Archive for October, 2020

  • ALG Research on Eagle Bancorp
    , October 21st, 2020 at 12:01 pm

    At Seeking Alpha, ALG Research takes a close look at Eagle Bancorp.

    Their thesis is largely similar to ours — that Eagle is a good bank and it’s historically undervalued. While ALG is neutral on the bank due to their legal issues, they do concede that the issues are probably near an end.

  • Earnings from Stepan and Silgan Holdings
    , October 21st, 2020 at 9:13 am

    We got our first two Buy List earnings reports this morning for the Q3 earning season.

    First up is Stepan (SCL). The company earned $1.56 per share for Q3 which beat Wall Street’s consensus of $1.40 per share. The company also raised its dividend by 10.9% making it the 53rd annual dividend increase in a row. The quarterly dividend will rise from 27.5 cents to 30.5 cents per share. That makes the yield a little over 1%. The shares are about flat on the day.

    Next up is Silgan (SLGN). For Q3, Silgan made $1.04 per share. That’s up 37% over last year’s Q3. Wall Street had been expecting 95 cents per share.

    Silgan raised its full-year guidance range to $2.92 to $2.97 per share. The previous range was $2.70 to $2.85 per share. Last year, Silgan made $2.16 per share.

    For Q4, Silgan now expects earnings of 47 to 52 cents per share. They made 38 cents per share for last year’s Q4.

    CEO Tony Allott said, “While we are still completing our annual budget process for 2021, at this time we anticipate overall operating earnings for the Company remaining at these strong levels.”

    Globe Life (GL) reports after the close.

  • Morning News: October 21, 2020
    , October 21st, 2020 at 7:05 am

    WEF Says Machines Will Create More Jobs Than They Destroy But Warns of Pandemic ‘Double-Disruption’

    The Fed’s $4 Trillion Lifeline Never Materialized. Here’s Why.

    U.S. Banks Sweat Regulatory Exposure From Pandemic Loans

    Google Antitrust Case to Turn On How Search Engine Grew Dominant

    America’s Billionaires Tilting Toward Biden in Presidential Race

    Big U.S. Treasuries Wagers Bet Against Election Fireworks

    U.S. Retailers Secure Stores As Worries About Election Unrest Mount

    Apartment Rents Are Plunging in the World’s Richest Cities. It’s Time For You to Negotiate

    Snapchat Co-Founders Share $2.7 Billion Windfall

    Disneyland and Other California Theme Parks Get Rules for Reopening

    As Tropical Spots Reopen, Here’s What You Need to Know

    Nick Maggiulli: Why Own Bonds When Rates are So Low?

    Ben Carlson: Investors Need to Become More Comfortable With Volatility in Their Portfolios

    Michael Batnick: Is Amazon In Trouble? & Animal Spirits: Bad Ideas

    Howard Lindzon: Brick and Mortar Winners in a Post Covid World

    Joshua Brown: Buy Stocks Now or After the Election?

    Be sure to follow me on Twitter.

  • Housing Starts Rise in September
    , October 20th, 2020 at 12:55 pm

    This morning’s housing starts report showed a big increase. The Commerce Department said that housing starts rose 1.9% last month to a seasonally adjusted annual rate of 1.415 million units.

    Single-family homebuilding, the largest share of the housing market, jumped 8.5% to a rate of 1.108 million units last month. But starts for the volatile multi-family housing segment fell 16.3% to a pace of 307,000 units.

    Overall, housing starts increased 1.9% to a seasonally-adjusted annual rate of 1.415 million units last month. Data for August was revised down to a 1.388 million-unit pace from the previously reported 1.416 million. Groundbreaking activity rose in the West, South and Northeast, but fell in the Midwest.
    Economists polled by Reuters had forecast starts increasing to a rate of 1.457 million units in September.

    It’s hardly a secret why. Mortgage rates continue to be very low.

    The stock market is up so far today. The S&P 500 is up about 1%. Many of the cyclicals are leading.

