Author Archive

  • The Market Expects the Fed to Pause
    , 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.

  • Broadridge Earns 68 Cents per Share
    , November 6th, 2019 at 7:56 am

    Broadridge Financial Solutions (BR) today reported financial results for the first quarter ended September 30, 2019 of its fiscal year 2020. Results compared with the same period last year were as follows:

    “Broadridge reported solid first quarter results and is well-positioned to deliver a strong fiscal year 2020,” said Tim Gokey, Broadridge’s Chief Executive Officer. “Recurring revenues rose 8% and we generated record first quarter Closed sales. We also continued to make targeted M&A investments in each of our core franchises, further positioning us for long-term growth. As expected, event-driven revenues returned to normalized levels from last year’s record first quarter.

    “We are reaffirming our fiscal year 2020 guidance, including recurring fee revenue growth of 8-10% and Adjusted EPS growth of 8-12%,” Mr. Gokey added. “Broadridge is well on-track to achieve our three-year objectives laid out at the 2017 Investor Day, including the high end of our Adjusted EPS objectives.”

  • Morning News: November 6, 2019
    , November 6th, 2019 at 7:06 am

    France Is Europe’s New Economic Growth Engine

    Ray Dalio Says the ‘World Has Gone Mad’ With So Much Free Money

    U.S. Recession Chances Inch Down to 26% Within Next 12 Months

    Investors Left Exposed as Trump’s SEC Gives America Inc a Helping Hand

    How California Became America’s Housing Market Nightmare

    How Is a Wealth Tax Like a Cigarette Tax?

    SoftBank Takes a $4.6 Billion Hit From WeWork. Its C.E.O. Remains Defiant.

    ‘Game-Changer’ Warrant Let Detective Search Genetic Database

    Tesla Plans After-Sales Network Expansion in China as Shanghai Factory Spins Up

    What A Potentially Private Walgreens Would Mean for Markets

    Krispy Kreme Ordered a Student to Stop Reselling Its Doughnuts. His Response Is a Master Class in Emotional Intelligence

    Nick Maggiulli: Realistic Investment Results

    Ben Carlson: The Hierarchy of Stock Market Losses

    Michael Batnick: “Should We Be Selling Short?”

    Roger Nusbaum: Gen-X Has Less Than 10% Of What It Needs For Retirement

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  • Becton, Dickinson Beats by a Penny per Share
    , November 5th, 2019 at 11:50 am

    This morning, Becton, Dickinson (BDX) reported earnings of $3.31 per share for its fiscal Q4. That beat by a penny 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.

    “We are very proud of our accomplishments in fiscal year 2019. Our performance this year demonstrates our ability to overcome multiple headwinds and deliver on our financial and operational goals,” said Vincent A. Forlenza, chairman and CEO. “We enter fiscal 2020 with continued optimism. There are significant opportunities ahead to leverage the capabilities we’ve built to better serve our customers and their patients around the world. It has been a privilege to lead BD and our global team of talented associates. I’m confident that under Tom Polen’s leadership the company will further accelerate its impact as BD enters its next phase of value creation.”

    For the year, Becton made $11.68 per share. The shares are down about 3% in today’s trading.

  • Morning News: November 5, 2019
    , November 5th, 2019 at 7:18 am

    Xi Zeroes In on Trump Trade Deal as China Acts to Steady Markets

    Companies Cut Back, but Consumers Party On, Driving the Economy

    Goldman CEO Sees Small Chance of U.S. Recession

    Microsoft Tried a 4-day Workweek in Japan. Productivity Jumped 40%

    China’s TikTok Blazes New Ground. That Could Doom It.

    How Will Apple, Disney, AT&T and Netflix Retain Streaming Subscribers?

    SoftBank Says WeWork Japan Can Become Profitable ‘In Near Future’

    Shell to Buy French Offshore Wind-Power Developer

    Uber Posts $1.2 Billion Loss as Growth Improves

    It’s Back: 8chan Returns Online

    Facebook Wants You To Know It Owns Instagram and WhatsApp So It’s Changing Its Logo

    Mystery Swiss Trader May Link Insider Groups on Two Continents

    Cullen Roche: The Permaeverything Approach

    Joshua Brown: Manager of Managers

    Jeff Carter: The Health of A Startup Community

    Be sure to follow me on Twitter.

  • The Stock Market and Unemployment
    , November 4th, 2019 at 9:21 am

    I thought this was an interesting chart. This is a 24-year look at the stock market (red) and the unemployment rate (black):

  • Stryker to Buy Wright Medical Group
    , November 4th, 2019 at 9:16 am

    Big news this morning. Stryker (SYK) has agreed to buy Wright Medical Group (WMGI) for $4 billion. Stryker is offering $30.75 for each share of WMGI. That’s nearly a 50% premium to Friday’s closing price.

