Archive for 2013

• CWS Market Review – January 25, 2013
  Eddy Elfenbein, January 25th, 2013 at 8:18 am

  “Most investors want to do today what they should have done yesterday.”
  – Larry Summers

  In the CWS Market Review from two months ago, I wrote: “But with the election behind us, the clouds have cleared, and I see a strong year-end rally ahead of us. In fact, I think the S&P 500 can break 1,500 by the early part of 2013.” Well, it took the index just 24 days into 2013 to vindicate our prediction.

  On Thursday, the S&P 500 indeed broke through the 1,500 barrier for the first time since December 12, 2007. The index has now risen for seven days in a row, which is its longest winning streak since 2006. The Dow is off to its best start in more than a quarter of a century.

  

  In this week’s CWS Market Review, I want to focus on the Q4 earnings parade which continues to help our Buy List beat the market. Through Thursday, we’re up 6.62% for the year, which is 1.81% ahead of the S&P 500. All 20 of our stocks are up for the year, and five have already logged double-digit gains.

  But I have to warn you: I think the market’s rally is starting to look a bit tired in the near-term. I don’t see any major problems on the horizon, but I don’t want investors thinking the last few weeks are “normal.” They’re not. There’s still a lot of trouble out there for stocks that can’t deliver. An example would be Apple’s $250 plunge since September. Our Buy List is doing well, and it’s not due to luck: it’s due to quality.

  Buy CA Technologies up to $27 per Share

  Last week, I said that CA Technologies ($CA) should be able to beat Wall Street’s earnings forecast, and that’s exactly what happened. On Tuesday, CA reported fiscal Q3 earnings of 63 cents per share, which was two cents better than Wall Street’s forecast. Quarterly revenue came in at $1.2 billion, which was also ahead of the Street at $1.17 billion.

  This is considered to be a rather dull company, and some people think it’s behind the times. But I see a good value. The day after the earnings report, the shares responded by rallying as high as $25.57 before pulling back some. If you recall from last week’s issue, I raised the Buy Below price from $24 to $27. This is a solid stock, and it pays a generous dividend, but I don’t want you chasing it if it continues to rally. I’m keeping my Buy Below price where it is. CA Technologies remains a good buy up to $27 per share.

  We got more good news on Tuesday when Wells Fargo ($WFC) announced that it’s increasing its dividend by 14% (I also saw this coming). The bank is raising the quarterly payout from 22 cents to 25 cents per share. Bear in mind that the Federal Reserve still has many of these banks on double-secret probation, so any dividend increase must be approved by Bernanke and Friends. Earlier this month, Wells reported record quarterly earnings, and it beat Wall Street’s forecast. Wells Fargo currently yields 2.84% and is a solid buy up to $37.

  Stryker ($SYK), the orthopedic implant maker, reported very good quarterly earnings on Wednesday. To be fair, the company had already told us to expect good news, yet the market continues to reward shares of SYK. With a 15.74% YTD gain, it’s the #1-performing stock on our Buy List. Consider this fact: Shares of Stryker have lost ground only twice in the last 17 trading days.

  For Q4, Stryker earned $1.14 per share, which was two cents more than Wall Street’s estimate. For all of 2012, the company made $4.06 per share, which is a healthy increase over the $3.72 per share from 2011. That’s very good growth for a sluggish economy.

  I was particularly impressed that Stryker reiterated its full-year forecast for earnings to range between $4.25 and $4.40 per share. Frankly, that’s probably too conservative, but it’s smart to play it safe so early on in the year. Don’t be surprised to see higher guidance from Stryker later this year.

  Two weeks ago, I raised my Buy Below on Stryker to $62 per share. Even though the stock has run beyond that, I’m going to hold my Buy Below here. Again, I don’t want investors to chase after good stocks. As always, our investment strategy involves discipline.

  Microsoft Isn’t the Disaster Everyone Thinks

  After the closing bell on Thursday, Microsoft ($MSFT) reported fiscal Q2 earnings of 76 cents per share, which was a penny ahead of expectations. I think these results were decent despite widespread claims that Windows 8 has been a bust.