  • Morning News: October 20, 2020
    , October 20th, 2020 at 7:04 am

    China Is Experiencing a Boom in Share Sales

    After America First, Some Investors Bet On A Biden Boost Abroad

    Oil Industry Turns to Mergers and Acquisitions to Survive

    As Washington Scrambles for More Bailout Money, the Fed Sits on Mountain of Untapped Funds

    The Case(s) Against Big Tech

    Walmart Cranks Up Advertising Drive, With or Without TikTok

    Intel Sells NAND Memory Chip Business to SK Hynix for $9 Billion

    The New 60/40 Portfolio

    UBS Makes It Easier for Exiting Employees to Collect Bonuses

    Offices Resort to Sensors in Futile Attempts to Keep Workers Apart

    Many Stock Investors Are Too Young to Remember Black Monday in October 1987 — Why That’s A Problem

    Chasing Illicit Money, Global Officials Circle a Puerto Rican Firm

    Joshua Brown: Well This Is…Something

    Ben Carlson: Opening An Investing Account For The Kids

    Howard Lindzon: Momentum Monday…Black Monday Was 33 Years Ago Today

    Be sure to follow me on Twitter.

  • Homebuilder Confidence Hits All-Time High
    , October 19th, 2020 at 11:52 am

    From CNBC:

    The nation’s homebuilders are seeing no fall chill in demand from buyers, and that has the industry more confident than ever.

    Builder sentiment set a record high for the second month in a row, jumping to 85 in October on the NAHB/Wells Fargo Housing Market Index. September and October are the first two months the index has ever been above 80. Anything above 50 is considered positive. The index stood at 71 in October 2019.

    All three components of the index either set records or matched their highest readings. Current sales conditions rose 2 points to 90. Sales expectations in the next six months increased 3 points to 88, and buyer traffic was unchanged at 74.

    In a related note: Today’s mortgage rates fall even lower.

  • The Market Crash, 33 Years On
    , October 19th, 2020 at 11:11 am

    Today is the 33rd anniversary of the 1987 stock market crash. As it turns out, that crash happened on a Monday.

    The Dow fell 508 points for a total loss of over 22.6%. That was the largest drop in market history. Today, that would be like a drop of more than 6,000 points.

    In fact, with the modern circuit breakers, that record may never be broken. Today, if the market falls over 20%, then the exchange is shut down for the day.

    People often ask, “so what caused the crash?” At the time, the popular answer was program trading. But that’s misleading. A number of very unusual events happened just before the crash.

    For example, over that weekend in 1987, parts of England were hit with the worst storm in 300 years. The intensity of the storm caught forecasters off guard.

    That weekend, James Baker had gone on the Sunday talk shows and criticized Germany for its recent rate hike. An unnamed Treasury official said that we would “drive the dollar down” if necessary. This led European markets to fall on Monday.

    Also, a tax bill had just been introduced in the House Ways and Means Committee that would severely limit tax deductions for interest paid on debt used to finance mergers or hostile takeovers (which had been running rampant throughout 1987).

    Alan Greenspan was new on the job as Fed chair, and he raised interest rates just before the crash.

    The day of the crash, many stocks couldn’t open for trading, yet the futures markets were working. As a result, a big gap opened between the two. By 10 am, 95 S&P 500 stocks, representing 30% of the index, were still not open.

    With the 1987 crash, the market temporarily gave back its recent gains. Here I’ve altered the chart slightly, and it doesn’t look so unusual:

    If you had been Rip Van Winkle and slept though the whole thing, the chart above would look perfectly normal. Fortunately, the market break had little impact on GDP:

    Starting from the day before the crash, the Wilshire 5000 Total Return Index is up 30 fold.

  • Morning News: October 19, 2020
    , October 19th, 2020 at 7:07 am

    With Covid-19 Under Control, China’s Economy Surges Ahead

    Lockdowns In Europe Are A Warning to the United States

    EU Set To Gain WTO Clearance For U.S. Tariffs Next Week

    Weakened U.S. Consumer Watchdog Expected to Bite Back If Biden Wins Election

    For Long-Term Investors, Small Things Like Presidential Elections Don’t Matter

    Conoco to Buy Concho for $9.7 Billion, Creating Permian Oil Giant

    World’s Biggest Fracker Sees Signs of Rebirth as Slump Bottoms

    Almost 60% of Mutual Fund Assets Will Be ESG by 2025, PwC Says

    Atari Is Launching A Cryptocurrency Along With Its New Gaming Console

    Disney Adds Warnings for Racist Stereotypes to Some Older Films

    Jeff Miller: Weighing the Week Ahead: Will Strong Earnings Confirm an Economic Rebound?

    Joshua Brown: Are Investors Getting Smarter? & Losing Money Is The Coolest!

    Ben Carlson: What If The 4% Rule For Retirement Withdrawals is Now the 5% Rule? & You Paid Off Your Mortgage. Now What?

    Michael Batnick: Animal Spirits: What’s in an Index? & Trading Through the Pandemic

    Howard Lindzon: Kyle Samani Joins Me On Panic With Friends to Talk the Past, Present and Future of Crypto

    Be sure to follow me on Twitter.

  • Retail Sales Rose 1.9% in September
    , October 16th, 2020 at 11:47 am

    This morning’s retail sales report showed a nice increase of 1.9%. That beat Wall Street’s forecast of 0.7%. The report covered the month of September. If you don’t include autos, then retail sales were up by 1.5%. That beat estimates of 0.4%. Retail sales is important because it’s seen as a proxy for consumer spending.

    The stock market is up cautiously today. So far, more conservative sectors like health care and utilities are leading the market.

    The data indicate Americans ramped up spending as kids returned to school and adults hunkered down to keep working at home amid the COVID-19 pandemic. Last month’s growth improved from August’s 0.6 percent rise even though expanded unemployment benefits and other stimulus measures have run dry in recent months.

    “Despite unemployment benefits expiring for millions of Americans, today’s retail sales figure shows us there is still some gas in the tank for the consumer,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

    September’s total retail sales were 5.4 percent above where they were a year ago even though the pandemic has put millions of Americans out of work and caused a record contraction in the US economy this spring.

  • CWS Market Review – October 16, 2020
    , October 16th, 2020 at 7:08 am

    “The best time to invest is when you have money.” – John Templeton

    It’s the time of year for witches, tricks, black magic, hexes and sorcery. That’s right, it’s Q3 earnings season.

    Over the next weeks, most of Corporate America will report how well it did during July, August and September. Or perhaps, how well it didn’t do.

    We’ve already gotten our first look at some earnings reports. The big banks usually go first, and the results look pretty good. Goldman Sachs, for example, beat Wall Street’s consensus by more than 70%. For the moment, the big banks aren’t allowed to raise their dividends or buy back stock. I think that regulation may be lifted early next year. (Eagle is a small fry, so that’s why it was able to resume its buybacks.)

    The stock market had a strong day on Monday but lost ground on Tuesday, Wednesday and Thursday. The folks in Washington seem hopelessly deadlocked on any stimulus deal. It looks like whatever happens, it will come after the election. There are also some concerns of a coronavirus spike in Europe.

    I’m pleased to see that our Buy List is holding up well. Since the market peaked on September 2, the S&P 500 has fallen 2.72%, while our Buy List is down just 0.20%. That tells me the high-quality stocks are serving as a safe harbor for nervous investors.

    In this week’s issue, I’ll preview the first six of our Buy List stocks that are due to report earnings next week. I’m expecting good results. Last earnings season, every single Buy List stock beat earnings except one, and they reported inline.

    Later on, I’ll discuss the big reorganization announcement from Disney. The Mouse House is apparently following after Netflix. I’ll tell you what it all means. But first let’s take a look at our updated Earnings Calendar.

    Updated Buy List Earnings Calendar

    Here’s a look at our upcoming Q3 earnings. I’ve listed each stock, its earnings date and Wall Street’s consensus. I’m still waiting to hear when Middleby and Broadridge will report. Both will probably report sometime in early November.

