• Morning News: December 20, 2010
    Posted by on December 20th, 2010 at 7:24 am

    Bangladesh Investors Riot Over Stock Market Fall

    Gold Draws in Safe-haven Flows, Up for Second Day

    Nikkei Drops in Thin Trade on Losses in China

    Spain Will Meet 2011 Deficit Target Even if Economy Undershoots, OECD Says

    Ireland Defends Finance Minister’s Powers in New Bank Law

    Bears Turn Bulls as U.S. Gains From Roiling Markets

    Online Stores Start to Wean Shoppers Off Sales

    EBay to Buy Germany’s Brands4friends to Boost Web Fashion Sales in Europe

    Google to Delay Launch of TV sets

    KKR’s $1.7 Billion Bid For Perpetual Off

    Review of 2010 Predictions

  • The 2011 Crossing Wall Street Buy List
    Posted by on December 17th, 2010 at 11:03 am

    *Drumroll please*

    Ladies and gentlemen, the following 20 stocks are my Buy List for 2011:

    Abbott Laboratories (ABT)
    AFLAC (AFL)
    Becton, Dickinson & Co. (BDX)
    Bed Bath & Beyond (BBBY)
    Deluxe Corp. (DLX)
    Fiserv (FISV)
    Ford Motor Company (F)
    Gilead Sciences (GILD)
    Johnson & Johnson (JNJ)
    Jos. A Bank Clothiers (JOSB)
    JPMorgan Chase (JPM)
    Leucadia National (LUK)
    Medtronic (MDT)
    Moog (MOG-A)
    Nicholas Financial (NICK)
    Oracle (ORCL)
    Reynolds American (RAI)
    Stryker (SYK)
    Sysco (SYY)
    Wright Express (WXS)

    The five new stocks are Abbott Laboratories (ABT), Deluxe Corp. (DLX), Ford (F), Oracle (ORCL) and JPMorgan Chase (JPM).

    The five stocks I’m deleting are Baxter International (BAX), Eaton Vance (EV), Eli Lilly (LLY), Intel (INTC) and SEI Investments (SEIC).

    This change doesn’t mean I think the old stocks are about to collapse. I simply believe the new stocks are better opportunities.

    The new Buy List goes into effect at the start of trading on Monday, January 3, 2011 which is the first trading day of the new year.

    I will track the Buy List as if it is a $1 million portfolio with 20 equally-weighted positions of $50,000 each based on the closing price on December 31, 2010.

    My normal rule is that I can’t make any changes to the Buy List during the entire year.

    The biggest stock is Johnson & Johnson with a market cap of $171 billion. The smallest is Nicholas Financial with a market cap of just $120 million. Combined, the 20 stocks are worth $820 billion.

    Twelve of the 20 stocks pay a dividend, and if no stock raises or lowers its dividend for the next twelve months, the dividend yield for the entire Buy List will be 1.56%. The Buy List is trading at just 11.6 times next year’s earnings.

  • Morning News: December 17, 2010
    Posted by on December 17th, 2010 at 8:22 am

    Tracking the Global Recession (cool timeline with a quote from me)

    Congress Votes to Extend Bush-era Tax Cuts Until ’12

    Banks Weigh on FTSE as Moody’s Cuts Ireland’s Rating

    European Leaders Create 2013 Debt Mechanism Amid Debate on Immediate Steps

    German Business Sentiment Rises to Highest in Two Decades

    U.S. Stock-Index Futures Are Little Changed; Oracle, RIM Climb on Outlooks

    Mideast Crude in Longest Weekly Rising Streak Since September

    China Leader Says Anti-Inflation Measures Needed

    Venezuelan Bank Law Makes Nationalizations Easier

    Visa, MasterCard May Be Damaged by Fed’s Proposal to Slash Debit-Card Fees

    Pundits Fail to Read RIM

    Oracle Tops Street Views as Sales Rise 47%

    Midnight Machinations: Tax Cut Bill Clears Congress

  • CWS Market Review – December 17, 2010
    Posted by on December 17th, 2010 at 7:15 am