  For the quarter, Microsoft’s profits dropped by 4% compared with last year. Quarterly revenue rose 3% to $21.46 billion, which was just shy of Wall Street’s forecast of $21.53 billion. The Windows division makes up about one-quarter of Microsoft’s overall business, and sales there rose by 11%. However, the company is getting slammed in its entertainment and office divisions.

  To be sure, Microsoft has its share of problems. The online division is a financial black hole, and Xbox revenue is falling rapidly. On the plus side, Microsoft is doing better with business customers. That’s often been a tough nut for MSFT to crack. They were able to sign up more customers to long-term contracts, which bodes well for future business.

  The problems Microsoft is having are plaguing the entire PC sector, and that’s one of the reasons why the company has joined a possible deal to take Dell ($DELL) private. I think one analyst summed it up well when he said, “Microsoft is evolving really into an enterprise software company.”

  The bottom line is that Microsoft is a company with a lot of problems. But the share price is well beneath the fair value. The stock is currently going for less than 10 times this fiscal year’s earnings. Microsoft remains a good buy up to $30.

  More Buy List Earnings Next Week

  We had some more good news this week from other Buy List stocks. I was pleased to see Bed Bath & Beyond ($BBBY) get a 4.4% lift on Thursday thanks to an upgrade from Oppenheimer. BBBY is still a good buy up to $60 per share.

  Ross Stores ($ROST) got a 3.5% boost on Thursday after it was upgraded to outperform by Credit Suisse. They raised their price target on ROST from $60 to $68. Ross Stores is an excellent buy up to $62.

  I’m writing this early Friday, and later today Moog ($MOG-A) will report earnings. In the CWS Market Review from November 16, when Moog was going for $34, I said it could “be a $45 stock within a year.” Try within ten weeks. Moog just broke $45, but don’t chase it if it crosses $46.

  Next week, we get earnings reports from Ford ($F), Harris ($HRS) and CR Bard ($BCR). I’m especially looking forward to strong results from Ford. The consensus on Wall Street is for earnings of 26 cents per share, and Ford should beat that by a lot. I haven’t heard details yet from Nicholas Financial ($NICK), but it’s very likely they’ll also report next week.

  That’s all for now. Earnings season continues next week. The government will also give us a first look at Q4 GDP report. Next Friday will be the important jobs report. The jobless claims reports have been quite good recently, so that may be a harbinger of a strong jobs number. 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: January 25, 2013
  Eddy Elfenbein, January 25th, 2013 at 7:02 am

  Chinese Graduates Say No Thanks to Factory Jobs

  UK Slides Back Towards Recession

  German Business Confidence Gains Third Consecutive Month

  Credit Bubble Seen in Davos as Cohn Warns of Repricing

  Fed Pushes Into ‘Uncharted Territory’ With Record Assets

  Geithner Exits Treasury as Lew Prepares for Senate Vote

  A Signal to Wall Street In Obama’s Pick For Regulators

  Jobless Claims in U.S. Decrease, Prolonging Seasonal Swings

  Kerry Says Will Make ‘Appropriate Judgement’ on Keystone

  AT&T Adds Wireless Users But Trails Verizon

  Nokia Reports Profit but Fails to Soothe Investors

  Starbucks Reports 13% Rise in Profit

  Cisco Sells Home Networking Business To Belkin

  Roger Nusbaum: Is Risk Parity A Savior Strategy?

  Cullen Roche: About That Global Secular Bear Market

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• S&P 1,500!!
  Eddy Elfenbein, January 24th, 2013 at 10:09 am

  

  The last time we were above 1,500 was on December 12, 2007. The first time was March 22, 2000.

• Applocalypse
  Eddy Elfenbein, January 24th, 2013 at 9:47 am

  Shares of Apple ($AAPL) are getting slammed today after a poor earnings report. The stock is currently down $60 per share. Every $9.50 in Apple’s share price is worth one point in the S&P 500.

  The S&P 500, in contrast, continues to close in on 1,500. The high this morning has so far been 1,496.16.