    Stock Ticker Date Estimate Result
    Globe Life GL 21-Oct $1.75
    Silgan SLGN 21-Oct $0.95
    Stepan SCL 21-Oct $1.40
    Check Point Software CHKP 22-Oct $1.53
    Danaher DHR 22-Oct $1.36
    Eagle Bancorp EGBN 22-Oct $0.81
    AFLAC AFL 27-Oct $1.13
    Fiserv FISV 27-Oct $1.16
    Sherwin-Williams SHW 27-Oct $7.75
    Cerner CERN 28-Oct $0.71
    Church & Dwight CHD 29-Oct $0.67
    Intercontinental Exchange ICE 29-Oct $0.99
    Moody’s MCO 29-Oct $2.10
    Stryker SYK 29-Oct $1.40
    Trex TREX 2-Nov $0.37
    Ansys ANSS 4-Nov $1.26
    Becton, Dickinson BDX 5-Nov $2.52
    Hershey HSY 6-Nov $1.70
    Disney DIS 12-Nov -$0.71
    Broadridge Financial Sol BR TBA $0.63
    Middleby MIDD TBA $1.02

    Six Buy List Earnings Previews

    We have six Buy List stocks due to report next week: three on Wednesday and three more on Thursday.

    In July, Globe Life (GL) reported fiscal-Q2 operating earnings of $1.65 per share. That beat expectations of $1.53 per share. The company also narrowed its operating income guidance for this year. The previous range was $6.65 to $7.25 per share. Now Globe Life sees earnings ranging from $6.80 to $7.04 per share.

    If Globe Life’s outlook is correct, that means the shares are going for less than 12 times earnings. This tends to be one of the most stable stocks in our portfolio. GL is currently down 21% for us this year. It’s been dragged down with most of the financial sector. For Q3, Wall Street expects $1.75 per share.

    Silgan (SLGN) has been an impressive stock for us this year. I’m almost always surprised when I see which stocks are our big winners each year.

    For Q2, the metal-container folks earned 85 cents per share. That beat expectations by 20 cents per share. This was the strongest quarter in the company’s history. Net sales were up by 7.6% to $1.18 billion. The stock popped on the news (see July in the chart below).

    Silgan also did something very rare for 2020. The company increased guidance. Silgan now sees full-year earnings of $2.70 to $2.85 per share. Silgan also increased its free-cash-flow estimate for this year from $275 million to $330 million. For Q3, Wall Street expects Silgan to report earnings of 95 cents per share.

    Stepan (SCL), our favorite chemical company, had a blow-out earnings report for Q2. The company raked in $1.65 per share. That beat estimates by 45 cents per share. The consensus for next week’s report is for $1.40 per share. Shares of Stepan are within 4% of a new 52-week high. The company has increased its dividend for the last 52 years in a row.

    Check Point Software (CHKP) is due to report next Thursday. Three months ago, the Israeli cyber-security company reported Q2 earnings of $1.58 per share. That beat expectations by 14 cents per share.

    The numbers were pretty good. Quarterly revenue rose 4% to $506 million. Wall Street had been expecting $488 million. Cash flow from operations increased by 8% to $252 million. During Q2, Check Point bought back 3.1 million shares for a total cost of $325 million. The company continues to have a solid balance sheet, which is something I like to see.

    Interestingly, Check Point said that cyber-attacks have increased during the pandemic. In May, the company documented 192,000 coronavirus-related cyber-attacks a week.

    On Thursday, Check Point snapped a six-day winning streak. For next week, Wall Street expects earnings of $1.53 per share.

    Danaher (DHR) has become a very big winner for us this year. The stock hit a new 52-week high earlier this week. At Thursday’s close, DHR is up 47% for us this year. On our Buy List, that’s second only to Trex (TREX), which is up 74% this year.

    Three months ago, Danaher said that Q2 earnings increased 32% to $1.44 per share. Wall Street had been expecting $1.09 per share. Revenue increased 19% to $5.3 billion.

