Author Archive

• July NFP = 162,000
  Eddy Elfenbein, August 2nd, 2013 at 8:32 am

  The July jobs report is out. The economy created 162,000 net new jobs last month. That’s below forecasts of 185,000. A total of 161,000 jobs were in the private sector. The revisions for May and June knocked off 26,000 from what was originally reported. The unemployment rate fell to 7.4%.

  The market doesn’t seem to be reacting strongly one way or the other. I think traders have reconciled to the fact that tapering of some sort will begin in the fall.

  

• CWS Market Review – August 2, 2013
  Eddy Elfenbein, August 2nd, 2013 at 7:43 am

  “More money has been lost reaching for yield
  than at the point of a gun.” – Raymond DeVoe

  This has been one of our best earnings seasons in memory. In the last 27 trading days, our Buy List has soared 10.43%. Not bad! For the year, we’re up 24.25%, which means we currently lead the S&P 500 by more than 4.5%. This should be our seventh market-beating year in a row!

  On Thursday, the S&P 500 broke 1,700 for the first time ever. For the day, the index closed at 1,706.87. This has been an amazing time for equity investors, and it has a very good chance of lasting. The Fed this week gave investors more encouraging signals on monetary policy. Not only that, but we had a very strong ISM report, and initial jobless claims reached a five-year low.

  

  In this week’s CWS Market Review, we’ll review the recent slate of outstanding earnings reports. Stocks like Fiserv and Harris continued the trend of Buy List stocks smashing estimates and gapping up to new highs. Fiserv stock rallied 4% after its report and nearly hit $100 this week. Harris beat its estimates by an amazing 26 cents per share, and the stock surged 8% on Tuesday. Both AFLAC and WEX Inc. rallied to new highs on earnings beats as well.

  We had one disappointment this week with DirecTV, but it’s been a very good stock for us. I also want to preview the remaining earnings that are due next week. But first, let’s look at this week’s earnings news.

  Moog Is a Buy up to $57

  We have a lot of earnings to run through, so let’s start with last Friday, when quiet little Moog ($MOG-A), the maker of flight-control systems, reported earnings of 90 cents per share. That topped Wall Street’s view by six cents per share. Quarterly sales rose 10% to $671 million.

  I was pleased with Moog’s forward guidance. For the full year, Moog sees earnings coming in at $3.25 per share, but that includes two 15-cent charges. Note that Moog’s fiscal year ends in September, so the June quarter was their fiscal third. For next year (September 2013 to September 2014), Moog sees earnings ranging between $3.90 and $4.10 per share.

  That’s a very optimistic outlook. The Street’s consensus for next year had been for $3.90 per share. With a 38.31% gain, Moog is our number-one performer this year. Moog continues to be a very good buy up to $57 per share.

  Harris Crushes Earnings and Soars

  Then on Tuesday, Harris Corp. ($HRS) absolutely demolished Wall Street’s forecast. For their fiscal fourth quarter, the communications-equipment company pulled in $1.41 per share, which was 26 cents better than consensus! The stock surged 8% on Tuesday and continued to close higher on Wednesday and Thursday as well.

  Harris also had very good guidance for next year. For fiscal 2014, which ends next June, Harris sees earnings ranging between $4.65 and $4.85 per share on revenue of $4.95 to $5.05 billion. The Street had been expecting earnings of $4.62 per share on revenue of $5.03 billion.

  The success we’re seeing now at Harris is the result of restructuring efforts undertaken earlier this year. Harris had actually been one of our poorer-performing stocks this year, but as is often the case, high-quality stocks eventually deliver the goods. I’m raising my Buy Below on Harris to $62 per share. This is a very solid stock.

  I’m Raising my Buy Below on Fiserv to $103

  After the bell on Tuesday, Fiserv ($FISV), which had been rallying pretty well going into earnings, had a great earnings report. For the second quarter, Fiserv earned $1.50 per share, which was six cents better than Wall Street’s estimate. Quarterly revenues rose 11.8% to $1.14 billion, which was a bit short of consensus.