  Netflix ($NFLX) is up 43% today. The company is now worth $7 billion after it reported earnings of $8 million.

  Our Buy List is doing well today. Stryker ($SYK) is responding well to its earnings. Bed Bath & Beyond ($BBBY) is up on an upgrade. Ross Stores ($ROST) is also doing well and Microsoft ($MSFT) is up ahead of its earnings after the close.

• Morning News: January 24, 2013
  Eddy Elfenbein, January 24th, 2013 at 6:44 am

  Japan Logs Record Trade Gap In 2012, Yen Impact Yet To Show

  Spanish Jobless Rate Hits Record After Rajoy’s First Year

  I.M.F. Forecasts Modest Global Economic Growth

  Bernanke Seen Pressing On With Stimulus Amid Debate on QE

  Sizing Up the Default ‘Nightmare’

  Heady Returns, but Apple Finds Its Stock Falling

  General Dynamics Forecasts 2013 Profit Short of Estimates

  Netflix Soars as New Subscribers Lead to Surprise Quarter Profit

  McDonald’s Profit Rises as Dollar Menu Drives U.S. Sales

  Hyundai Compensation Payment Hits Profit

  US Airways Doubles Quarterly Profit

  Baker Hughes 4th-Quarter Net Falls 32%

  Barclays Asia Division Hit With Layoffs

  Nokia to Omit Dividend for First Time in 143 Years

  Jeff Miller: Do You Understand Ceteris Paribus?

  Phil Pearlman: Throw Your Hands Up In The Air & Buy ‘em Higher Like You Just Don’t Care

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• Stryker Beats By Two Cents Per Share
  Eddy Elfenbein, January 23rd, 2013 at 11:06 pm

  After the closing bell today, Stryker ($SYK) reported fiscal fourth-quarter earnings. If you recall, two weeks ago, the company told us that the numbers were going to be good, and the stock has rallied ever since.

  Today Stryker said that it earned $1.14 per share in Q4 which was two cents ahead of expectations. For the entire year, Stryker earned $4.06 per share. That’s an increase from $3.72 per share in 2011.

  Overall sales rose 5.5 percent in the quarter from a year ago, rebounding from the third-quarter’s sluggish 1 percent growth rate that resulted from soft pricing, the company said. Demand for orthopedic devices has slumped in the weak economy as patients deferred procedures due to lack of insurance or higher out-of-pocket expenses.

  Stryker executives said they were encouraged by sales momentum for hip and knee products going into 2013.

  “At the very least, the market is stable to maybe modestly improved in the fourth quarter,” Stryker Vice President Katherine Owen said on a conference call with analysts.

  The most important news, in my opinion, is that Stryker sees 2013 earnings ranging between $4.25 and $4.40 per share. The stock has now rallied for 13 of the last 16 days, and one day was unchanged. I suspect that the 2013 figure is a bit too low, although it’s too early to know for sure.

  

• CA Technologies Rallies 3.6%
  Eddy Elfenbein, January 23rd, 2013 at 11:18 am

  Yesterday, the Russell 2000, Dow Transports, S&P Mid-Cap 400 and S&P Small-Cap 600 made all-time high closes. Also, the S&P 500 Healthcare and Consumer Discretionary Sectors made all-time highs.

  The market is about flat today. Earnings reports continue to pour in. Two standouts were IBM ($IBM) and Google ($GOOG), and both stocks are doing well today. Due to its high price, IBM has the largest weighting of any Dow stock (about 11%), so the Dow is ahead of the broader indexes today.

  CA Technologies ($CA) is also doing well thanks to yesterday’s good earnings report. The shares have been as high as $25.57 today. Right now, the stock is up 90 cents or about 3.6%. For the year, CA is a 15.5%. Not bad for a dull stock.

  We’re going to get Stryker’s ($SYK) earnings after the close, but the company already told us to expect good news so most of the pop is gone.

  The strength from tech earnings has helped push Oracle ($ORCL) to a new 52-week high. The stock got as high as $35.20 today. It had a lot of trouble breaking through $35.

  Our Buy List now has four stocks (ORCL, CA, MOG-A, SYK) that are up double-digits on the year. Ross Stores and Ford aren’t far behind.

