Morning News: November 26, 2010
Posted by Eddy Elfenbein on November 26th, 2010 at 7:43 am

Wall Street Futures Point to Weak Start after Holiday

Black Friday Brings Out the Competitors

Irish Republic to Get 85 Billion-euro EU and IMF Bailout

Europe Shares Fall on Portugal Worry

Turkish Stocks Most Expensive Since 2003 Imperil `Crowded Trade’

Greek Stocks: Hygeia, Marfin Popular, Piraeus Bank, Proton Move

Public Anger Has British Bankers Fretting About Bonuses

KKR to Purchase Meow Mix Maker Del Monte Foods for $4 Billion

Qatar Airways Slams Boeing, May Buy More Airbus

Fiat, Chrysler Venture to Make Cars, SUVs at Turin Mirafiori Plant

Rocks, Paper, Scissor

CWS Market Review – November 26, 2010
Posted by Eddy Elfenbein on November 26th, 2010 at 7:07 am

I hope everyone had a happy Thanksgiving. Although the trading week was shortened due to the holiday (the markets were closed yesterday and they close at 1pm today), there was a lot of news to cover, so let’s get to it!

On Tuesday, the government upwardly revised its estimate for third-quarter GDP growth from 2% to 2.5%. This is good news. I should warn you that the government loves to revise its GDP reports. The revisions are themselves later revised, and then the revisions to the revisions are again revised. Sometimes I wonder if increased economic activity is solely due to economists’ continual revisions.

Still, the 2.5% number is good news. The economy still isn’t growing at an acceptable level to create new jobs, but I think we can now say that the recession is behind us and that the crazy Double Dip fears from this summer were way overblown. The next hurdle is for the economy to create new jobs in a serious way. Next Friday, December 2, we’ll get the jobs report for November. I really don’t know what to expect, but a strong report will be evidence that the economic recovery is finally reaching Main Street.

The problem is that the recovery has been heavily tilted towards Wall Street, meaning growth in profits and not jobs. That’s how things usually play out when the economy gets back on its feet. Profit increases are good, and the stock market has certainly responded over the last 20 months, but such increases have heavily relied on an increase in profit margins. In other words, companies have increased their sales by a little bit, but they’ve substantially cut their overhead by laying folks off. Now the top line needs to grow, and that means more jobs. Let’s see what next Friday has in store.

We had two earnings reports from the Buy List this week—Medtronic ($MDT) and Eaton Vance ($EV). Medtronic earned 82 cents per share which was a penny better than the Street’s estimate. (In last week’s e-letter, I said it was 81 cents. The consensus apparently came down one penny.) This was a decent report given that I haven’t been terribly pleased with some of Medtronic’s recent earnings reports.

In last week’s e-letter I had said it was very possible that Medtronic would lower its full-year forecast. I was right; it did. Medtronic lowered its full-year EPS to a range of $3.38 to $3.44. The original range was $3.45 to $3.55, and in August it was lowered to $3.40 to $3.48. I’ve looked at the numbers and the new range is a much more reasonable forecast.

This is a frustrating stock, but the good news for us is that Wall Street loathes Medtronic. The stock is very cheap by most measures. My view is that MDT is a good value under $34 per share (which is 10 times 2011’s forecast). On top of that, the shares currently offer a nice 22.5-cent quarterly dividend (2.6% annualized). Don’t chase this stock. If you’re looking to buy it, let it come to you. “Patience young Skywalker, patience.”

The other earnings report this week was from Eaton Vance, the mutual fund outfit. The company earned 41 cents per share which was two cents above Wall Street’s expectations. This was a good quarter for EV. Net inflows rose to $3.4 billion from $500 million. Revenue jumped 19% to $303.6 million from $254.1 million. Wall Street was looking for revenue of $287.4 million.

Don’t expect a lot of fireworks from Eaton Vance. Instead, think of it as a good, stable stock that won’t let you down. Owning EV can be frustrating at times. The stock has been locked in a trading range for the last six months. It’s barely strayed from $30. The stock could break out at any time but I urge you to keep focused on the long-term. Last month, Eaton Vance raised its dividend for the 30th year in a row. The new dividend is 18 cents per share which is a 12.5% increase from the old dividend of 16 cents per share.

The next Buy List earnings report will be from Jos. A Bank Clothiers ($JOSB). The company hasn’t said when it will report earnings but the fiscal third-quarter report usually comes in early December.

Like a lot of retail stocks, Joey Banks ends its fiscal year at the end of January to facilitate factoring holiday sales into the fourth quarter. Even Walmart ($WMT) does this. The holiday season is very, very important to JOSB. That quarter alone usually accounts for close to half of JOSB’s profits for the entire year. (Also, I think they have good stuff, so check them out.)

