Author Archive

• CWS Market Review – November 12, 2019
  Eddy Elfenbein, November 12th, 2019 at 5:41 pm

  Great news! After the close, Continental Building Products (CBPX) said it’s going to be bought out for $37 per share.

  Here’s the press release.

  The acquirer is Compagnie de Saint-Gobain S.A., a French multinational. The deal values Continental at $1.4 billion. I’m curious if someone released the news too early, but the shares shot up moments before the closing bell. The final trade was $35.75. That’s a gain of 11.65% for the day. Since early August, CBPX is up 62%.

  

  Don’t expect CBPX to trade at $37 just yet. The companies need to jump over some regulatory hurdles before the deal is complete. Also, shareholders need to sign off on the deal. That shouldn’t be a problem. It’s already been unanimously approved by the company’s Board of Directors.

  I wanted to let you know the great news! I’ll have more in the next issue of CWS Market Review.

  -Eddy

• Morning News: November 12, 2019
  Eddy Elfenbein, November 12th, 2019 at 7:20 am

  Giant Aramco Listing a Critical Test for Young Saudi Exchange

  World’s Rich Readying for Major Stock Sell-Off, UBS Wealth Says

  ‘Fear of Missing Out’ Triggers Huge Fund Manager Shift From Cash to Stocks, Bank of America Merrill Lynch Says

  Chinese Tech Will Face Tough U.S. Restrictions Regardless of Any Trade Deal

  Fed Likely to Defy History With Rates Steady Through Elections

  Trump May Punt on Auto Tariffs as European Carmakers Propose Plan

  Tesla’s Model 3 Success Hits BMW the Hardest

  Nissan Cuts Profit Forecast After 70% Quarterly Plunge

  Continental, Osram Cut Costs As Autos Downturn Hits Suppliers

  Netflix Was Only the Start: Disney Streaming Service Shakes an Industry

  Alibaba Sold a Record Amount of Stuff on Singles Day. Apple and Lots of Other Brands Scored Too.

  A.I. Systems Echo Biases They’re Fed, Putting Scientists on Guard

  Joshua Brown: Mindy Diamond and Me on Breaking Away, Building a Firm

  Michael Batnick: Animal Spirits: Coaching the Yankees

  Howard Lindzon: Social Leverage Invests in Alpaca (Alpaca.Markets)

  Be sure to follow me on Twitter.

• Some News on Eagle and Jack Evans
  Eddy Elfenbein, November 11th, 2019 at 4:22 pm

  When shares of Eagle Bank (EGBN) got slammed a few months ago, there was a lot of speculation and there were very few facts. It was assumed that this was all tied to the political scandal of Jack Evans, a local DC city council member.

  Now, a confidential report has come out detailing the shady business dealings of Evans. The Washington Post said that Ron Paul, Eagle’s former CEO, is mentioned in the report. Paul declined to comment due to health issues.

  The allegations appear to be pretty shady stuff but nothing that should impact the performance of the bank, outside of legal fees. Paul is no longer with Eagle and the bank has moved on.

  Susan Riel is the new CEO and this is all she had to say about the mess:

  “What we are told is that it may never get resolved. It may just go away and we might not get closure to it. We’ve talked to many people. We are working with a number of attorneys on it, and they have all the experience in the world — and that’s where we are,” Riel said. “We don’t know the answer to that question. I don’t think the government agencies know the answer to that question.”

• Our November Buy List Earnings Dates
  Eddy Elfenbein, November 11th, 2019 at 11:46 am

  Tomorrow, Continental Building Products (CBPX) will be our final Buy List earnings report of this cycle. We have three Buy List stocks that ended their quarter in October which means they’ll report later this month.

  Ross Stores (ROST) is due to report on November 21. JM Smucker (SJM) follows on November 22. After that, Hormel Foods (HRL) is due to report on November 26.

• Morning News: November 11, 2019
  Eddy Elfenbein, November 11th, 2019 at 7:25 am

  Alibaba’s Singles’ Day Sales Hit $30 Billion, on Track for Record

  How Bad Is China’s Debt? A City Hospital Is Asking Nurses for Loans

  Aramco’s Profit Slide Shows Scale of Risk for Investors

  A $100 Billion Fund Manager Is Debunking Stock-Bubble Theories

  Goldman Sachs Plans Shift From Revenue Goal at First Investor Day

  Apple Co-Founder Says Goldman’s Apple Card Algorithm Discriminates

  Netflix Was Only the Start: Disney Streaming Service Shakes an Industry

  Boeing Aims to Move Victim Lawsuits Abroad, but C.E.O. Says He Is Unaware

  Credit Suisse Picks New Head of Struggling Investment Bank

  This Week in Business: Spies at Twitter

  Softbank Is Getting Exactly What It Deserves, and It’s Thanks to Something Way Bigger Than WeWork

  What Can Investors Do With a Truly Worthless Stock?

