• Retail Sales Lift the Market
    Posted by on November 15th, 2010 at 9:48 am

    The stock market is moving higher this morning. The government reported that retail sales rose by 1.2% in October. That’s the fourth straight month that sales have risen and it’s the best number since March. Economists were only expecting a rise of 0.7%. This is encouraging news because it tells us that the core of the economy, consumer spending, still has some strength in it,

    Here are ten more signs that prove that the consumer isn’t dead.

    The General Motors IPO has been set for Thursday. I’m curious how this will go but I’m not going anywhere near it. The pricing range is $26 to $29 per share. The company will offer 365 million which is 24% of the company. There’s also an option to issue another 54.8 million shares. After the IPO, the government’s stake in GM will fall from 61% to 35%.

    HuffPo lists five reasons not to buy GM.

  • Morning News: November 15, 2010
    Posted by on November 15th, 2010 at 7:36 am

    Ireland Pushed by ECB’s Ordonez for Decision on Aid Before Ministers Meet

    Greece Beats Ireland for Worst Deficit in Europe

    Tokyo Shares End Higher As Strong GDP, Weak Yen Help Market

    Israel’s Fischer Says Criticism of Bernanke QE2 `Misplaced’

    Crude Oil Rises for First Time in Three Days After Japan’s Economy Expands

    BHP Kills Potash Corp Bid, Revives $4.2 Billion Buyback

    Mitsubishi UFJ Financial Group to Buy RBS Project Finance Loans, 1H Earnings Jump 153%

    UBS Recovery Fizzles as Gruebel Sees Less Profit on Lower Risk

    G.M. Retirees Weigh Buying Its Stock Again

    The Year’s Top 10 Highest Paid CEOs

    Printing Money…I Mean Quantitative Easing

  • Stock Exchange Report
    Posted by on November 12th, 2010 at 4:25 pm

    That’s enough for this week. If you want any more stock market news, check out Monty Python.

  • Disney: On Second Thought
    Posted by on November 12th, 2010 at 1:10 pm

    Maybe those earnings were really good:

    Walt Disney Co., the world’s biggest media company, rose the most in six months after analysts said fourth-quarter profit topped estimates.

    Excluding restructuring and impairment costs of $216 million, profit amounted to 50 cents a share, according to Michael Nathanson, an analyst at Nomura Securities International Inc. in New York. That beat the 47-cent average of 25 analysts’ estimates compiled by Bloomberg.

    Disney gained $1.99, or 5.6 percent, to $37.92 at 11:05 a.m. in New York Stock Exchange composite trading, the biggest intraday advance since May. Disney Chief Financial Officer Jay Rasulo fully disclosed restructuring, programming and film studio writedowns during the company’s conference call after U.S. markets closed yesterday.

    “Upon scanning the press release, the results seemed weak,” Nathanson wrote in a note today. “However, it turns out that you can’t judge a quarter by a press release.”

    Yesterday the stock fell $1.06, or 2.9 percent, to $35.93 after the report was released early, before U.S. markets closed. The company said it is investigating how the information became available.

  • Intel and Sysco Raise Dividends
    Posted by on November 12th, 2010 at 9:46 am

    Intel (INTC) just announced that they’re raising their dividend by 15%. The quarterly dividend is going from 15.75 cents per share to 18 cents per share.

    This means the full-year payout of 72 cents per share is about 3.4% of yesterday’s close. That’s 70 basis points higher than a 10-year Treasury. If you bought Intel 20 years ago today, you’d now be yielding 62% per year.

    Intel’s CEO Paul Otellini said the company “remains on track to have our best year ever.” I had said the stock was a good buy under $20 but now that it’s closing in on $22, Intel isn’t quite the same bargain.

    Sysco (SYY) also jumped into the dividend-raising act by bumping up its quarterly dividend by a penny per share to 26 cents per share. The stock now yields 3.6%.

  • Morning News: November 12, 2010
    Posted by on November 12th, 2010 at 8:00 am

    South Korea Upbeat on Resolving U.S. Trade Deal Soon

    G-20 Endorses New Reserve Rules for Banks

    Ireland Worries Dent Equities; Euro Off Lows

    Consumer Sentiment in U.S. Likely Rose in November on Jobs

    Emerging-Market Stocks Fall for Third Day; China Drops on Rate Speculation

    Crude Oil Falls as Europe Debt Fears Drive up Dollar

    Japanese Banks Mizuho and Sumitomo Mitsui See Profits Soar

    Cisco Options Trading Jumps to a Record on Bets the Shares Will Rebound

    Airbus, Rolls-Royce Riled by A380 Engine Blowout

    Night Owls vs. Morning People: Who’s Smarter?

    Can it Be? A Risk-Off Day? For Serious?

  • CWS Market Review – November 12, 2010
    Posted by on November 12th, 2010 at 7:53 am

    As I expected, this has been a fairly slow week for market news. We’re now wrapping up the third-quarter earnings season, and overall, earnings have been very good. Unfortunately, the media hasn’t talked about this much.

    Normally, the average stock beats its earnings estimate by 3%. Analysts like to low-ball since missing by a penny too little looks much better than missing by a penny too much. This season, the median earnings beat was by close to 5%. More than three of out every four stocks in the S&P 500 have beaten expectations. This is excellent news, and it will hopefully put an end to all the nonsense we heard about a Double Dip over the summer.

    According to the latest numbers, Q3 earnings for the S&P 500 are up 36.1% from one year ago. The current projection is that earnings will be up another 26.8% for Q4. The S&P 500 is on track to earn $83.51 for all of 2010. The current forecast is for $94.34 for next year. Going by Thursday’s close, that’s a forward P/E of just 12.86. In other words, stocks are still a good deal.

    The difficulty will be earnings for next year. Expanding margins have been the main driver of earnings increases, but that’s going to be much harder to do next year.

    I’m happy to say that 14 out of the 15 stocks on our Buy List that report on the March/June/September/December cycle beat expectations. Only Moog ($MOG-A) missed and that was by a penny per share. Some stocks, like Wright Express ($WXS) and Nicholas Financial ($NICK), had exceptionally strong reports.

    Now we’re moving on to earnings reports from companies whose quarter ended in October. In fact, the market was rattled today by earnings news from Cisco ($CSCO) which has an October quarter.

    Cisco’s stock is almost exactly where it was 12 years ago. Oddly, some of the problems that Cisco faces are cutbacks in government spending. Cisco is feeling the pinch not just because of Uncle Sam but also at the state level and internationally as well. The company gets about 22% of its business from the public sector.

    The most fascinating news this week was in silver, which is often called the “poor man’s gold.” On Tuesday the CME announced that it was raising the margin requirement on silver which, led to some crazy trading.

    The Silver ETF ($SLV) traded an astounding 145 million shares on Tuesday. To put that in context, over the summer SLV often traded around 5 million shares per day. Thanks to the margin news, silver’s explosive rally was halted in its tracks. On Tuesday, SLV dropped from a high of $28.72 to a close of $26.18. In late August, SLV was going for $18.

    The margin change is eerily similar to when margin rules were changed in 1980 when the Hunt brothers tried—and nearly succeeded—to corner the world silver market. They borrowed huge amounts of money for their gambit.

    At first, it was a brilliant move and the brothers made billions. This is back when being a billionaire was something special. But the bottom fell out of the market on “Silver Thursday,” March 27, 1980. The plunge in silver was much greater than the plunge in gold. So far, SLV has recovered from its mini-plunge, closing at $27.11 on Thursday.

    I don’t recommend investing in gold or silver, but I won’t be surprised to see gold move higher from here. In fact, it could go a lot higher. I published my gold model (or really a model for a gold model) last month in which I indicated that the key is real interest rates. As long as the Fed keeps interest rates low, gold ought to do well. I have nothing against gold, but I feel the best way to invest is with strong stocks. They’re much more stable and less open to speculative frenzies (but not impervious to them either).

    Speaking of strong stocks, I should remind you that Reynolds American ($RAI) will be splitting its shares 2-for-1 next week. Don’t be alarmed if you see that the stock is down by 50%. It’s not really so. If you own RAI, you’ll have twice as many shares. The split will be effective on Tuesday morning.

