Posts Tagged ‘ROST’

• CWS Market Review – March 22, 2013
  Eddy Elfenbein, March 22nd, 2013 at 7:24 am

  “There are two kinds of people who lose money: those who know
  nothing and those who know everything.” – Henry Kaufman

  What a long, strange week it’s been on Wall Street. Last Friday, the Dow’s amazing 10-day winning streak came to an end. Since then, the financial world’s attention has been focused on the little island nation of Cyprus, of all places. Despite all the attention, I doubt the problems in Cyprus will amount to a hill of beans for us.

  From our perspective, the biggest news of the week came late Wednesday, when Buy List member Nicholas Financial ($NICK) reported that it had received an unsolicited buyout offer. The shares promptly vaulted 12.1% on Thursday on 12 times the normal trading volume. It’s about time the big boys noticed NICK. This is great news for those of us who have been in NICK for the long haul (check out the chart below). In this week’s CWS Market Review, I’ll give you my thoughts on the offer.

  

  There was also news on the earnings front. Oracle ($ORCL) had an ugly report; the shares took a 9.7% hit on Thursday (I’ll have more on that in a bit). Plus, FactSet ($FDS) and Ross Stores ($ROST) reported earnings. But first, let’s look at what lies ahead for Nicholas Financial.

  Nicholas Financial Gets Buyout Offer

  After the closing bell on Wednesday, Nicholas Financial ($NICK) announced that it “received an unsolicited, non-binding indication of interest from a potential third-party acquirer.” In English, this means probably someone wrote down a price on a napkin, slid it to the board and said, “How’s this?” I have no idea who it is or how much they’re offering, but it’s serious enough for NICK to reveal that it happened. The firm has retained Janney Montgomery Scott to advise them in evaluating “strategic alternatives.”

  Some of you may remember that the same thing happened to NICK in early 2011. At the time, the stock was at $10 and it soared 18% following the news. In the end, NICK shot down that offer. Again, I don’t know what the offer was, but I’m almost positive it was too low and NICK’s board did the right thing in walking away. It’s tough to turn down a buyout offer, but sometimes it’s the right thing to do. NICK’s stock is up about 50% since then, and that doesn’t include the big dividend we got in December.

  This time around, I’m far more open to NICK being sold. The senior management is close to retirement age, so they may be looking for an exit as well. The difference between now and two years ago is that NICK has proved to the world that it navigated the financial crisis. Their portfolio is solid, and according to the Fed, short-term interest rates are going to stay low for a while more. This is a very good environment for NICK’s business. On Thursday, the stock got as high as $15.15. Obviously, I want as high a price as possible, but if I were a member of the board, I’d set $18 as a minimum.

  Here’s the reality: In a world of zero interest rates, there’s a massive hunt going on for yield. This is one of the distortions that Bernanke and the Fed are worried about. Fund managers are looking anywhere and everywhere for higher rates without too much risk. Eventually, that led someone to NICK. Fortunately, we were there first.

  Let me warn shareholders that these situations can become dramatic, and it’s largely out of our hands. If the deal is shot down or withdrawn, the shares will take a hit. But on the plus side, it’s possible that a bidding war will ensue, and the shares will be ratcheted higher. For now, I’m going to raise my Buy Below price to $16. Stay tuned for more news.

  Oracle Plunges after Weak Earnings

  While the news was good from NICK, the news from Oracle ($ORCL) wasn’t so fortunate. Three months ago, Oracle told us to expect fiscal Q3 earnings to range between 64 and 68 cents per share. As it turned out, they earned 65 cents per share, which was one penny below Wall Street’s consensus.

  Frankly, this was a big disappointment. I thought Oracle was going to earn 70 cents per share or more, but the big miss wasn’t on the bottom line. It was on the top line. Quarterly sales rose to $8.97 billion, which was $40 million below Wall Street’s consensus. The problem isn’t hard to spot—Oracle is facing more competition from Internet-based cloud systems.

  Some of these numbers are pretty ugly. Wall Street had been expecting an increase in new software sales of 8%. Instead, it fell by 1.8%. Hardware revenue has been dropping, but Oracle told us that that division is close to turning around. Apparently not. Hardware sales dropped 23% last quarter. Oracle’s stock took a big hit yesterday as it lost 9.7%. A bunch of previously bullish analysts piled on and cut their ratings.

  For Q4, Oracle sees earnings ranging between 85 cents and 91 cents per share. Actually, that’s not so bad. Oracle sees quarterly revenue coming in between $10.8 billion and $11.4 billion, which, in my opinion, is pretty light. The company also said that new software license revenue will grow between 1% and 11% this quarter, and hardware revenue will drop by 13% to 23%. That’s not what I wanted to hear.