  Howard Lindzon: Stocks Continue To Break Out Celebrating a Mike Bloomberg Presidency

  Cullen Roche: Let’s Talk About Sectoral Balances

  Ben Carlson: Trends That Matter in Asset Management

  Be sure to follow me on Twitter.

• CWS Market Review – November 8, 2019
  Eddy Elfenbein, November 8th, 2019 at 7:08 am

  “Good investment advice is repetitive and boring. There is nothing exciting about it.”
  – D. Muthukrishnan

  Do you like cool market stats? I do.

  Check this out. On Wednesday, the Dow Jones fell from 27,492.63 to 27,492.56. That’s a loss of 0.07 points or -0.00025%.

  I believe that’s the smallest loss in the Dow’s history. It’s hard to explain just how minuscule -0.00025% is.

  Let me give it a shot. Annualized, that loss comes to -0.06440%. If we “suffered” Wednesday’s loss every single day for 3,947 consecutive days (or about 15.5 years), then the compounded loss would still be less than 1%!

  That’s how small it is.

  The good news is that we had some more exciting action this week. On Thursday, the stock market closed at yet another all-time high. Since the recent low on October 2, the S&P 500 has jumped 6.8%. Thursday’s rally was enough to get a presidential tweet.

  Stock Market up big today. A New Record. Enjoy!

  — Donald J. Trump (@realDonaldTrump) November 7, 2019

  Well, I wouldn’t say a gain of 0.27% is “up big,” but I’ll take it. A good part of this rally is due to hopes for a trade deal with China. With less than two months to go in 2019, this is shaping up to be a very good year for investors.

  We’re also nearing the end of third-quarter earnings season. We had four more Buy List earnings reports this week. Fiserv gave us my favorite dance, the beat-and-raise shuffle. Disney also had strong numbers. I’ll also preview one more earnings report for next week.

  The bond market is also starting to relax. It appears that the Fed has convinced Wall Street that it’s going to take a break on interest rates for a few months. I’ll explain it all in a bit, but first, let’s look at our latest Buy List earnings reports.

  This Week’s Buy List Earnings Reports

  On Tuesday, Becton, Dickinson (BDX) reported earnings of $3.31 per share for its fiscal Q4. That beat by one penny per share. For the year, Becton made $11.68 per share.

  Becton now sees revenue growth for next year of 4% to 4.5%, which is 5% to 5.5% on a currency-neutral basis. Becton sees 2020 EPS ranging between $12.50 and $12.65. That’s below Wall Street’s forecast of $12.94.

  Traders weren’t thrilled with this guidance. Shares of BDX dropped over 5% on Tuesday. I’m not too worried. I still like BDX for the long term. Later this month, I expect Becton to raise its dividend for the 47th year in a row. Becton, Dickinson remains a buy up to $260 per share.

  Before the bell on Wednesday, Broadridge Financial Solutions (BR) reported earnings of 68 cents per share. That was three cents below estimates. This is for BR’s fiscal Q1. Sales fell 2% to $949 million, but recurring revenue rose by 8%.

  For all of this fiscal year (which ends in September 2020), Broadridge reiterated its previous guidance. For 2020, Broadridge sees earnings growth of 8% to 12%. That works out to a range of $5.03 to $5.22 per share.

  Frankly, this was a soft report, but nothing too troubling. The shares fell over 5% during the day on Wednesday but gained back some lost ground on Thursday. I’m dropping my Buy Below on Broadridge to $130 per share.

  Also on Wednesday, Fiserv (FISV) earned $1.02 per share for Q3. That’s an increase of 17% over last year. It also beat Wall Street’s forecast by two cents per share.

  This was a solid quarter for Fiserv. Revenue rose 5% to $3.62 billion. Internal revenue growth on a constant-currency basis was 6%. Operating margins increased to 29.8%. These are the first financial results since Fiserv merged with First Data.

  “We delivered strong financial and sales results in the third quarter while focusing on providing differentiated value for clients across the new Fiserv,” said Jeffery Yabuki, Chairman and Chief Executive Officer of Fiserv. “Our primary market focus is to enhance the manner in which consumers and business engage in banking, commerce and financial services to produce meaningful value for all of our stakeholders.”

  Free cash flow is up 13% so far this year to $2.3 billion. Fiserv has made $2.87 per share for the first nine months of this year. Solid numbers.

