S&P 500 Earnings for 2010 = $83.78
Posted by Eddy Elfenbein on February 24th, 2011 at 6:38 pm

The numbers are almost complete. According to the latest figures, the S&P 500 earned $83.78 for 2010.

I bring this up because that number would have been considered insanely bullish a few months ago. In June 2009, I noted that Wall Street was expecting earnings of $73.56. One commenter at Seeking Alpha wrote “There is No Way the S&P will earn $70+ in 2010.”

In May 2009, David Rosenberg had an S&P 500 target of 600 to 840 based on earnings of $50 to $70. In January of 2010, the bears were ready to mock the bullish forecasts of Wall Street which turned out to be too low.

I point this out because the perma-bears are so rarely held accountable.

Three Down Days in a Row
Posted by Eddy Elfenbein on February 24th, 2011 at 4:40 pm

Sorry for the lack of posting today; I had a few technical issues to address.

Unfortunately, Wall Street made it three losses in a row today. The S&P 500 dropped 0.10% to 1,306.10. This comes on the heels of yesterday’s 0.61% drop and Tuesday’s 2.05% rout.

The good news is that our Buy List swam against the tide and rallied for a 0.32% gain. Abbott Labs (ABT) had a good day thanks to the reversal of a $1.8 billion patent infringement lawsuit. Another one of our Buy List stocks, Johnson & Johnson (JNJ), was one of the plaintiffs but their stock didn’t suffer much. Gilead Sciences (GILD) and Leucadia (LUK) also had good days.

I’m still a little surprised that Medtonic (MDT) is hanging below $40 per share. Despite the troubles from last year, the company is still churning out the profits, and we need to remember that they beat expectations. If you have free cash you’re looking to deploy, MDT is a solid value.

I should also note that, once again, cyclical stocks lagged the market today. The CYC dropped 0.50% which is 40 basis points more than the S&P 500.

Morning News: February 24, 2011
Posted by Eddy Elfenbein on February 24th, 2011 at 7:42 am

Oil Keeps Rally Going, Weighing on Global Markets

Why the Disruption of Libyan Oil Has Led to a Price Spike

Solid Q4 Growth Puts Germany on Firm Footing for 2011

Geithner Says U.S. Financial System Now Stronger Than Before Recession Hit

Foreclosures Make Up 26% of Home Sales

Durable Goods Orders in U.S. Probably Rose in January

Wheat Resumes Plunge as African Unrest Drives Away Speculators

Gold Hits 7-Week Top on Libya Unrest, Market Jitters

JPMorgan Raises $1.2 Billion To Invest In Twitter And Facebook

Brazil Cellular Leader Vivo 4Q Net Soars On Better Operational Performance

Dish 4Q Net Up 41% Though Co Loses Subscribers; EchoStar Swings To Profit

Sears 4Q Profit Falls 13% On Weakness At Namesake Brand >SHLD

Leigh Drogen: Dictators Don’t Have Perfect Information

James Altucher: 10 Unusual Things I Didn’t Know About Steve Jobs

Strategist: S&P to Hit 1,550 This Year
Posted by Eddy Elfenbein on February 23rd, 2011 at 9:49 pm

Double Top in Cyclicals?
Posted by Eddy Elfenbein on February 23rd, 2011 at 11:15 am

The stock market is getting knocked again today, but the pain isn’t evenly spread out. Who’s up for another look at the relative strength of cyclicals? Great–me, too!

As long-term readers know, one of my favorite metrics to follow is the Morgan Stanley Cylical Index (^CYC) divided by the S&P 500 (^SPX). This is far from a comprehensive analysis but it is a quick-and-dirty look at the “mind of the market.”

Since late August, the market’s rally has been disproportionally powered by cyclical stocks. In fact, the ratio of the CYC to the S&P 500 reached an all-time high on February 11th (my data goes back to 1978).

The ratio hit a previous peak on January 10th, and soon after, cyclicals dropped off sharply. I quickly jumped on this and thought it was the end of the cycle. Wrong! The ratio soon rallied and peaked on February 11th, just a hair above the level for January 10th (0.8442 to 0.8441).

The CYC is down again today (although many energy names are up). If today’s numbers hold up, the ratio will close below the low made on January 21st.

The reason these cycles are so important is that once they get going, they often last for a few years. Put it this way: if the Dow had kept pace with the CYC since the low from two years ago, today the Dow would be over 24,000 today.

$60 For Every Man, Woman and Child
Posted by Eddy Elfenbein on February 23rd, 2011 at 7:50 am

Walmart (WMT) released its earnings report yesterday. I’m always astounded by the size of this company. For 2010, Walmart had sales of $418.52 billion. That works out to an average of $1.14 billion in sales every day of the year—or nearly $50 million every hour of the day. Another way to think about it is that it’s equal to roughly $60 in sales for every man, woman and child on planet earth.