  Fiserv reiterated its full-year guidance of earnings ranging between $5.84 and $6.03 per share. Always take notice when a good company reiterates guidance. Too many investors see that as being “no news.” Not me. I like to hear that our stocks are still on track for the year. Looking at the numbers, I don’t think Fiserv will have any trouble hitting that range. For the first six months of 2013, Fiserv has earned $2.83 per share. Earnings are up 16% so far this year, and cash flow is up 22%.

  Shares of FISV jumped 4% on Wednesday. At one point, the stock came within 12 cents of hitting $100 per share. I’m raising my Buy Below to $103 per share. Fiserv is an excellent buy.

  AFLAC Surges Past $63 on Strong Earnings

  Our beloved AFLAC ($AFL) reported Q2 operating earnings of $1.62 per share, which was 11 cents better than estimates. I liked that, and so did traders. AFLAC rallied 4.3% over the following two days and reached a new 52-week high.

  Let’s dig into the details. Remember that with insurance companies, it’s more important to focus on their operating earnings. Three months ago, AFLAC gave us a range for Q2 of $1.41 to $1.56 per share, so business is going much better than expected. The problem, of course, is the yen/dollar exchange rate, which wound up knocking 22 cents per share off earnings last quarter. Ouch, that stings. But adjusting for that, AFL’s operating earnings rose 14.3%.

  For Q3, AFLAC sees operating earnings ranging between $1.41 and $1.51 per share. That’s less than the $1.56 per share Wall Street had been expecting. For the full-year guidance, AFLAC lowered the low end of their range. The previous range was $5.99 to $6.37 per share. Now it’s $5.83 to $6.37 per share. That seems very conservative to me. Even after the rally, AFL is still going for less than 10 times the high end of their forecast.

  Can you believe AFLAC was going for $43 a year ago? This has been such an impressive stock. This week, I’m raising my Buy Below on AFLAC to $67 per share. Excellent stock.

  WEX Inc. Is a Buy up to $93

  On Wednesday, WEX Inc. ($WEX) reported Q2 earnings of $1.05 per share, which was one penny better than expectations. For Q3, they see earnings between $1.16 and $1.23 per share. Wall Street had been expecting $1.18 per share. For all of 2013, WEX now sees earnings ranging between $4.27 and $4.37. The Street’s consensus was at $4.31 per share.

  Traders liked the earnings news a lot. On Thursday, WEX got as high as $91.84. That’s nearly a 40% run in three months. In fact, my Buy Below prices are having trouble keeping up. This week, I’m raising WEX to $93 per share. Let’s hope I have to raise it again soon.

  DirecTV Was Our Big Miss This Week

  We had one disappointment this week with DirecTV ($DTV). For the second quarter, DTV earned $1.18 per share, which was 16 cents below expectations. Revenues rose 6.6% to $7.7 billion, which was slightly below forecasts. It’s actually not as bad as it sounds.

  The big problem for the satellite-TV company was Latin America. Analysts were expecting Latam subscriber count to rise by more than 420,000. Instead, it rose by just 165,000. To put this into context, last year, DTV added 645,000 new subscribers in the region. DirecTV said that macroeconomic conditions were partly to blame, especially in Brazil. In the U.S., subscriber count fell by 84,000.

  The stock pulled back 3% after the earnings report, which isn’t so bad. While the Q2 report wasn’t what I was expecting, I still like DirecTV. DTV is a good buy up to $67 per share.

  Earnings Next Week from NICK and Cognizant Technology

  I still don’t know when Nicholas Financial ($NICK) will report, but it will probably be soon. I’m expecting earnings around 40 cents per share. To me, what’s more important will be any dividend increase announced at their annual meeting later this month. I said last week that I think NICK can raise their quarterly payout to 15 cents per share, which is a 25% increase. Nicholas Financial remains a very good buy up to $16 per share.

  Next Tuesday, Cognizant Technology Solutions ($CTSH) is due to report its second-quarter earnings. CTSH beat impressively for Q1 and guided higher for Q2. The company projected earnings of $1.06 per share for Q2. For all of 2013, they foresee earnings of $4.31 per share. CTSH is a good buy up to $76 per share.