  Now for the best news, Fiserv upped its guidance. The company now sees earnings of $3.98 to $4.02 per share. That implies Q4 earnings $1.11 to $1.15 per share. The previous guidance was $3.39 to $3.52 per share. That’s a big increase.

  On Thursday, shares of Fiserv rallied 4.5% and hit a new all-time high. Fiserv remains a buy up to $113 per share.

  

  Last is Disney (DIS). The really important day for Disney wasn’t this week’s earnings report. Instead, the really big day will come on Tuesday, November 12, when Disney+ finally goes live. This has the potential to be a huge winner for Disney.

  But this week’s earnings report did not disappoint. After the close on Thursday, the Mouse House earned $1.07 per share for Q3, versus estimates of 95 cents per share. Quarterly revenue came in at $19.1 billion, which topped estimates of $19.04 billion. Here’s a good interview Bob Iger did with CNBC.

  Disney is a gigantic business, so let’s break it down some. Last quarter, the media biz brought in $6.5 billion in revenue. The parks and resorts did $6.7 billion. The studios did $3.3 billion. Direct-to-consumer added another $3.4 billion. Actually, the park biz could have been better, but it looks like people are waiting for the new Star Wars rides to be finished. That should happen soon.

  ESPN had been struggling, but that looks like it’s over. Bob Iger said that ESPN+ now has 3.5 million paid subscribers. Iger said that Disney+ will have 620 movies and 10,000 TV episodes by its fifth year. The company is aiming to have between 60 million and 90 million subscribers. Imagine all that recurring revenue!

  This was a very good quarter for Disney. The shares remain a buy up to $148 per share.

  Earnings Preview for Continental Building Products

  Continental Building Products (CBPX) might be the hottest stock on our Buy List, but it was a slacker for a long time. In the CWS Market Review from August 2, I said of CBPX, “If you’re patient, this could be a worthwhile investment.” Since then, it’s up 38%.

  The company is due to release Q3 results after the close on Tuesday, August 12. In recent quarters, the company has released (in my opinion) decent results. Yet the market has basically ignored them. That is, until August.

  The problem for Continental hasn’t so much been them. Rather, it’s the state of the housing market. When construction struggles, wallboard just isn’t going to thrive. Now that mortgage rates are lower, the outlook looks much brighter for CBPX.

  For Q3, Wall Street expects earnings of 41 cents per share. I’ll warn you now that the earnings may not be so hot since there’s a lag time between the Fed’s cutting interest rates and actual construction. But the overall climate looks very good for Continental Building.

  

  The Fed May Pause on Rates for a Few Months

  I wanted to briefly touch on the state of the markets and economy. Fed Chairman Jay Powell said that the recent rate cuts were “mid-cycle” adjustments. This is important, because some people thought the Fed was trying to hold off an imminent recession. Powell said that wasn’t the case, and it appears that the market now believes him.

  According to the futures market, there’s a 93% chance that the Fed won’t change rates at its meeting next month. That’s probably about 6.9999% too low. In fact, the futures market doesn’t see the Fed making a move for quite some time. Going by the latest prices, there’s a 51% chance that rates won’t change by the meeting in December 2020.

  That may not be literally correct, but it’s broadly true that the Fed wants to take a wait-and-see approach. The central bank wants to see how well the recent rate hikes have worked. Naturally, that takes some time.

  For now, the stock market seems happy. Not only that, but cyclical stocks have done quite well. That’s what’s probably behind CBPX’s recent surge. The Homebuilder ETF (XHB) is well ahead of the market this year.

  That’s all for now. The stock market will be open on Monday, but the bond market will be closed in honor of Veterans’ Day. Monday will mark the 101st year since the guns went silent and ended the Great War. On Wednesday, the government reports on consumer inflation for October. Then on Friday, we’ll get a look at the report on retail sales. This is often a good proxy for consumer spending. 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: November 8, 2019
  Eddy Elfenbein, November 8th, 2019 at 7:04 am

  China, U.S. Agree Tariff Rollback If Phase One Trade Deal is Completed

  China’s Trade Data Show Brighter Exports, Weak Domestic Demand

  How Singles’ Day Became Biggest Shopping Spree Ever

  Foreign Funds Balk at Crown Prince’s Aramco IPO Valuation

  Sudan Needs Up to $5 Billion in Budget Support to Prevent Collapse

  New Orleans Battle Fought Anew: Fossil Fuel vs. Clean Power

  Fears Are Mounting Over Darling Junk-Bond ETFs

  As WeWork Grew, Wall Street Lent It Money and Credibility

  Coca-Cola Unveils New Sparkling Water Brand With a Jolt of Caffeine

  Now the Gap Can Finally Move On

  Trump Administration Sues Gilead, Maker of HIV-Prevention Drugs

  Terrorism Financing Charge Upheld Against French Company Lafarge

  Roger Nusbaum: What You Can Learn From Instagram

  Michael Batnick: Animal Spirits: The Worst Investor Ever

  Ben Carlson: Talk Your Book: Greg Zuckerman on Jim Simons & Renaissance Technologies & Non-Intuitive Lessons From the Man Who Solved the Market

  Be sure to follow me on Twitter.