Despite what many critics may think, Walmart’s profit margins are very small. For 2010, Walmart’s gross margins worked out to 25.3%.

Gross margin refers to the profit compared to the variable cost of each item. If we go down another level to operating profit, which includes fixed costs, Walmart’s profit is just over 6%. Then when we get to post-tax net income, Walmart’s profit margin is just 4%.

As impressive as Walmart’s numbers are, ExxonMobil (XOM) will probably top them this year. The current consensus is that XOM will have revenue of $460 billion this year.

Morning News: February 23, 2011
Posted by Eddy Elfenbein on February 23rd, 2011 at 7:47 am

Pound Rises After BOE Minutes Reveal 6-To-3 Split Vote

Oil Rises on Libya Turmoil; Euro, Pound Rally, Stocks Decline

South Korea Sanctions Deutsche Unit for Market Manipulation

ECB Rejects EU Call to Become Ratings Provider

HK Government To Sell HK$5 Billion-HK$10 Billion Inflation-Linked Bonds

Nasdaq Mulls NYSE Bid in Exchange Deal Dash

Bank Closings Tilt Toward Poor Areas

HP Shares Plunge as Sales, Outlook Lag Street

Toll Brothers Reports First-Quarter Profit as Luxury-Home Demand Revives

Holly to Pay $2.9 Billion for Frontier Oil in All-Stock Deal

Lowe’s Profit Rises 39%

Best Buy Shuts China Stores to Focus on More Profitable Brand

Danish Maersk Returned to Profit in 2010 as Container Market Grew

James Altucher on Pundit Review Radio

Paul Kedrosky: How Institutional Investors Destabilize Commodity Markets

Ouch! Dow Drops 178 Points
Posted by Eddy Elfenbein on February 22nd, 2011 at 5:03 pm

Serves me right for boasting. Right after I tell you how well the Buy List has been doing for the year, we get smacked down today.

This was an ugly day of trading. All told, the S&P 500 dropped 2.05% making it the market’s worst day since August 11, 2010. Plus, oil gained more than 6% on tensions in the Middle East. Some are now talking about oil hitting $200 per barrel.

The S&P 500 is still holding above its 50-DMA. This was the 119th day in a row that the index has been above its 50-DMA. That’s the 10th-longest run since 1932. Tomorrow we’ll have a chance to tie the ninth-best streak which happened 40 years ago.

The Buy List dropped 2.25% today. Leucadia National (LUK) was especially hard-hit as it lost 5.93%. LUK owns a stake in Fortescue Metals Group and that company lost a court ruling last week. JPMorgan Chase (JPM) and Wright Express (WXS) were also hit hard.

The S&P 500 Is Still Below 16 Times Earnings
Posted by Eddy Elfenbein on February 22nd, 2011 at 2:18 pm

Here’s a look at the S&P 500 and its earnings. The index is the black line and it follows the left scale. The trailing four-quarter operating earnings is the gold line and it follows the right scale. The two lines are scaled at a ratio of 16-to-1 so whenever the lines cross, the P/E Ratio is exactly 16.

The black line has almost caught up to the gold line. The market hasn’t had its P/E Ratio at 16 since last May. The Double Dip hysteria of last summer brought the S&P 500 down below 1,030 and the P/E Ratio got as low as 13.62 which was a 20-year low.

There’s nothing magical about 16. It seems to be the number that the market most likes to track. The future part of the earnings line is Wall Street’s projection.

For 2011, Wall Street sees the S&P 500 earning 96.14. At a 16 P/E Ratio that means the market would be at 1,538.24 by year’s end. That’s a 14.5% rise from Friday’s close.

Gilead Sciences to Acquire Calistoga for $375M
Posted by Eddy Elfenbein on February 22nd, 2011 at 11:47 am

Gilead Sciences (GILD) makes a move:

Gilead Sciences Inc., a drug research company, said Tuesday it has agreed to acquire privately held biotechnology company Calistoga Pharmaceuticals Inc. for $375 million, expanding its research capabilities into cancer-fighting drugs.

Seattle-based Calistoga could earn up to an additional $225 million if certain milestones are achieved.

Gilead, which has specialized in HIV drugs and developed the flu fighting drug Tamiflu, anticipates closing the deal in the second quarter, subject to satisfaction of certain conditions. The company plans to finance the acquisition through available cash on hand.

Calistoga focuses on the development of medicines to treat cancer and inflammatory diseases. It is researching a drug, CAL-101, that may help fight non-Hodgkin’s lymphoma and help treat in elderly patients a specific type of leukemia.

“Oncology remains an area of significant unmet medical need and our increased understanding of the genetic basis of cancer allows for the development of disease specific targeted therapies,” said Gilead’s Chief Scientific Officer Norbert W. Bischofberger. “We are very encouraged by emerging clinical data for CAL-101, and this compound could represent an advance for the treatment of certain hematological cancers.”