  To be fair, Oracle was hurt last quarter by some of the mess in Europe. The CFO also said that some large contracts had been delayed last quarter, and those numbers will show up in this quarter’s earnings report. Bloomberg quoted an analyst at UBS as saying, “I’ve followed this company for a decade, and historically when they have a miss, it’s a great time to buy.” Oracle’s in my doghouse right now, but I’m not giving up on them. Oracle remains a good buy up to $37 per share.

  Buy FactSet below $95 and Ross Stores below $62

  On Tuesday, FactSet Research Systems ($FDS) reported second-quarter (ending February) adjusted earnings of $1.14 per share, which was three cents better than what Wall Street had been expecting. This is good news, and it was actually better than the forecast FactSet gave three months ago when they said earnings should range between $1.11 and $1.13 per share.

  Interestingly, at the time of that guidance, Wall Street was disappointed because they had been expecting $1.13 per share. FactSet said they expected revenues to range between $212 and $215 million. On Tuesday, they reported that Q2 revenues rose 7% to $213.1 million.

  The problem, if you can even call it that, is that banks have been working hard to cut costs. For Q3, FactSet sees revenues ranging between $213 and $216 million and earnings-per-share coming in between $1.14 and $1.16. Wall Street had been expecting revenues of $217 million and earnings of $1.13 per share.

  Even though the numbers are pretty good, shares of FDS got hammered this past week. The stock broke below $90 per share on Thursday, but I’m not worried at all about FactSet. This company has increased its earnings every year for the last 16 years, and they’re going to do it again. I’m going to lower my Buy List to $95 to reflect the recent sell-off, but FDS remains a very good buy.

  On Thursday, Ross Stores ($ROST) reported fiscal Q4 earnings of $1.07 per share, which is up from 85 cents per share last year. This was hardly a surprise, since their previous guidance was a range between $1.06 and $1.07 per share. When the range is like that, you can be pretty sure it’s not a guess. Q4 sales rose 15% to 2.761 billion. Comparable stores sales were up by 5%.

  Business is going well for Ross, and they just wrapped up a very good year. For the fiscal year, Ross earned $3.53 per share, which was up from $2.86 per share last year. Sales rose 13% to $9.721 billion. Same-store sales were up by 6%. The stock rallied 3.4% on Thursday. ROST remains a very good buy up to $62 per share.

  Don’t Let Fears over Cyprus Scare You

  Over the weekend, we learned of a dramatic bailout plan for Cyprus which involved a one-time tax of bank deposits. Let’s just say that this idea didn’t go over well on the island; the plan failed to get a single vote in the Cypriot parliament. This was the first time a legislature stood up to the ECB.

  Then there was talk of Cyprus striking a cash-for-gas deal with Russia, but that doesn’t seem to be going anywhere. Now the European Central Bank is running out of patience, and no one knows what will happen next. The ECB has set a Monday deadline for the island to agree to a deal. Paul Krugman wrote, “Cyprus has managed to combine in one place everything that has gone wrong elsewhere.”

  I know Cyprus has been getting a lot of attention, and it’s a fascinating story from an economic perspective. But I don’t want investors to be overly concerned about Cyprus’s impacting our Buy List. Let’s take a step back and remember that Cyprus makes up just 0.2% of the eurozone’s economy.

  The big fear is that once one country agrees to a tax on bank deposits, a new precedent will be set, and it could be done elsewhere. That fear would in turn lead to a run on banks in countries like Italy, Spain and Portugal. While I can’t rule a scenario like that out, it’s simply too far down the road for investors to worry about. Cyprus is such a small and unusual case that it may turn out to be a story that isn’t repeated elsewhere. I feel for the Cypriots, especially those who have their life savings at risk. But what happens on that island really doesn’t matter much to our Buy List stocks. I’m afraid that a tax on deposits may be the path of least resistance.

  That’s all for now. Next week is the final week of the first quarter. We’ll get important reports on durable goods, new home sales and another look at Q4 GDP. 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

• Ross Stores Earns $1.07 Per Share
  Eddy Elfenbein, March 21st, 2013 at 8:45 am

  Not much of a surprise here. Ross Stores ($ROST) previously said that earnings would range between $1.06 and $1.07 per share. When the range is like that, you can be pretty sure it’s not a guess. For fiscal Q4, Ross earned $1.07 per share. That’s up from 85 cents per share last year. Q4 sales rose 15% to $2.761 billion. Comparable stores sales were up by 5%.