• Morning News: November 7, 2019
  Eddy Elfenbein, November 7th, 2019 at 7:06 am

  China Says U.S. Agrees to Tariff Rollback If Deal Reached

  Trump’s Neglect of U.S. Allies Is Killing NATO, Macron Says

  Delayed U.S. Soybean Cargo Booked Under Waiver Offloads, Worries Linger

  Former Twitter Employees Charged With Spying for Saudi Arabia

  California Sues Facebook for Documents in Privacy Investigation

  Uber Faces Costly Choices After Expert Finds It Uses Waymo Self-Driving Tech

  Toyota Announces $1.8 Billion Share Buyback After Strong Second-Quarter

  A Walgreens Leveraged Buyout? Don’t Hold Your Breath.

  Masa Son Desperately Needs That Second $100 Billion

  Burrito Delivered By a Bot, as Long as Students Don’t Trap It

  China Introduces Restrictions On Video Games For Minors

  How to Set Up a Shell Company

  Cullen Roche: Three Things I Think I Think – Has The World Gone Mad?

  Joshua Brown: Secrets of the Greatest Hedge Fund of All Time

  Never Say Never, Context Matters and Israel Rocks

  Be sure to follow me on Twitter.

• Fiserv Earned $1.02 per Share
  Eddy Elfenbein, November 6th, 2019 at 4:39 pm

  Fiserv (FISV) earned $1.02 per share for Q3.

  “We delivered strong financial and sales results in the third quarter while focusing on providing differentiated value for clients across the new Fiserv,” said Jeffery Yabuki, Chairman and Chief Executive Officer of Fiserv. “Our primary market focus is to enhance the manner in which consumers and business engage in banking, commerce and financial services to produce meaningful value for all of our stakeholders.”

  Adjusted revenue increased 5% to $3.62 billion in the third quarter and 4% to $10.73 billion in the first nine months of 2019 compared to the prior year periods.

  Internal revenue growth, on a constant currency basis, was 6% in the third quarter, with 7% growth in the First Data segment, 6% growth in the Payments segment and 4% growth in the Financial segment.

  Internal revenue growth, on a constant currency basis, was 6% in the first nine months of 2019, with 7% growth in the First Data segment, 5% growth in the Payments segment and 4% growth in the Financial segment.

  Adjusted earnings per share increased 17% to $1.02 in the third quarter and 16% to $2.87 in the first nine months of 2019 compared to the prior year periods.

  Adjusted operating margin increased 130 basis points to 29.8% in the third quarter and increased 100 basis points to 29.1% in the first nine months of 2019 compared to the prior year periods.

  Free cash flow increased 13% to $2.3 billion in the first nine months of 2019 compared to $2 billion in the prior year period.

  Actual sales results were up 15% in the quarter and up 8% in the first nine months of 2019 compared to the prior year periods.

  The company reinstated its share repurchase program late in the third quarter and repurchased 341 thousand shares in the quarter, and 2 million shares in the first nine months of 2019, for $35 million and $156 million, respectively.
  Outlook for 2019

  Fiserv now expects internal revenue growth of 6% for the full year and expects adjusted earnings per share in a range of $3.98 to $4.02, or growth of 16% to 17% for the period.

  “We believe our financial performance along with early synergy benefits should translate to strong full year results and set a foundation for an even better 2020,” said Yabuki.

• The Market Expects the Fed to Pause
  Eddy Elfenbein, November 6th, 2019 at 2:40 pm

  Fed Chairman Jay Powell said that these recent rate cuts are merely “mid-cycle” adjustments. It looks like the market believes him. The Fed may leave interest rates alone for a few months.

  According the latest futures prices, the odds of a rate cut next month are just 8%. In fact, the futures market doesn’t see the Fed changing interest rates until July 2020. That’s at the earliest.

  Also, the two-year yield has stabilized (kind of) around 1.5% to 1.7%. The two-year can sometimes be a good advanced “tell” of what the Fed will do.

  The yield curve is now almost perfectly flat until three years out. After that, it slopes upward.