    I’m going to unveil the Buy List on the blog later today, but I wanted to give the CWS Market Review folks an advanced look, so here are the 20 stocks that will make up my Buy List for 2011:

    Abbott Laboratories ($ABT)
    AFLAC ($AFL)
    Becton, Dickinson & Co. ($BDX)
    Bed Bath & Beyond ($BBBY)
    Deluxe Corp. ($DLX)
    Fiserv ($FISV)
    Ford Motor Company ($F)
    Gilead Sciences ($GILD)
    Johnson & Johnson ($JNJ)
    Jos. A Bank Clothiers ($JOSB)
    JPMorgan Chase ($JPM)
    Leucadia National ($LUK)
    Medtronic ($MDT)
    Moog ($MOG-A)
    Nicholas Financial ($NICK)
    Oracle ($ORCL)
    Reynolds American ($RAI)
    Stryker ($SYK)
    Sysco ($SYY)
    Wright Express ($WXS)

    Not surprisingly, next year’s list looks a lot like this year’s list, and that’s no accident. I only change five stocks, or just one-quarter of the portfolio, each year. My goal has been to show investors that you don’t need to trade a lot to beat the market.

    This will be the fourth year in a row that the Buy List has beaten the S&P 500. Not only have we beaten the S&P 500, but we’ve done it with less risk as well.

    The five new stocks are Abbott Labs ($ABT), Deluxe ($DLX), Ford ($F), Oracle ($ORCL) and JPMorgan ($JPM).

    The five stocks I’m deleting are Baxter International (BAX), Eaton Vance (EV), Eli Lilly (LLY), Intel (INTC) and SEI Investments (SEIC).

    Don’t take this action to mean that I don’t like the stocks I’m deleting; I hate to see some of these names go. I simply think the new stocks are better buying opportunities. For disclosure purposes, you can assume that I own any of the stocks on the Buy List, but I won’t buy any of the new names until January.

    The Buy List for 2010 just hit a new record high for the year. We’re now up 14.99% through Thursday compared with 11.46% for the S&P 500 (dividends excluded).

    With last year’s Buy List I made a fairly heavy bet on the healthcare sector which turned out to be a bad move. Fortunately, the Buy List is well-diversified so it didn’t hold us back much. The lesson is that as long as you hold high-quality stocks, you can overcome sector weakness.

    I’ve looked at the numbers, and what can I say? I still like a lot of healthcare stocks. I got rid of Baxter and Lilly but I added Abbott Labs. In April, I wrote a blog post saying that Abbott was a good stock but that I’d like it better under $50 per share. Well, now it’s there.

    JPMorgan isn’t an easy choice. The stock is cheap by most conventional measures but it’s been criticized by some for poor earnings quality. I still like what I see. Plus, I think JPM will give us a hefty dividend hike sometime in 2011.

    Ford is the comeback kid. The company has had an impressive turnaround and I think it will get even stronger in 2011.

    Oracle is certainly well-known. My only complaint is that I didn’t add it earlier. The company just had another good earnings report on Thursday.

    The only new stock that you may be unfamiliar with is Deluxe. I admit this is an odd little duck. I like to have a few unknown and overlooked gems in the Buy List. Deluxe is a Minnesota-based company that provides services for small businesses. It’s a pretty solid business. The stock is a member of the S&P Mid-Cap 400. DLX has a market cap of $1.1 billion and the current dividend yield is 4.6%. Only a few analysts on Wall Street follow the stock which is how I like it.

    One of the lessons I often tell investors is to not worry about what happens to the stocks you sell. Trust me; they’re not thinking of you. Unfortunately, the temptation is sometimes too great. I know this because all five stocks I ditched last year, Amphenol (APH), Cognizant Technology Solutions (CTSH), Donaldson (DCI), Danaher (DHR) and FactSet Research Systems (FDS), did very well this year.

    Since I unveiled the Buy List in this eletter, I’ll keep the market commentary short, but there are a few key items that I want to highlight. One is that interest rates continue to rise, and they did so even more after this week’s Fed meeting.

    The five-year Treasury is now over 2% which means that it has doubled since the election. The 10-year recently broke 3.5% for the first time since May. The 30-year has been as high as 4.62% which is the highest it’s been since April.

    Once again, money is going out of bonds and into stocks.

    Here’s what’s happening: There’s a reverse tidal wave going on through the yield curve. Yields bottomed out at the long end first and the bottoming has moved progressively shorter since then.

    For example, the 30-year yield bottomed in August and the five-year bottomed last month. At some point, the three-month yield will start to move higher. I don’t know exactly when that will be, but the events that ought to proceed it have already happened.

    Concurrently, there’s been some good economic news. In fact, some folks on Wall Street think the Q4 GDP numbers will be quite good thanks to the recent retail sales report and industrial production numbers. Morgan Stanley just raised their Q4 GDP estimate to 4.3%. A few months ago, not many folks saw that happening.

    The market’s equation has been “higher yields equals stronger economy equals higher cyclical stocks.” The Morgan Stanley Cyclical Index closed Thursday at 1027. That’s an 8% rise over the last four weeks.

    Next Wednesday, we’ll get another revision to Q3 GDP. The initial report showed 2% growth and it was revised up to 2.5% growth last month. That’s not very good, but I’ll be much happier if it’s a ramp to 4%+ growth for the fourth quarter. If growth comes in stronger than expected, the Fed could pull the plug on QE2.

    Lastly, let me remind you that the market will be closed next Friday on Christmas Eve, but it will be open for business on New Year’s Eve. Sorry for all you Wall Streeters, but the change of years is too important to accommodate a closure.

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

    Best – Eddy

  • Buy List Reaches New High
    Posted by on December 16th, 2010 at 5:32 pm

    I’m happy to see that our Buy List has reached a new high for the year. Our Buy List is now up 14.99% for the year (not including dividends). The S&P 500 is up 11.46% for the year.

    The beta for the portfolio this year is 0.9485.

  • Time to Sell Hawkins
    Posted by on December 16th, 2010 at 5:21 pm

    A few times this year I highlighted one of my favorite micro-cap stocks, Hawkins (HWKN). This is how I described them earlier this year:

    Hawkins is a specialty chemical company based in Minnesota. So if you’re in, say, Fargo and you need a shipment of sodium hydroxide, well…these are the boys to call. They’ve been around for many years and the company is largely in family hands. They do what they do, and they do it well.

    The odd thing about Hawkins is that they used to split their stock almost every, but by small amounts. You’d get a 10%, 15% or 20% stock dividend each year. As a result, the nominal share and dividend price didn’t move much, but the stock really did very well.

    I’ve watched Hawkins for years, so it’s odd for me to see the stock become so popular lately. The shares closed at a new all-time high of $49.20 — and I say that that is way too much. If I owned the stock (which I don’t), I’d sell it right now. It’s had a good ride, but $50 is simply too expensive.

  • FedEx Raises Forecast Despite…
    Posted by on December 16th, 2010 at 11:46 am

    Good news for FedEx (FDX). The company raised its EPS range to $5 to $5.30 from $4.80 to $5.25. This is the third time that FedEx has raised its forecast.

    The company reported earnings of 89 cents per share which is a drop from the $1.10 per share they earned a year ago. I like to follow FDX because I think this is a good indicator of the broader economy. (I’ve also said that FDX would be a better fit for the Dow than many of the current members.)

    Excluding charges from a legal reserve and the combination of its freight and national LTL operations, earnings were $1.16 per share. The company in September had forecast earning $1.15 to $1.35 per share.

    Revenue jumped 12% to $9.63 billion. Analysts were expecting $9.7 billion.

    Sales in the express-shipping segment—FedEx’s biggest contributor to revenue—jumped 13% as international-priority average daily volume increased 11%, led by exports from Asia. U.S. domestic revenue per package rose 5% while average daily package volume increased 3%.

    Revenue for the ground-shipping segment also rose 13%, as average daily volume rose 7%.

    Freight revenue climbed 14%.

    The CEO, Fred Smith, said: “We’re now more bullish about the remainder of the year.” I think this is good news for the economy. Several economists have been raising their forecasts for the fourth quarter. J.P. Morgan sees Q4 GDP coming in at 3.5% and Morgan Stanley is now up to 4.3%.

  • Morning News: December 16, 2010
    Posted by on December 16th, 2010 at 6:53 am

    Wall Street Futures Point to Flat Open for Stocks

    SNB Leaves Key Rate Near Zero to Stop Franc From Appreciating

    Dollar Gains Against Euro, Pushing Stocks Lower

    Record Plunge in Foreclosures, Thanks to Robo-signers

    Spanish 10-Year Bonds Fall After Borrowing Costs Rise at Auction

    Rift Over Wall Street Blame May Dull Impact of U.S. Financial Crisis Panel

    Seven Samurai of New Japan Inc.

    Industrial Output Posts Strongest Gain In 5 Months

    BP Falls Most in Four Months After U.S. Files Oil Spill Lawsuit

    G.M. Buys Back $2.1 Billion in Preferred Shares

    Icahn Seeks Dynegy for $665 Million

    Disinflation Continues in November Core CPI Report

  • Damn It Feels Good to Be a Swiss Banker
    Posted by on December 15th, 2010 at 4:49 pm

    Check out some of the details from the dress code at UBS:

    The regulations designate a 1.5 millimeter maximum fingernail length for men, suggests that female bankers wear makeup and put on perfume directly after showering and not after lunch, advocates that shoes be changed daily to bring greater levels of “peace and serenity,” and mandates employee underwear that is skin-toned and “always made of superior quality textiles.”

    And that’s just the beginning.

    The Swiss bank is pioneering its precision dress code in six pilot projects designed for employees that deal with the public in order to project “truth, clarity …respect … our values and culture.”

    The dress-for-banking-success manual is broken down into tips and guidance and includes chapters titled, “Shoes and Belts,” “Blouses,” “Personal Touch” (jewels and makeup), “The Suit,” and “The Shirt.”

    Men should don footgear with a shoehorn; women should not wear new shoes. Suits must not only be charcoal grey, black, or dark blue, but dress coats must always be buttoned when employees stand, and open when sitting. Skirts must reach the middle of the knee with a tolerance for extending 5 centimeters below the joint.

    Stockings that are “opaque” are out. Socks? Always black. Women may wear no more than seven jewels, men three. Scarves are compulsory, and to be tied with “authorized knots.”

  • So What Happens After One of the Greatest Bull Markets in History?
    Posted by on December 15th, 2010 at 2:59 pm

    CNBC tells us: What, Me Worry? Investors Are Suprisingly Bullish on Stocks

    Call it being complacent over complacency—redundant for sure, but an expression of how even a healthy level of fear has seemed to come completely out of the stock market.

    As the stock market has churned to two-year highs, sentiment levels as expressed through a variety of gauges have reflected extremely buoyant attitudes among investors. Surveys from Investors Intelligence and the American Association of Individual Investors both show bullish sentiment more than 2 to 1 ahead of market pessimism.

    Similarly, the CBOE Volatility Index, an options play that is considered a gauge of near-term fear (when it’s elevated) and complacency (when it’s falling), has been hovering around levels last seen in April.

    I don’t believe there’s a strong connection between the VIX and future stock returns, though there is some evidence that very low levels (below 13) are good for stocks.

    The only connection is that the VIX is a pretty good indicator of future volatility, but it doesn’t say which way. That’s why I don’t get too concerned about where the VIX is. When the recent bull market began in March 2009, the VIX was close to 50.