  That’s all for now. We’re finally heading into the back end of earnings season. Except for earnings, next week should be a fairly light week for news. I suspect traders will be digesting the news from Friday’s big jobs report. With the dearth of news, I wouldn’t be surprised to see the Volatility Index ($VIX) drop to a multi-year low next week. 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: August 2, 2013
  Eddy Elfenbein, August 2nd, 2013 at 7:15 am

  RBS Names McEwan CEO as Operating Profit Drops; Shares Decline

  Amid Japan-China Political Deadlock, Progress Toward Freer Trade

  Putin Shows Global Mojo to Russians as U.S. Fumes Over Snowden

  Jobless Claims in U.S. Fall to Lowest Level in Five Years

  Shale-Boom Profits Bypass Big Oil

  Tourre’s Junior Staff Defense Seen Leading to Trial Loss

  LinkedIn Sales Top Projections as Membership Surges

  Lufthansa Q2 Operating Profit Down, Revenue Flat

  British Airways Parent Wins Favor as Revamp Outpaces Lufthansa

  AIG Reports Second Quarter 2013 Net Income Attributable to AIG of $2.7 Billion and Diluted Earnings Per Share of $1.84

  Honda, Toyota Mid-Size Clash Aids Asian Makers’ U.S. Gain

  Inside the Phone-Plan Pricing Puzzle

  The Real Change In The Cost Of A Big Mac If McDonald’s Workers Were Paid $15 An Hour: Nothing

  Credit Writedowns: Bank Runs: Who’s Going to Clean Up the Mess Afterwards?

  Howard Lindzon: The Markets are Easy at The Moment…But Let me Tell You About Hootsuite and Tough Markets

  Be sure to follow me on Twitter.

• Is This a Good Time to Invest?
  Eddy Elfenbein, August 1st, 2013 at 6:36 pm

  Here’s a recent question I had from an emailer, and my response is below:

  Hi Eddy,

  I’ve been reading your website off and on for the past couple of years and really find your site to be full of good information. I haven’t had money to invest in the market up until now and was looking into buying a few stocks. Since the market is at a high point right now a few people have cautioned me that it probably isn’t a great idea to invest now since the market could come crashing down.

  I was wondering what your opinion on the market is and whether you thought it would be a bad idea to invest now or your opinion on if there ever is a so called “good time to invest”. Is it always a good time to invest as long as you make good stock choices?

  Thanks for the help

  Thanks for the kind words. Despite the big run-up in stock prices, I still think this is a good time to be in stocks. Of course, it greatly depends on which stocks you’re in, and I favor the high-quality stocks on my Buy List.

  The argument for stocks is very simple, and it comes down to math. Right now, Wall Street expects the S&P 500 to earn $123 next year (that’s the index-adjusted figure). That means the stock market is currently going for 13.7 times next year’s earnings. Or you can say that the market has an earnings yield of 7.3%.

  There’s nothing in the bond market close to 7.3% at the moment. The furthest-dated US Treasury will yield you 3.7%, and higher-rated corporates run around 4.4%. That’s a pretty big gap, and much wider than I think can be justified due to a risk premium. Stocks offer the best bang for your buck.

  Although my Buy List is always 100% invested in stocks, there are times where I think it’s wise to put money in cash or invest in more defensive stocks. In the last 15 years we’ve seen the stock market get cut in half, not once but twice. That’s a fact of investing. Bad things will happen. Not can, but will. Investors should be prepared for that.

  Best – Eddy

• The 20-Year View
  Eddy Elfenbein, August 1st, 2013 at 11:50 am

  The S&P 500 broke 1,700 today. The index first broke 170 almost exactly 30 years ago today.

  

• DirecTV Earnings Miss
  Eddy Elfenbein, August 1st, 2013 at 11:19 am

  We had one disappointment today with DirecTV ($DTV). For the second quarter, DTV earned $1.18 per share which was 16 cents below expectations. Revenues rose 6.6% to $7.7 billion which was slightly below forecasts.