Wall Street currently expects Q3 earnings of 50 cents per share. I really like JOSB and I’m expecting a big beat from them. They made 42 cents per share for last year’s Q3 and I think they could easily make as much as 57 cents per share. I know that sounds very optimistic, but that’s how strong I think this stock is.

JOSB is very much the opposite of a stock like Eaton Vance. They don’t pay a dividend and the shares can be very erratic. The stock plunged 20% from its April high earlier this year, and it fell 30% from its April high in 2009. During both years, business was doing very well, yet the stock got slammed anyway (fortunately for only a few weeks). If you can stand the volatility, I think Jos. A Bank Clothiers is an excellent buy up to $50.

Some other bargains on the Buy List are AFLAC ($AFL) below $55 per share, Wright Express ($WXS)below $44, Nicholas Financial ($NICK) below $10 and Reynolds American ($RAI) below $34. (BTW: The recent drop is RAI is very attractive. It may not last long.)

On Wednesday of next week, we’ll get the ISM Index report for November. I think is a report well worthy of our attention. A number over 50 means that the economy is expanding and the ISM has been over 50 for the past 15 straight months. I’m almost certain next week will make it 16.

That’s all for now. I’ll have more market analysis for you in the next issue of CWS Market Review!

Best – Eddy

Happy Thanksgiving
Posted by Eddy Elfenbein on November 25th, 2010 at 12:09 pm

From the White House:

THE WHITE HOUSE
Office of the Press Secretary
November 23, 2010

THANKSGIVING DAY, 2010

– – – – – – –

BY THE PRESIDENT OF THE UNITED STATES OF AMERICA

A PROCLAMATION

A beloved American tradition, Thanksgiving Day offers us the opportunity to focus our thoughts on the grace that has been extended to our people and our country. This spirit brought together the newly arrived Pilgrims and the Wampanoag tribe — who had been living and thriving around Plymouth, Massachusetts for thousands of years — in an autumn harvest feast centuries ago. This Thanksgiving Day, we reflect on the compassion and contributions of Native Americans, whose skill in agriculture helped the early colonists survive, and whose rich culture continues to add to our Nation’s heritage. We also pause our normal pursuits on this day and join in a spirit of fellowship and gratitude for the year’s bounties and blessings.

Thanksgiving Day is a time each year, dating back to our founding, when we lay aside the troubles and disagreements of the day and bow our heads in humble recognition of the providence bestowed upon our Nation. Amidst the uncertainty of a fledgling experiment in democracy, President George Washington declared the first Thanksgiving in America, recounting the blessings of tranquility, union, and plenty that shined upon our young country. In the dark days of the Civil War when the fate of our Union was in doubt, President Abraham Lincoln proclaimed a Thanksgiving Day, calling for “the Almighty hand” to heal and restore our Nation.

In confronting the challenges of our day, we must draw strength from the resolve of previous generations who faced their own struggles and take comfort in knowing a brighter day has always dawned on our great land. As we stand at the close of one year and look to the promise of the next, we lift up our hearts in gratitude to God for our many blessings, for one another, and for our Nation. This Thanksgiving Day, we remember that the freedoms and security we enjoy as Americans are protected by the brave men and women of the United States Armed Forces. These patriots are willing to lay down their lives in our defense, and they and their families deserve our profound gratitude for their service and sacrifice.

This harvest season, we are also reminded of those experiencing the pangs of hunger or the hardship of economic insecurity. Let us return the kindness and generosity we have seen throughout the year by helping our fellow citizens weather the storms of our day.

As Americans gather for the time-honored Thanksgiving Day meal, let us rejoice in the abundance that graces our tables, in the simple gifts that mark our days, in the loved ones who enrich our lives, and in the gifts of a gracious God. Let us recall that our forebears met their challenges with hope and an unfailing spirit, and let us resolve to do the same.

NOW, THEREFORE, I, BARACK OBAMA, President of the United States of America, by virtue of the authority vested in me by the Constitution and the laws of the United States, do hereby proclaim Thursday, November 25, 2010, as a National Day of Thanksgiving. I encourage all the people of the United States to come together — whether in our homes, places of worship, community centers, or any place of fellowship for friends and neighbors — to give thanks for all we have received in the past year, to express appreciation to those whose lives enrich our own, and to share our bounty with others.

IN WITNESS WHEREOF, I have hereunto set my hand this twenty-third day of November, in the year of our Lord two thousand ten, and of the Independence of the United States of America the two hundred and thirty-fifth.

BARACK OBAMA

Morning News: November 25, 2010
Posted by Eddy Elfenbein on November 25th, 2010 at 7:53 am

Stocks Inch Up as U.S. Holiday Thins Trade

Jobless Claims Lowest Since July 2008

Americans Boost Spending as Incomes Grow

No Risk of Euro Zone Breakup in Irish Crisis: EU

ECB May Delay Exit Again as EU Bailout of Ireland Fails to Stem Contagion

Shanghai Gains 1%; Low Coal Reserves at Power Plants

Oil Turns Positive in Volatile Trading Session

Airline Industry Rebound Hinges on Growth, Security and Seats, IATA Says

Insider Trading Inquiry Accelerates

Caterpillar to Issue Yuan Bond

Blackstone’s Dynegy Bid Scrapped, Other Offers Sought

Amazon Makes New All-Time High
Posted by Eddy Elfenbein on November 24th, 2010 at 12:51 pm

Amazon (AMZN) was certainly one of the stars of the tech bubble. The stock went from $1.50 in its May 1997 IPO to an intra-day high of $113 in late 1999. From there, the stock fell to a low of $5.51 shortly after 9/11.

So that’s the end of the story. We all learned that these tech stocks were silly and that no one should have bought them.

Well…not exactly. Check out a complete chart:

The stock broke out to a new all-time high today of $177.39. Even if you bought at the exact top 11 years ago, you’d still be up 57% today.

Of course, that would be after having watched yourself lose 95% of your money.

Tiffany Beats, Guides Higher
Posted by Eddy Elfenbein on November 24th, 2010 at 8:46 am

Good news from Tiffany (TIF):

Tiffany & Co., the world’s second- largest luxury jewelry retailer, reported a 27 percent gain in third-quarter profit that topped analysts’ estimates as sales rose globally.

Net income advanced to $55.1 million, or 43 cents a share, from $43.3 million, or 35 cents, New York-based Tiffany said today in a statement. Excluding costs related to the relocation of headquarter employees, profit was 46 cents. Analysts projected 36 cents, the average of estimates in a Bloomberg survey.

Revenue gained 14 percent to $681.7 million, exceeding the $652.5 million average of estimates. Stock market gains have helped improve confidence among luxury consumers, who will be the “stellar spender” this holiday season, according to Michael P. Niemira, chief economist at the International Council of Shopping Centers.

Tiffany raised its full-year earnings forecast to as much as $2.77 a share, excluding some items. In August, the retailer predicted as much as $2.65 a share, an increase from a May forecast. Analysts estimated $2.65, on average.

Tiffany dropped 95 cents to $58.27 yesterday in New York Stock Exchange composite trading. The shares have gained 36 percent this year.

Sales at all luxury stores open more than a year will increase as much as 8 percent in November and December from a year ago, according to the ICSC.

That’s a very impressive earnings report. Tiffany beat by 10 cents per share, or nearly 28%. Sales beat estimates by over 4% and the company raised guidance to “as much as” $2.77 per share.

Tiffany really isn’t going out on a limb here since there’s only one more quarter left in their fiscal year (ending January). But Tiffany’s news catches my attention for a few reasons. One is that their business is heavily skewed to the holiday season.

Typically about half of Tiffany’s annual earnings come during the fourth quarter. If the third quarter was strong, that probably means the fourth will be as well. Of course that’s not a guarantee, but it does bode well.

The other reason to pay attention to Tiffany is that it’s a good way of seeing retail strength at the high-end. Tiffany tends to be very cyclical. When times are tough, folks generally cut back on the bling. Today’s report is evidence that wealthy consumers are not only doing well but that they’re willing to spend.

Morning News: November 24, 2010
Posted by Eddy Elfenbein on November 24th, 2010 at 7:47 am

China, Russia to Drop Dollar in Bilateral Trade

Ireland Rating Cut Two Steps by S&P as `Barbarians’ Gather

Consumer, Business Spending in U.S. Probably Rose in October

Fed Lowers Economic Expectations for 2011

U.S. Hedge Funds and Mutual Funds Get Subpoenas

Wallets Out, Wall St. Dares to Indulge

10 Fascinating Facts About U.S. Currency

Bloomberg Announcement: Keep Calm and Carry On

Why Was 3rd Quarter GDP Revised Up to 2.5%?

Zombie Bears: Time to Admit the Recession is Over

Oracle Ruling Tarnishes SAP’s U.S. Reputation

A Trading Style Not Easily Executed

San Francisco Board Overrides Veto of Happy Meal Ban

Eaton Vance Beats By Two Cents
Posted by Eddy Elfenbein on November 23rd, 2010 at 3:02 pm

Medtronic (MDT) wasn’t our only Buy List stock to report earnings. Eaton Vance (EV) reported fiscal Q4 earnings of 41 cents per share, two cents better than expectations.

This was a good quarter for EV. Net inflows rose to $3.4 billion from $500 million. Revenue jumped 19% to $303.6 million from $254.1 million. Wall Street was looking for revenue of $287.4 million.

The details here look solid:

Investment advisory and administration fees — money the Boston-based company collects for managing mutual funds and separate accounts — increased 18 percent, reflecting an increase in assets under management. Eaton Vance’s managed assets total was $185.2 billion as of Oct. 31, up 20 percent from the year-ago figure of $154.9 billion.

The higher asset total was the result of investment gains, and of investors putting more money in than they took out. Eaton Vance reported a net inflow of $3.2 billion into funds and separate accounts in the latest quarter. However, the inflow total fell from $5.5 billion in last year’s fourth quarter, and from $4.8 billion in this year’s third quarter.

Operating expenses rose 11 percent to $197.5 million from $177.3 million in the year-ago quarter. The increase was driven in part by higher employee compensation expenses, and growth in asset- and sales-based distribution expenses.

Unfortunately, this stock has been stuck in a trading range for the past six months. Shares of EV have barely strayed from $30.

Last month, Eaton Vance raised its dividend for the 30th year in a row. The new dividend is 18 cents per share which is a 12.5% increase from the old dividend of 16 cents per share.

Medtronic Beats Earnings, Lowers Guidance
Posted by Eddy Elfenbein on November 23rd, 2010 at 1:30 pm

Medtronic (MDT) reported fiscal Q2 earnings (quarter ending in October) this morning of 82 cents per share. Wall Street’s consensus was for 81 cents per share. I had seen earlier reports that the consensus was for 82 cents; perhaps it came down some. If so, we have an earnings beat.

I had said in last week’s CWS Market Review (what, you still haven’t signed up? It’s FREE) that I thought Medtronic could lower their full-year guidance. Well, that’s exactly what they did. To recap, in August they lowered their 2011 EPS guidance to a range of $3.40 to $3.48 from $3.45 to $3.55. Today, they brought it down to $3.38 to $3.44.

Let’s see how that stacks up: For the first half of their fiscal year, MDT has earned $1.61 per share. That means they need to earn between $1.77 and $1.83 per share for the second half to hit their guidance. Last year they made $1.67 per share in the back half, so given the recent growth rate, the new forecast is very reasonable.

Sales of defibrillators and pacemakers fell 2 percent to $1.25 billion for the quarter, while sales of stents, heart valves and other heart implants grew 6 percent to $738 million, helped by sales in China, Latin America and other emerging markets.

Sales of restorative therapies, which include spinal, diabetes and other products, rose 2 percent to $1.81 billion. Within that group, spinal sales fell 1 percent to $850 million, but that was well ahead of analyst estimates for $825 million.

Medtronic spent nearly $4 billion to acquire spinal implant maker Kyphon in 2007 and sales have continued to lag behind Wall Street expectations.

“Our pipeline, which we’ve been talking about for some time, is starting to show results and is going to allow us to drive market growth and ultimately put us in position to gain share,” said Chief Executive Bill Hawkins.

Spinal procedures tend to be expensive and highly invasive and the rate of procedures has not kept pace with company estimates.

Despite improved performance, the company still scaled back its scaled back its overall growth expectations for the device market to 2-3 percent from 2-4 percent for the second half of the year.

I haven’t been thrilled with Medtonic’s earnings recently, and this quarter is no exception. Put it this way: the CFO said, “The fact that it’s not getting any worse out there gives us the excitement that we are in the right markets and they will eventually return to their historical growth.”

Still, the numbers are very favorable. Medtronic should make $3.40 per share this fiscal year. The stock is currently going for slightly more than 10 times that. On top of that, the shares currently offer a nice 22.5-cent quarterly dividend (2.6% annualized). Medtronic is an excellent buy below $34 per share.

Monday Is the Best Day of 2010
Posted by Eddy Elfenbein on November 23rd, 2010 at 12:26 pm

Even with yesterday’s slight loss, Monday is shaping up to be the big winner for 2010.

For the year so far, the S&P 500 is up a collective +13.27% on Mondays. The other four days of the week combined are down -5.17%.

Tuedays combined are -3.29% (today not included). Wednesdays are the only other positive day, +7.35%. Thursdays are -2.08%. Fridays are the biggest loser, -6.72%.