    The deal is expected to close in the second half of next year. Stryker expects the deal to have no impact on its earnings. Stryker looks to open a little lower this morning while Wright looks to open much, much higher.

    Here’s the press release:

    Stryker (SYK) announced today a definitive agreement to acquire all of the issued and outstanding ordinary shares of Wright Medical Group N.V. (WMGI) for $30.75 per share, or a total equity value of approximately $4.0 billion and a total enterprise value of approximately $5.4 billion (including convertible notes). Wright Medical, which was founded in 1950, is a global medical device company focused on extremities and biologics.

    Wright Medical brings a highly complementary product portfolio and customer base to Stryker’s trauma and extremities business. With global sales approaching $1 billion, Wright Medical is a recognized leader in the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, which are among the fastest growing segments in orthopaedics.

    Wright Medical’s leading upper extremity portfolio and advanced preoperative planning technology will significantly add to Stryker’s offering. Additionally, Wright Medical’s lower extremity and biologics will complement Stryker’s portfolio and strengthen the company’s position in this high-growth segment.

    “This acquisition enhances our global market position in trauma & extremities, providing significant opportunities to advance innovation, improve outcomes and reach more patients,” said Kevin Lobo, Chairman and Chief Executive Officer, Stryker. “Wright Medical has built a successful business, and we look forward to welcoming their team to Stryker.”

    “We believe this transaction will provide truly unique opportunities and will create significant value for our shareholders, customers and employees,” said Robert Palmisano, Executive Director, Chief Executive Officer and President of Wright Medical. “By merging our complementary strengths and collective resources, we will be able to advance our broad platform of extremities and biologics technologies with one of the world’s leading medical technology companies that shares our vision of delivering breakthrough and innovative solutions to improve patient outcomes.”

    Under the terms of the agreement, Stryker will commence a tender offer for all outstanding ordinary shares of Wright Medical for $30.75 per share, in cash. The boards of directors of both Stryker and Wright Medical have approved the transaction. The closing of the transaction is subject to receipt of applicable regulatory approvals, the adoption of certain resolutions relating to the transaction at an extraordinary general meeting of Wright Medical shareholders, completion of the tender offer and other customary closing conditions.

    The acquisition of Wright Medical is expected to close in the second half of 2020 and is expected to have no impact to Stryker’s net earnings per diluted share and adjusted net earnings per diluted share in 2019. There is no change to Stryker’s previously announced expected adjusted net earnings per diluted share for the full year, which is a range of $8.20 – $8.25. Assuming a September 30, 2020 closing, the transaction is expected to have no impact to Stryker’s adjusted net earnings per share in 2020, $(0.10) dilution in 2021 and will be accretive thereafter.

  • Morning News: November 4, 2019
    , November 4th, 2019 at 6:42 am

    Flood of Oil Is Coming, Complicating Efforts to Fight Global Warming

    Asia-Wide Trade Pact on Course Despite India, Thailand Says

    Equity Trading to Only Get Bloodier in Europe After Macquarie Exit

    We Just Wanted to Talk E.U. Farm Policy. Why Was Someone Always Looking Over Our Shoulders?

    Aramco Starts IPO With Prince’s Economic Vision at Stake

    An Energy Breakthrough Could Store Solar Power for Decades

    Morgan Stanley Sees Market Returns Tumbling Over Next 10 Years

    Teens Love TikTok. Silicon Valley Is Trying to Stage an Intervention.

    Apple Pledges $2.5 Billion to Fight California Housing Crisis

    McDonald’s Fires CEO Steve Easterbrook Over Relationship With Employee

    Under Armour Plunges After Disclosing U.S. Accounting Probe

    Jeff Miller: Weighing the Week Ahead: A Time for Investors to Act

    Roger Nusbaum: Confronting Unexpected Circumstances

    Michael Batnick: Guru Grades

    Ben Carlson: Will We Ever See Another Great Depression? & Refinancing Gains in Real Estate

    Be sure to follow me on Twitter.

  • October NFP = +128,000
    , November 1st, 2019 at 8:42 am

    The October jobs report is out.

    The U.S. economy created 128,000 jobs last month. This is despite the GM strike.

    There was also 95,000 in upward revisions (51,000 in August and 44,000 in September).

    Drilling down some, the private sector added 131,000 jobs in October.

    Average hourly earnings rose six cents in October to $28.18. That’s a 0.2% increase for the month and a 3% increase for the year.

    The unemployment rate ticked up to 3.6%. The U-6 rate rose to 7.0%.

    The labor force participation rate is 63.3%. That’s the highest since August 2013. It’s also higher than every month from 1948 until 1978.

    The jobs-to-population ratio is up to 61.00%. That’s the highest since November 2008.

  • CWS Market Review – November 1, 2019
    , November 1st, 2019 at 7:08 am

    ”Time is on your side when you own shares of superior companies.” – Peter Lynch

    What an action-packed week this has been! Not only is it earnings season (we had six Buy List reports this week), but we also had the first report on third-quarter GDP, the October jobs report and a Federal Reserve meeting.

    On top of that, on Wednesday, the S&P 500 closed at a new all-time high. Since the bull market began more than 10 years ago, there have been 25 breaks of 5% or more. Every single one has been turned back. Every. Single. One.

    Our Buy List also hit a new high. I’m happy to see so many good earnings reports this week. In this week’s issue, I’ll go through them all. But first, I want to touch on the Fed’s news from earlier in the week.

    What the Fed’s Rate Cut Means for Us

    On Wednesday, the Federal Reserve decided to cut interest rates for the third time in three months. It wasn’t that long ago that the Fed was hiking rates. But what comes next?

    Well, that’s not so easy to say, but the Fed gave us some clues. In its previous statement, the Fed said it “will act as appropriate” to keep the economy going. This time around, those words were missing. Instead, the Fed said it will “monitor the implications of incoming information for the economic outlook as it assesses the appropriate path.”

    I happen to be fully fluent in the arcane and bizarre language of Fedspeak, so allow me to translate. The Fed said, “we’re going to chill out for a bit and watch what happens.” That makes sense. The central bank has already brought rates pretty low. In response, mortgage rates have fallen, and I think we’ll see a pick-up in housing and construction. In his post-meeting press conference, Fed Chair Jay Powell said, “We believe that monetary policy is in a good place.”

    Overall, this is very good for the market and for us. Low real rates (meaning after inflation) are usually very good for stocks. Despite repeated predictions, there’s still no sign of broad-based inflation.

    On Wednesday, ADP said the economy created 125,000 private-sector jobs last month. That was 5,000 more than expectations. The government’s jobs report for October will come out later today. Last month’s report had the unemployment rate at a 50-year low. Also on Wednesday, the government said that the economy grew at a 1.9% real annualized rate in the third quarter. That’s OK, but not great. It’s basically in line with the current expansion. Simply put, there’s no imminent threat of a recession.

    Now let’s get to this week’s earnings reports. You can also see our earnings calendar.

    Six Buy List Earnings Reports This Week

    On Monday, Check Point Software (CHKP) said it made $1.44 per share for Q3. That was four cents better than estimates, Previously, the cyber-security firm had told us to expect Q3 earnings between $1.36 and $1.44 per share on revenue of $480 to $500 million. Total revenue was $491 million.

    The business is going as expected. Gil Shwed, the CEO, said, “our security subscriptions continued to drive results, with 13% growth. This was underscored by expanded customer adoption of our cloud solutions.” I’m very pleased with these results.

    For Q4, Check Point sees earnings ranging between $1.93 and $2.04, and revenue between $527 million and $557 million. The company reiterated its previous full-year guidance of earnings between $5.85 per share and $6.25 per share and revenue between $1.94 million and $2.04 billion. The shares jumped 3.8% on Tuesday and hit a three-month high. Check Point remains a buy up to $120 per share.

    After the bell on Tuesday, Stryker (SYK) reported Q3 earnings of $1.91 per share. That beat by a penny. This was a good quarter for Stryker. Organic sales were up 8.6% to $3.6 billion.

    Stryker said it now expects full-year results to be at the high end of its previous guidance. For Q4, Stryker sees earnings of $2.43 to $2.48 per share. For all of 2019, Stryker projects earnings between $8.20 and $8.25 per share. That’s an increase of five cents to the low end.

    Shares of SYK rallied 3% on the news. This is one of the most dependable stocks on our Buy List. Stryker remains a buy up to $223 per share.

    On Wednesday morning, Moody’s (MCO) said it made $2.15 per share for Q3. That was 15 cents more than expectations. The ratings agency has been a big winner for us this year (+57%). The key to Moody’s success is its Moody’s Analytics segment. Revenue there was up 13% last quarter.

    The results were so good that Moody’s raised its full-year EPS guidance to $8.05 – $8.20. The previous guidance was $7.95 per share to $8.15 per share. The stock initially dropped on Wednesday, but it gradually made back much of the loss. This week, the stock came very close to hitting a new high. Moody’s is a very good buy up to $225 per share.

    After the bell on Thursday, Cognizant Technology Solutions (CTSH) reported Q3 earnings of $1.08 per share. That was three cents more than estimates. Revenues rose 4.2% to $4.25 billion. In constant currency, that’s an increase of 5.1%, which is above Cognizant’s previous guidance of 3.8% to 4.8%.

    Cognizant also said it plans to cut costs. I’m always skeptical of announcements of plans to cut costs. (Shouldn’t they always be doing that?)

    “Over the past few months, we’ve sharpened Cognizant’s strategic posture and begun executing plans aimed at improving our competitive positioning,” said Brian Humphries, Chief Executive Officer. “Today we are announcing a simplification of our operating model and a cost-reduction program, which will allow us to fund investments in growth. Looking ahead, we see a clear path to unlock the organization’s full growth potential, win in our key digital battlegrounds, and return Cognizant to its historical position of being the bellwether of the IT services industry.”

    For Q4, Cognizant sees revenue growth of 2.1% to 3.1% in constant currency. For the full year, CTSH sees earnings between $3.95 and $3.98 per share. That’s an increase of three cents per share to the low end. The guidance implies a Q4 range of $1.02 to $1.05 per share.

    This is better news from CTSH, but remember this is after the company pared back guidance significantly earlier this year. Cognizant remains a buy up to $64 per share.

    We had two earnings reports on Thursday. Let’s start with Intercontinental Exchange (ICE). The exchange owner earned $1.06 per share, which was 10 cents more than expectations. I really like this stock. For the quarter, ICE’s adjusted operating margin was 59%.

    One sticking point is that the government is not pleased with the pricing power that exchanges have for their data services. That’s a big money maker for them. I don’t think this issue can be solved easily or quickly, and it will probably get settled by the courts. For Q4, ICE expects data revenue to be between $555 million and $560 million.

    This week, I’m lifting our Buy Below on ICE to $100 per share.

    Every earnings season, there’s a dud, and this time, that looks to be Church & Dwight (CHD). For Q3, the company made 66 cents per share. That was six cents more than the company’s own guidance. Despite the earnings beat, the shares lost 7.25% in Thursday trading.

    What made traders sour on CHD? For one, the revenue figure wasn’t that good. Sales volume actually dropped a bit, but thanks to price increases, sales in dollars rose. The company expects sales growth of 5%, which is below consensus.

    Church & Dwight also kept its full-year guidance at $2.47 per share. You’d think that they’d raise that after a six-cent beat. I’m lowering my Buy Below on Church & Dwight to $73 per share.

    Next Week’s Buy List Earnings Reports

    We have a few more earnings reports due next week.

    Let’s start with Becton, Dickinson (BDX), which is due to report earnings on Tuesday, November 5. The medical-devices company gave us a scare in Ma, when it lowered its full-year guidance by 40 cents at each end to $11.65 – $11.75 per share.

    Becton blamed currency exchanges plus “recent regulatory and market pressures related to paclitaxel-coated devices.” Fortunately, the last report was pretty good, and the company stood by the lower range. For next week, which is BDX’s fiscal Q4, Wall Street expects $3.30 per share. BDX should be able to beat that. Later this month, I expect Becton to raise its dividend for the 47th year in a row.

    Three months ago, Broadridge Financial (BR) raised its full-year dividend from $1.94 to $2.16 per share. This was the eighth-straight year that BR has raised its dividend by double-digit percentages.

    Broadridge’s fiscal year ended in June. For 2020, the company sees earnings growth of 8% to 12%. That implies a range of $5.03 to $5.22 per share. BR sees recurring-fee growth of 8% to 10% and operating margins around 18%. The earnings report is due out on Wednesday. For the fiscal first quarter, Wall Street expects 71 cents per share.

    In August, Fiserv (FISV) completed its merger with First Data. In July, the company beat earnings by a penny per share. For 2019, Fiserv expects earnings to range between $3.39 and $3.52 per share. Earnings are also scheduled for Wednesday. Wall Street expects Q3 earnings of $1 per share.

    Last is Disney (DIS), which is scheduled for Thursday. The company is having a great year. Not just at the box office, but on Wall Street as well. The Mouse House is about to become a giant in the world of streaming. The cord-cutting movement has morphed into the Streaming War. Disney+ will be a content powerhouse. The Street’s estimates for Q3 is 95 cents per share.

    Continental Building Products (CBPX) hasn’t said yet when it’s going to report earnings. In previous years, the wallboard company has reported right about now. Just in case CBPX reports next week, Wall Street is looking for 41 cents per share.

    That’s all for now. There aren’t many economic reports next week, but there will be a lot more earnings. The factory-orders report is due out on Monday. On Tuesday, the ISM non-manufacturing index is due out. Then on Wednesday, the productivity report comes out. On Thursday, the jobless-claims report comes out. The reports have come in at 250,000 or fewer for 108 straight weeks. 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

    P.S. I was recently a guest on the Animal Spirits podcast.