• Morning News: January 23, 2013
  Eddy Elfenbein, January 23rd, 2013 at 6:37 am

  Banks Too Big to Manage Find Davos Vows Too Hard to Win

  Global Economy Set for ‘Slow Recovery’

  Yen Strengthens as Japan Delays Stimulus; U.S. Futures Decline

  Europe’s Odd Couple, France and Germany, 50 Years Later

  Can Britain Forge Looser Ties to Europe Without Losing Influence?

  Google Still in a Struggle With Mobile

  Microsoft Risks Strain to PC Partnerships With Dell Investment

  Jamie Dimon Laments Too-Big-to-Fail? Give Me a Break

  Delta Confirms Return To US Profitability

  Allergan to Buy MAP Pharmaceuticals for $958 Million

  WellPoint Quarterly Profit Rises; Membership Increases

  Peregrine Financial Fraud Loss Tops $215 Million, U.S. Says

  The Great Rotation: A Flight To Equities In 2013

  Edward Harrison: Grexit

  Howard Lindzon: Howie’s Stock Market Investing Lessons…

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• CA Technologies Earns 63 Cents Per Share
  Eddy Elfenbein, January 22nd, 2013 at 7:24 pm

  One of our more boring Buy List stocks, CA Technologies ($CA), is having a very good year so far. Through Tuesday’s trading the stock is up 11.69% on the year. After the close, the company reported better-than-expected earnings and reiterated its full-year forecast.

  For the three months ending in December, CA Technologies earned 63 cents per share which was two cents better than the Street’s consensus. Quarterly revenue came in at $1.2 billion which was also ahead of the Street at $1.17 billion.

  “I am very pleased to be a part of the CA Technologies team,” said CA Technologies CEO Mike Gregoire. “While we are encouraged by improvements we saw in the business during our third quarter, including increased demand for our Nimsoft, Infrastructure Management and Service Virtualization offerings, we know that we need to do more to accelerate innovation, gain market share and better differentiate our solutions in the marketplace.

  “We also know there is room for improvement in our cost of sales and in the speed and intensity with which we pursue our objectives,” he continued. “Over the next few months we will perform a detailed diagnostic of where we are, and lay out a plan on how to achieve our strategic and financial goals.”

  CA Technologies is currently sitting on a cash horde of just over $2.5 billion, which is more than $5.50 per share. The company reaffirmed its fiscal-year earnings-per-share forecast of $2.36 to $2.44. CA’s fiscal year ends in March.

  The stock is up 25 cents in the after-hours market.

• Wells Fargo Raises Dividend By 14%
  Eddy Elfenbein, January 22nd, 2013 at 4:26 pm

  After the close, Wells Fargo ($WFC) announced that it’s raising its quarterly dividend from 22 cents to 25 cents per share. The bank will now pay out $1 for the whole year. Going by today’s close, that’s a yield of 2.85%.

  Wells Fargo & Company (WFC) today announced a quarterly common stock dividend of $.25 per share, an increase of three cents, or 14 percent, per share from the prior quarter. The dividend is payable March 1, 2013, to stockholders of record on February 1, 2013, as approved today by the Wells Fargo board of directors. Wells Fargo has approximately 5.3 billion shares outstanding.

  This dividend increase for the first quarter of 2013 was part of the company’s 2012 Capital Plan that the Federal Reserve did not object to in March, 2012. Wells Fargo submitted its 2013 Capital Plan on January 4, 2013, and it is currently under review by the Federal Reserve.

  “The dividend increase approved by our board today was included in our 2012 Capital Plan and reflected the confidence we have in our company’s performance,” Chairman and CEO John Stumpf said. “We remain committed to returning more capital to our shareholders. We requested an increase in capital distributions in our 2013 Capital Plan as compared to our 2012 plan, subject to review and non-objection by the Federal Reserve Board.”

  The Fed still needs to sign off on these dividend increases for many banks. Wells will have no trouble covering this dividend. If the earnings projections for this year are correct, Wells is passing on just 27% of its profits in the form of dividends.