    Reynolds American got dinged on Wednesday due to the news of the graphic packaging that’s been proposed for cigarette boxes. After October 22, 2012, all cigarettes sold in the U.S. must have labels with phrases like “smoking can kill you.” The graphics have to cover half of the front and back of cigarette boxes.

    We have three stocks on the Buy List whose quarter ended in October: Medtronic ($MDT), Eaton Vance ($EV) and Jos. A Bank Clothiers ($JOSB). I don’t know the earnings dates yet, but Medtronic and Eaton Vance usually report around Thanksgiving. JOSB will probably follow in early December.

    Medtronic is the one I’m most confused about so let me share my thoughts on that one. I was very disappointed by Medtronic’s last earnings report. They missed by a penny and they also lowered their full-year EPS range from $3.45 to $3.55 to a range of $3.40 to $3.48.

    My concern is that even their lowered forecast assumes a strong second half of the fiscal year. They can certainly hit those numbers. We’re still early since the fiscal year ends in April, but I have to say that there’s a chance that Medtronic could lower their forecast again. I’ve noticed that the Street’s estimate is down to $3.41 which almost certainly means that they’re worried about additional lower guidance.

    Still, at $35 per share, the stock is a good value. Wall Street’s estimate for the October quarter is 82 cents per share. If Medtronic beats that with no accompanying lower guidance, the stock could be off to the races. But for now, I can’t tell how it will turn out.

    I should urge caution on Eaton Vance’s earnings because the company’s bottom line can be fairly erratic. They don’t play Wall Street’s earnings game (which is kind of ironic for a mutual fund company). For example, EV missed earnings by 11 cents in May and by four cents in August. The stock got punished but it’s hardly anything like what you saw from Cisco today.

    The big news next week will be the inflation reports and the IPO for General Motors. The plan is for GM to sell 365 million shares somewhere between $26 and $29 per share. That works out to somewhere between $9.5 billion and $10.5 billion. GM will also offer about $3 billion in preferred stock that will become common stock. I wouldn’t go anywhere near this offering. If you’re a U.S. taxpayer you already own GM, and that’s too much already.

    I’ll have more market analysis for you in the next issue of CWS Market Review!

    Best – Eddy

  • Disney Accidentally Releases Earnings Early
    Posted by on November 11th, 2010 at 3:55 pm

    Disney (DIS) made a little mistake. The earnings report came out at 3:44 pm instead of after the 4 pm closing bell. Josh Brown has the best comment.

  • Cisco Drags Down the Market
    Posted by on November 11th, 2010 at 10:45 am

    The market is being dragged down today by lousy guidance from Cisco (CSCO). So far, our Buy List isn’t down as much as the rest of the market, although AFLAC (AFL) is currently down over 3%.

    Wall Street had been expecting Cisco to earn 42 cents per share for this quarter. Instead, the company said it will be no more than 35 cents per share. The stock has been down as much as 17% today.

    Think of it this way: a miss of seven cents per share leads to a loss of 420 cents in the share price. If the seven cents happens each quarter, today’s haircut has a P/E Ratio of 15 (420 divided by 28).

    I’ve long been critical of Cisco’s endless stock buybacks. I was happy to see that the company will finally pay a dividend sometime this fiscal year. The big question now is how much they will pay. Like lots of companies, Cisco has tons of cash. The problem is that it’s held overseas and bringing it home will lead to a nasty tax bill.

  • Thanks Vets
    Posted by on November 11th, 2010 at 9:14 am

    In Flanders fields the poppies blow
    Between the crosses, row on row,
    That mark our place; and in the sky
    The larks, still bravely singing, fly
    Scarce heard amid the guns below.

    We are the Dead. Short days ago
    We lived, felt dawn, saw sunset glow,
    Loved and were loved, and now we lie,
    In Flanders fields.

    Take up our quarrel with the foe:
    To you from failing hands we throw
    The torch; be yours to hold it high.
    If ye break faith with us who die
    We shall not sleep, though poppies grow
    In Flanders fields.

    By Lieutenant Colonel John McCrae, MD (1872-1918)
    Canadian Army