  Overall, this was a very good year for Ross. For the year, Ross earned $3.53 per share which was up from $2.86 per share last year. Sales rose 13% to $9.721 billion. Same-store sales were up by 6%.

  Michael Balmuth, Vice Chairman and Chief Executive Officer, commented, “We are pleased with the record sales and earnings we delivered in the fourth quarter and 2012 fiscal year, especially considering they were achieved on top of strong multi-year gains. Results for both periods benefited from our ongoing ability to deliver compelling bargains on a wide assortment of exciting name brand fashions for the family and the home to today’s value-focused consumers.”

  Mr. Balmuth continued, “Earnings before interest and taxes for the 2012 fourth quarter grew to 13.7% of sales, up from 13.0% in the fourth quarter of 2011. For fiscal 2012, operating margin rose to a record 13.1%, a gain of 75 basis points on top of an 85 basis point increase in 2011. Profit margins for both the quarter and the full year mainly benefited from higher merchandise gross margin, leverage on operating expenses from the strong gains in same store sales and the impact of the 53rd week.”

  Ross also said they’re not going to report monthly sales anymore.

• Ross Stores Hikes Dividend 21%
  Eddy Elfenbein, February 7th, 2013 at 9:57 am

  Good news this morning from Ross Stores ($ROST). The company reported blowout sales for January. Thanks to the rush of business, the company sees Q4 earnings coming in at $1.06 to $1.07 per share, and that’s $3.52 to $3.53 per share for the entire year. (Note that like a lot of retailers, Ross ends their fiscal year at the end of January.) The earnings report should be out in mid-March.

  Best of all, Ross is raising the quarterly dividend from 14 cents to 17 cents per share. That’s a 21% hike. Ross pays out a very small amount of their profits as dividends to shareholders (about 20%). Based on yesterday’s close, Ross yields 1.15%. That’s obviously not a very high yield but the dividend increase and strong sales news is a good omen for Ross Stores.

• CWS Market Review – January 4, 2013
  Eddy Elfenbein, January 4th, 2013 at 8:17 am

  “You get recessions, you have stock market declines. If you don’t understand
  that’s going to happen, then you’re not ready, you won’t do well in the markets.”
  – Peter Lynch

  Happy New Year! This has been an exciting week: the Fiscal Cliff is done and gone, stocks are near multi-year highs and our Buy List officially beat the market for the sixth year in a row!

  For the last several weeks, I’ve been telling investors not to get caught up in all the ridiculous hype surrounding the Fiscal Cliff. What else can I say but that the financial media behaved irresponsibly in stoking the fears of this manufactured crisis? Congress was even worse. At some point, I believed, a deal would be reached—and that’s exactly what happened.

  The market celebrated the deal on Wednesday with its strongest rally in more than a year. In just two days, the Volatility Index ($VIX), also known as the Fear Index, plunged by one-third, and the S&P 500 made back everything it had lost since mid-October. Before a late-day sell-off on Thursday, the index was flirting with its highest close since 2007. On top of that, our 2013 Buy List has already grabbed a slight lead over the S&P 500.

  It’s times like this I’m glad we’re long-term investors. I can’t imagine what it’s like trading through all these vacuous pronouncements during the Fiscal Cliff debate. The math is still very much on the side of stocks. Six weeks ago, I told you I thought the S&P 500 would break 1,500 sometime early this year. At the time, that seemed like a bold forecast. Now it looks more like a cakewalk. The index is currently less than 3% away from topping 1,500.

  In this week’s CWS Market Review, we’ll take a look at what’s driving the current rally. Plus, Q4 earnings season is only days away and I’m expecting solid results from our Buy List stocks. In fact, one of the newbies on our Buy List is already making waves. Ross Stores ($ROST) soared 8% on Thursday on higher earnings guidance! This came exactly one day after an analyst at Citigroup downgraded Ross. Now let’s take a look at the current market.

  The High-Beta Rally

  The big two-day surge we just had was interesting because it comprised the final trading day of one year and the opening day of the next. This past December 31st was the single-best final-day gain since 1974.

  But this hasn’t been a standard rally. It’s been what traders call a “high-beta” rally. These are rallies that have concentrated on the most volatile stocks (or more technically, it’s correlated volatility). That’s why we’ve seen small-cap stocks and tech stocks do the best. The Russell 2000 ($RUT), which is a widely-followed index of small-cap stocks, just broke out to a new all-time high. The Equal Weighted version of the S&P 500 also hit an all-time high. The regular S&P 500 is weighted by market cap, so the mega-caps, which have been lagging of late, have greater weight.

  Here’s a chart showing a High-Beta ETF ($SPHB) compared with the S&P 500, and you can see that’s been crushing the market lately.