  The big problem for the satellite-TV company was Latin America. Analysts were expecting the Latam subscriber count to rise by more than 420,000. Instead, it rose by just 165,000. To put this into context, last year, DTV added 645,000 new subscribers in that region. The company said that macroeconomic conditions were partly to blame, especially in Brazil. In the U.S., subscriber count fell by 84,000.

  The stock is currently down about 3% today

• The S&P 500 Smashes 1,700
  Eddy Elfenbein, August 1st, 2013 at 10:13 am

  The stock market is up again today. For the first time ever, the S&P 500 broke 1,700. Our Buy List is also doing well, except for DirecTV ($DTV), which is down about 3% after a disappointing earnings report.

  The big jobs report is tomorrow, but today we learned that initial jobless claims dropped to a 67-month low. A total of 326,000 Americans filed for first time jobless claims last week.

  

  Since it’s the first trading day of the month, the ISM report came out this morning and the number was an impressive 55.4. The Street had been expecting 52.0. Any reading above 50 indicates the factory sector of the economy is expanding. Below 50 is a contraction. July was the best month in more than two years.

  

  Ford ($F) reported that sales rose 11% in July. It seems that a lot of contractors have been running out to replace their trucks they’ve had since before the recession. The AP reports, “F-Series truck sales rose 23 percent to 60,449, or one of every three vehicles Ford sold.” The stock is currently up to $17.10 per share.

• Morning News: August 1, 2013
  Eddy Elfenbein, August 1st, 2013 at 6:39 am

  ECB’s Draghi Can’t Afford To Sound All-Clear Yet

  Italy Banks Bad Loans Underline Southern Europe Malaise

  China Pledges to Keep Growth Within ‘Reasonable Zone’

  Shell to Chevron Move Offshore as Nigerian Risks Mount

  FOMC Keeps QE Juice Flowing At $85 Billion, Bernanke Taper Should Come Later This Year

  Obama to Nominate Raskin as First Female U.S. Treasury Deputy

  Swipe-Fee Rule Rejection to Help Merchants at Banks’ Cost

  Shell’s Earnings Fall in 2nd Quarter

  Dell Takeover Bid in Peril as a Voting Rule Remains

  Sony Reports $35 Million Net Profit For First Quarter

  Lloyds to Start Dividend Talks After Swinging Into Profit

  Sanofi CEO: Lower Earnings Won’t Affect Shareholder Return Policy

  ArcelorMittal Q2 Results Show Fall In Earnings

  Howard Lindzon: The Future is Messy…That is How You Make Money!

  Roger Nusbaum: Currency ETF Palooza

  Be sure to follow me on Twitter.

• New Highs on Strong Earnings
  Eddy Elfenbein, July 31st, 2013 at 9:28 pm

  Today was another good day for the Buy List. Our 20 stocks gained 0.45% today compared with a 0.01% loss for the S&P 500. This is the fourth day in a row that we’ve beaten the market. Our Buy List is now up 22.93% for the year compared with 18.20% for the S&P 500. Interestingly, this is the third day in a row that the S&P 500 closed with a 1,685 handle.

  Our big winner today was obviously Fiserv ($FISV) which closed the day at $96.24 or 4.03% higher. At one point today, Fiserv came within 12 cents of $100 per share which was a gain of 8% on the day. This is what a good earnings report will do.

  AFLAC ($AFL) also rallied on its earnings report, although I feared the stock was going to lose ground today. Shares of AFL got as high as $62.55 today which was a new 52-week high. At the close, AFLAC finished at $61.68 for a 1.36% gain. The AP noted that analysts are still favorable on the stock.

  WEX Inc. (WEX) also hit a new high today thanks to its earnings report. WEX got as high as $88.59 today before it closed at $86.94 for a 1.25% gain. In the last three months, WEX has gained 28%.

  We also had new highs from CR Bard ($BCR), Harris ($HRS) and Bed Bath & Beyond ($BBBY), plus Stryker ($SYK) and Medtronic ($MDT) came very close to new highs.

• “We’ve been the best performing tech company in Europe”
  Eddy Elfenbein, July 31st, 2013 at 9:11 pm

  Mark Hurd was on CNBC: