will be able to cobble together a governing coalition. And that probably means it’s back to the polls we go.

    So here we are in 2013, with our portfolios noticeably impacted by the decision of a former comedian not to join in the governing of the Italian nation. My friends, we live in interesting times.

    Now you might think it’s odd that I’m discussing these election results in a service dedicated to investing, and I have to agree with you—it is odd. But like the proverbial flap of a butterfly’s wing that causes a tornado thousands of miles away, the election results have far-reaching consequences. For one, the S&P 500 dropped 27.75 points on Monday, and it was the worst daily loss since the day after President Obama’s reelection.

    Now let me explain what’s really going on and what it means for us: The plan to save Europe was perfectly drawn up and perfectly executed. There was one teeny, tiny, minor, little flaw: no one bothered to ask the voters. Well, technically they did ask, but the pro-euro policies slid by in Greece and other places. Now in Italy, voters are pushing back. That’s why this isn’t just about one election. It’s really a much broader battle, and that’s why our market reacted so dramatically. Bear in mind that the establishment’s candidate wasn’t Bersani; it was the current Prime Minister Mario Monti, and he was totally blown out.

    If the anti-euro and anti-austerity movement gains power, it could undermine all the work that’s been done to save the eurozone. Remember last summer when Mr. Draghi made his dramatic statement that he was prepared to do whatever it takes to save the euro? Just look at any chart from that period and you’ll see that’s precisely when the lines that had been going down started to rise and when the rising lines started to fall. More specifically, that’s when investors finally stepped away from crowding en masse into U.S. Treasuries and started buying dollar-denominated stocks. That’s also when cyclical stocks started to take the lead. We’ve come a long way, so the recent events in Italy are seen as a big threat.

    Here’s my take: This latest round is really a political crisis, whereas the previous episodes were part of a financial crisis. The good news is that bond yields in Europe are down dramatically from where they had been last summer. I think this was another example of investors who had already been looking to exit some U.S. stocks jumping on this excuse to unload their positions. The fundamentals in Europe and the U.S. are much better. Panicky traders, however, will never change. There may be more euro flare-ups to come, but those whom the Bond Market Gods wish to destroy, they first make Greek or Spanish. Maybe Portuguese. But not Italian.

    The Equation That’s Been Driving the Market

    The other big news this week was the Congressional testimony from Ben Bernanke. The Fed Chairman’s semi-annual testimony used to be a big deal, but since Bernanke allowed at least a little more transparency into a hopelessly opaque institution, the thoughts of Mr. Bernanke aren’t wholly unexpected.

    In short, Bernanke said that the economy hit a rough patch late last year but that things are looking better at the start of this year. The part of Bernanke’s remarks that caught my attention was his robust defense of the Fed’s asset purchases. Some folks on Wall Street thought the recent Fed minutes indicated that the central bank was ready to pull the plug on their bond-buying. That ain’t happening. Bernanke made it clear that they want to keep buying bonds until the labor market gets much better. The Bearded One said, “The FOMC has indicated that it will continue purchases until it observes a substantial improvement in the outlook for the labor market in a context of price stability.” Seems pretty clear to me.

    Now let me circle back and explain why this is so important. I’ll give you the simple equation to understand the stock market for the last six months or so. The areas that have done exceptionally well are found wherever you see consumers intersecting finance. This is absolutely crucial.

    What do I mean by this? It’s not just that consumers are buying more things; it’s that they also need to finance those purchases. That means housing, which has done extremely well. The Homebuilder ETF ($XHB) is up 41% in the last year.

    That means cars. Ford Motor ($F) has rallied more than 36% in the last seven months. Nicholas Financial ($NICK) continues to thrive as well. It also means travel and airline stocks. And spillover industries. Home Depot ($HD) just reported very good earnings, plus they raised their dividend by 34%. People buying. People borrowing. Banks lending.

    On the other side of the financing, the big banks have done well. This has been great for JPMorgan Chase ($JPM) and Wells Fargo ($WFC), both of whom made a conscious decision to focus on mortgages. Stocks like Visa ($V) and MasterCard ($MA) have also been big winners. All of these stocks have benefited from the same effect: Consumers buying things with money they don’t have at the moment but plan to get soon. This is why Bernanke’s defense of QE, and his dismissal of its risks, is so important. This trend isn’t nearly over, either. Mortgage rates are still very low, and housing inventory is getting pretty thin as well. Monetary policy does eventually work, though it may tarry.