  

  Cyclical stocks also tend to do well during high-beta rallies. In essence, what the market is doing is shifting towards riskier assets. This is good news because investors need to be rewarded for being willing to shoulder more risk. It’s the willingness to put your money down that helps the entire economy move along. The move has been slow, but the market is becoming more risk-friendly. High-yield spreads, for example, are at an 18-month low, and high-dividend stocks were laggards in 2012.

  When the world economy went kablooey a couple of years ago, everyone ran screaming to the most secure assets. Gold and U.S. Treasuries soared as stocks and junk bonds plunged into the abyss. Banks and businesses just sat on their cash. But a major turning point came last summer when Mario Draghi made his now-famous statement: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” My friends, that’s what we call a game-changer.

  Even though this was an announcement from a European central banker, it sent shock waves around the world, and investors here in the U.S. took this as a signal to move towards risk. When I use the word “risk” here I don’t mean to use it with the negative connotations of recklessness or imprudence. Rather, I mean areas that have a longer time horizon to pay off. For example, I have a pretty good idea where Treasury bill yields will be in a week, but I have no idea what AFLAC’s ($AFL) stock will do. Yet over the next, say, two or three years, I have a very high level of confidence that AFLAC will still be pulling down a sizeable profit despite a fluctuating stock market. The latter investment simply needs more time to pay off.

  I should also point out that it isn’t so much that investors are becoming riskier. Instead, it’s that investors are moving from a state of extreme risk-phobia to a more normal state of affairs. The day before Dragi’s statement, the yield on 10-year Treasury bonds hit an historic low of 1.4%. Since then, they’ve soared all the way to a still-puny 1.9%. Put it this way: Microsoft ($MSFT), which is a new member of the Buy List, is one of the largest and best-known blue chips stocks in the world, yet its yield is nearly double that of the 10-year.

  The rotation towards risk got another big boost a few weeks after Draghi’s announcement when the Federal Reserve said it would pursue its QE Infinity policy. I should add that I was completely and totally wrong about this announcement. For weeks beforehand, I had said that the Fed was in no way pursing such a policy. Shows what I know!

  Fortunately, our Buy List was perfectly poised to ride the market’s rotation. One great example is Ford Motor ($F). In the CWS Market Review from August 24th, I highlighted Ford as a good bargain. I wrote: “I don’t see how the stock can go for less than $10, but it is.” Just a few days before I wrote that, I remember that Ford had even dropped below $9. But patience once again paid off for us. Yesterday, shares of Ford got as high as $13.70. The stock is up more than 52% from its summer low.

  The company just announced that December sales rose 1.9%. It was Ford’s best December since 2006. Look for another solid earnings report later this month. Ford remains an excellent buy up to $15 per share.

  Ross Stores Soar 8% on Higher Guidance

  One of the new stocks on this year’s Buy List is Ross Stores ($ROST). This is a very solid retailer. On Thursday, one day after an analyst at Citigroup downgraded the stock, ROST reported outstanding sales and guided higher for Q4. December sales rose 11% to $1.276 billion.

  The key metric for a retailer is comparable-store sales. Wall Street was expecting ROST to report an increase of 2.7%. Instead, it was 6%. The company also raised its earnings guidance for Q4 (which ends in one month). Before, Ross was expecting earnings of 99 cents to $1.04 per share. Now they expect earnings of $1.04 to $1.05 per share. Ross expects comparable-store sales to rise between 1% and 2% for January. This is excellent news. The shares gapped up 7.97% on Thursday to close at $58.78. Thanks to the rally, I’m raising my Buy Below on Ross to $62 per share. Expect to see their 19th-straight annual dividend increase in a few weeks.

  Before I go, I want to point out some good bargains on the Buy List. Bed Bath & Beyond ($BBBY) has dropped down recently. My Buy Below price is currently $60, but if you can get BBBY below $57, that’s a really good deal for the long-term. CA Technologies ($CA) is pretty cheap. At its price, CA yields 4.42%. Also, Microsoft ($MSFT) continues to be the stock everyone loves to hate, but it looks very attractive below $28 per share. Actually, one of the reasons why I like it is that everyone else hates it so much. MSFT currently yields 3.38%.

  That’s all for now. Earnings season starts next week. Our first Buy List stock to report will be Wells Fargo ($WFC) on Friday, January 11th. Wall Street currently expects 90 cents per share, which sounds about right. Wells is a good buy up to $37. 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. It’s official. I’m very happy to report that our Buy List beat the S&P 500 for the sixth year in a row in 2012. The 20 stocks on the Crossing Wall Street Buy List gained 14.56%, while the S&P gained 13.41%. Including dividends, our Buy List gained 17.85%, compared with 16.00% for the S&P.

• Ross Stores Soars 7%
  Eddy Elfenbein, January 3rd, 2013 at 11:01 am

  The stock market opened 2013 with a strong day yesterday. In two days, the S&P 500 gained back everything it lost since mid-October. Today so far, the market is down just a bit.

  Retail stocks are having a very good day as many are reporting strong holiday sales figures. In fact, we already have a star stock this year as Ross Stores ($ROST) has gained 7% today. The company raised its fourth-quarter profit estimate to a range of $1.05 to $1.06 per share from the earlier range of 99 cents to $1.04 per share. Comparable same-store sales rose 6% which was far more than the 2.7% analysts were expecting.

  Right after breaking $13, Ford Motor ($F) has motored above $13.50. The company said today that its U.S. sales rose 1.9% in December.

  The Labor Department reported that unemployment claims rose to 372,000. That’s an increase of 10,000 from last week’s revised number of 362,000. Technically, this report was worse than expected (Wall Street’s consensus was for 360,000), but everyone is focused on the big jobs report for tomorrow. The ADP report, which is done by a private payroll firm, showed an increase of 215,000 jobs. According to ADP, private employers added 1.7 million jobs in the last year.

  Wall Street’s consensus for tomorrow’s jobs report is a gain of 157,000.

• 2013 Is Off to a Strong Start
  Eddy Elfenbein, January 2nd, 2013 at 10:52 am

  For the last few weeks I’ve cautioned investors to ignore the hype about the Fiscal Cliff. Eventually, I believed, some deal would be reached, and late last night, that’s exactly what happened. Here are the details.

  It wasn’t pretty and not everybody got what they wanted, but compromise is the cornerstone of democracy. Plus, there will be more battles ahead on the debt ceiling.

  The good news is that the markets are responding very well this morning. The S&P 500 has been as high as 1,457.53 this morning. That’s a 2.2% jump and it brings the index just eight points shy of its highest close since 2007. On our Buy List, Oracle ($ORCL) is up to an 18-month high this morning.

  

  Today’s rally is what’s called a high-beta rally which means that the leaders are small-cap stocks plus industries like tech (like Oracle), finance and cyclicals. High-beta rallies usually (but not always) tend to pull along lower-quality stocks with them. There are lots of sketchy names among small-cap tech stocks. Since our Buy List is concentrated among high-quality stocks, we tend to lag the broader markets on days like this. The Russell 2000, which is a popular index of the small-cap sector, is up to an all-time high this morning.

  Still, our Buy List is beginning 2013 on a strong note. Every stock but Ross Stores ($ROST) is higher today. I was pleased to see that CR Bard ($BCR) was upgraded by JPMorgan today. (The Buy List is so new I haven’t had time to enter in comments for the new additions. I’d better get on that.)

  On the economic front, the ISM Index for December rose to 50.7. If you recall, the number for November was 49.5 which was a dud. Any reading above 50 means the manufacturing sector is expanding. Below 50 means it’s shrinking. The worry zone doesn’t really kick in until the ISM drops to 45 or so. The next big report will be Friday’s jobs report.

• Some Retail Stocks Are Heating Up
  Eddy Elfenbein, June 11th, 2012 at 2:50 pm

  Even though the stock market hasn’t been doing well lately, a number of retail stocks have bucked the trend. Target ($TGT), for example, just hit a new 52-week high today, and it’s not far from an all-time high. I expect Tar-Zhay to announce its 45th-straight dividend increase any day now. Last month, the company said it’s aiming to have its dividend at $3 per share by 2017. That’s pretty optimistic, but I like to see folks who have big plans.

  Walmart ($WMT) has also been doing well. On Friday, the Behemoth of Bentonville broke $68 per share for the first time since January 2000.

  Ross Stores ($ROST) hit a new all-time high today. The stock has practically been in a nonstop bull market for 18 years. In January 1994, shares of ROST were going for 74 cents. Now they’re at $64. That’s an annualized gain of over 27% a year, and it doesn’t include the dividend.

  On our Buy List, Bed Bath & Beyond ($BBBY) has pulled back from its all-time high of $74.67 (reached on May 29th). The company had an outstanding earnings report in early April. They beat Wall Street’s consensus by 15 cents per share. What’s interesting, though, is that the stock market took a while to react. After a small bump up after the earnings report, it was almost all gone three weeks later. Then the stock started to rally.

  BBBY will report earnings again on June 20th. The company sees fiscal Q1 earnings ranging between 79 cents and 83 cents per share.