    For Q3, Danaher sees revenue growth “in the mid- to high-single digit range.” CEO Thomas P. Joyce, Jr., said, “We are very pleased with our second-quarter results—especially in such a challenging environment. Our solid revenue growth, strong cash-flow generation and more than 30% adjusted EPS growth are a testament to our team’s commitment to the Danaher Business System and the outstanding portfolio of businesses that comprise Danaher today.”

    Shares of Danaher have drifted above our $212 Buy Below. I’ll probably adjust it next week, but I want to see the earnings report first.

    Eagle Bancorp (EGBN) is also set to report next Thursday. We’ve been very patient with this one, and it looks like the story is finally turning in our favor. To recap, as a bank Eagle is a well-run outfit. The problem is that possible scandals by previous management have inflated its lawyer bills and depressed the stock.

    The stock is currently going for about nine times this year’s earnings, and that’s after a nice rally. In one eleven-day stretch, Eagle rallied over 21%. The bank recently said it’s reinstating its share-buyback program. During Q1, the bank halted all share buybacks. Eagle wasn’t alone. A lot of companies did this at the start of the pandemic.

    Through the end of this year, management has been authorized to buy as much as 5% of Eagle’s outstanding shares. As of Jun 30, Eagle had 460,000 shares remaining under the buyback authority.

    Only five analysts have estimates for Q3. The consensus is for Eagle to report earnings of 81 cents per share. At its current share price, Eagle yields just under 3%.

    What to Make of Disney’s Reorg

    Last week, Dan Loeb called on Disney (DIS) to suspend its dividend. Loeb is a well-known activist investor. Currently, Disney pays a semi-annual dividend of 88 cents per share each July and December. The company skipped its dividend this summer.

    An annual dividend of $1.76 per share works out to over $3 billion per year. Loeb wants Disney to put that cash into its streaming service.

    But through it all, Disney’s streaming business has been a notable success story. After making its debut last November, Disney+ had 60.5 million subscribers worldwide by August—well ahead of analysts’ and Disney’s own forecasts. Its other offerings are Hulu, with 36 million, and ESPN+, with 9 million. Next year, Disney is also planning to add an international streaming service similar to Hulu, to be called Star.

    Barron’s pointed out that this is the opposite of what activist investors usually do. They’re known for pursuing short-term profits at the expense of long-term financial health. This time, Loeb is looking at the long term.

    I understand Loeb’s thinking, but I think he’s premature. In my view, it all comes down to Covid-19. If a vaccine comes out tomorrow, then Disney’s troubles go away. Disney is a company almost perfectly made to be impacted by the coronavirus.

    Relatedly, I floated the idea on Twitter recently of Disneyland leaving California. Most Twitterers responded by saying this was a farfetched idea. Probably so. Still, the mess of Covid has allowed people to rethink what their businesses are about, and unthinkable options are now thinkable.

    Disney is in the hot seat after announcing that it’s laying off 28,000 workers. Senator Elizabeth Warren, for example, criticized Disney for laying off employees while protecting executive salaries. To be fair, Disney has continued healthcare benefits to furloughed employees.

    The big news this week is that Disney announced a major reorganization. The company is “centralizing its media businesses into a single organization that will be responsible for content distribution, ad sales and Disney+.” In my opinion, this is a reflection of the importance of streaming to Disney’s business. The company, in many ways, is shifting towards a business model of a company like Netflix. Kareem Daniel will be in charge of the new media and entertainment distribution group.

    The announcement worked. Shares of Disney popped 3.7% on the news. I think investors like the idea of owning the “next Netflix,” and Disney getting an earnings multiple like Netflix. Still, this doesn’t solve Disney’s major near-term headache of being overly reliant on travel and sports—in other words, the things most impacted by Covid. The reorg is a provocative move, but don’t let it mislead you as to where Disney’s major concerns are.

    Disney is due to report Q3 earnings on November 12, and investor day is on December 10.

    That’s all for now. Next week will be dominated by earnings. On Monday, we’ll get the NAHB homebuilder’s index. Then on Tuesday, housing starts and building permits are reported. On Thursday, the existing-home sales report comes out. Also on Thursday, we’ll get another jobless-claims report. The last one came in at 898,000. 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