    Two Buy Below Adjustments

    I want to make two small adjustments to our Buy Below prices. I’m going to bump up FactSet Research’s ($FDS) Buy Below to $96. Fiscal Q2 earnings are due out in mid-March, and I’m expecting good news. The Street’s looking for $1.11 per share. I also want to raise Stryker’s ($SYK) Buy Below to $64. Stryker is our #1 performer this year, with a YTD gain of 16.5%. Despite the recent rally, the shares are still quite reasonably priced.

    That’s all for now. Next week, the government will revise its productivity report, plus we’ll get the Fed’s important Beige Book report. But the most important event will be next Friday’s jobs report. Remember what Bernanke said about “a substantial improvement.” 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: March 1, 2013
    , March 1st, 2013 at 6:45 am

    Asian Manufacturing Growth Slows, Data Show

    Eurozone Unemployment Hits 11.9%

    Spending Cuts Signal Austere Future for Domestic Programs

    Consumers, Exports Nudge Up Economy

    4 Possible Silver Linings In The Sequester

    Buffett Outlining Dividend Plan May Ease Successor’s Path

    Groupon Dismisses Chief After a Dismal Quarter

    J.C. Penney Lowest Sales in Decades Show Johnson Stumbles

    Banana Republic: Turning Khaki Into Gold

    Lloyds Posts Loss on Loan Insurance, Swaps Compensation

    Sears Holdings Q4 Loss Narrows

    Ad Firm WPP Sees Business Confidence Improving

    Barnes & Noble Rethinks Its Strategy for the Nook

    Roger Nusbaum: You Maniacs, You Blew It Up

    Stone Street: ZAGG:SKUL::Punxsutawney:Paris

    Be sure to follow me on Twitter.

  • Remarkable Stat on Real GDP
    , February 28th, 2013 at 10:42 am

    Here’s a stat that I find astonishing:

    From 1947 to 1973, real GDP grew by 175.9603%.
    From 1973 to 2012, real GDP grew by 175.9607%.

    In other words, the U.S. economy grew by the same amount over the last 39 years as it did in the 26 years before, despite the latter period being 50% longer. And when I say the same, I mean almost precisely exactly the same.

    Here’s quarterly GDP growth for the last few years:

    fredgraph02282013a

  • The Dow Closes in on All-Time High
    , February 28th, 2013 at 10:27 am

    The Dow closed yesterday just 89.16 points from an all-time high close. This was the highest close for the index in 64 months. To give you an idea of how close we are to making a record, the 30 stocks in the Dow need to rise by a combined total of $11.61. The index has been up as much as 30 points today.

    fredgraph02282013

  • Morning News: February 28, 2013
    , February 28th, 2013 at 7:13 am

    Draghi Says ECB in No Rush to Tighten as Inflation Slows

    Monti Says European Crisis Management, Populism Led to Defeat

    Banker Bonuses Face Curbs in EU Basel Law Deal

    Osborne’s ‘Shrink The Bank’ Strategy Means A Smaller, Less Profitable RBS

    Bankia Posts Record 21.2 Billion Euros After-Tax Loss

    Wheat Rises as U.S. Export Demand May Increase After Price Drop

    Businesses Show Resilience Despite Drop in Goods Orders

    Senate, in a More Affable Mode, Backs Treasury Nominee

    Groupon Drops 24% On Weak Results, Forecast

    Chief Talks of Mistakes and Big Loss at J.C. Penney

    Samsung Armors Android to Take On BlackBerry

    Wal-Mart Struggles to Restock Store Shelves as U.S. Sales Slump

    The Excessive Uproar Over Marissa Mayer’s Telecommuting Ban

    Cullen Roche: Nasdaq Sentiment Remains Near its Highest Levels Since March 2000

    Jeff Miller: Investors: How tO Profit by Understanding the Fed

    Be sure to follow me on Twitter.

  • Update on My Watch List
    , February 27th, 2013 at 1:16 pm

    I’m often asked how I go about picking stocks for my Buy List. The answer is really quite simple. I don’t have a magic formula and I hate stock screeners.

    Instead, I have a Watch List of stocks that I try to follow. These are what I would call “really good companies.” They’re in the top tier of Corporate America. It’s taken me years to build up this list and I change it often.

    The Watch List serves as the minor leagues for my Buy List. It’s from this list that almost all candidates for the Buy List come, and it’s where they return after they’ve been deleted.

    Let me make it clear that I’m not recommending any of these stocks listed below. That’s what the Buy List is for. I just wanted to show you which stocks make the first cut in the process. Honestly, this list is too large and I should knock off around 30 names. If a stock is on this list, you can be pretty sure it’s a decent company (the price may not be).

    My secret formula is nothing more than watching really good companies and making a move when the price looks good.

    Company Symbol
    Aaron’s AAN
    Abbott Laboratories ABT
    Advance Auto Parts AAP
    Alliance Data Systems ADS
    AmerisourceBergen ABC
    Ametek AME
    Ansys ANSS
    AT&T T
    AutoZone AZO
    Balchem BCPC
    Ball BLL
    Baxter International BAX
    Becton, Dickinson BDX
    Biogen Idec BIIB
    Carter’s CRI
    Cerner CERN
    CH Robinson Worldwide CHRW
    Cheesecake Factory CAKE
    Church & Dwight CHD
    CLARCOR CLC
    Clorox CLX
    Coach COH
    Coca-Cola KO
    Colgate-Palmolive CL
    Community Health Systems CYH
    Concur Technologies CNQR
    Cooper COO
    Corrections of America CXW
    Costco COST
    Crane CR
    Cummins CMI
    CVS Caremark CVS
    Danaher DHR
    Darden Restaurants DRI
    DaVita HealthCare Partners DVA
    Deckers Outdoor DECK
    Deluxe DLX
    DENTSPLY International XRAY
    Dick’s Sporting Goods DKS
    Dolby Laboratories DLB
    Donaldson Company DCI
    Endo Health Solutions ENDP
    Esterline Technologies ESL
    Expeditors International of Washington EXPD
    Express Scripts ESRX
    Fair Isaac FICO
    Fastenal Company FAST
    FMC Technologies FTI
    Foot Locker FL
    Gardner Denver GDI
    Gartner IT
    General Dynamics GD
    Gentex GNTX
    Gilead Sciences GILD
    Global Payments GPN
    Graco GGG
    Hasbro HAS
    HEICO HEI
    Henry Schein HSIC
    HMS Holdings HMSY
    Hologic HOLX
    Hormel Foods HRL
    Hospira HSP
    HSN HSNI
    Hubbell HUB-B
    Humana HUM
    IBM IBM
    IDEX IEX
    IDEXX Laboratories IDXX
    Informatica INFA
    Infosys Ltd. INFY
    Ingram Micro IM
    Ingredion Incorporated INGR
    Intel INTC
    IntercontinentalExchange ICE
    International Flavors & Fragrances IFF
    Intuit INTU
    Intuitive Surgical ISRG
    Iron Mountain IRM
    Jack Henry & Associates JKHY
    Jarden JAH
    JB Hunt Transport Services JBHT
    John Wiley & Sons JW-A
    Johnson & Johnson JNJ
    Kansas City Southern KSU
    Life Time Fitness LTM
    McCormick MKC
    McDonald’s MCD
    MEDNAX MD
    Mettler-Toledo International MTD
    MICROS Systems MCRS
    Mylan MYL
    NeuStar NSR
    Nike NKE
    Nordson NDSN
    Panera Bread PNRA
    Pentair Ltd. PNR
    PetSmart PETM
    Polaris Industries PII
    Progressive PGR
    Prosperity Bancshares PB
    Quest Diagnostics DGX
    Rackspace Hosting RAX
    Raven Industries RAVN
    Regal Beloit RBC
    Reinsurance Group of America RGA
    Rent-A-Center RCII
    ResMed RMD
    Reynolds American RAI
    Riverbed Technology RVBD
    Rollins ROL
    Seaboard SEB
    SEI Investments SEIC
    Seneca Foods SENEA
    Sensient Technologies SXT
    Sigma-Aldrich SIAL
    Signature Bank SBNY
    Silgan Holdings SLGN
    Snap-on SNA
    SolarWinds SWI
    St. Jude Medical STJ
    Starbucks SBUX
    State Street STT
    Stericycle SRCL
    Sysco SYY
    Target TGT
    Tech Data TECD
    Teradata TDC
    Thermo Fisher Scientific TMO
    Thoratec THOR
    TIBCO Software TIBX
    Tiffany & TIF
    TJX Companies TJX
    Towers Watson & TW
    Tractor Supply TSCO
    Trimble Navigation Limited TRMB
    Triumph Group TGI
    Tupperware Brands TUP
    U.S. Bancorp USB
    Universal Health Services UHS
    URS URS
    V.F. VFC
    Varian Medical Systems VAR
    VeriFone Systems PAY
    Visa V
    W.W. Grainger GWW
    Wabtec WAB
    Walgreen WAG
    Waters WAT
    WellPoint WLP
    Wells Fargo WFC
    Western Union WU
    Weyco Group WEYS
    World Fuel Services INT
    Yum! Brands YUM
    Zimmer Holdings ZMH