Morning News: January 19, 2022
Posted by Eddy Elfenbein on January 19th, 2022 at 7:00 am

China’s ‘Zero-Covid’ Policy Creates Supply-Chain Woes

Oil Prices Hit Seven-Year High on Rising Geopolitical Tensions

Governments No Match for Markets in European Energy Crunch

German Yields Cross Zero Threshold as Bond Selloff Intensifies

One Year Into His Term, Biden Finds Himself Boxed In on China

Wall Street Traders Muscle Into the Middle of Crypto

How ‘Safe’ Assets Have Become Investors’ Biggest Risk

U.S. Mortgage Interest Rates Climb for 4th Straight Week

High U.S. Meat Prices: Packer Profiteering or Capacity Crunch?

AT&T and Verizon Delay 5G Service Near Some Airports

Airlines Scramble to Rejig Schedules Amid U.S. 5G Rollout Concerns

Big Tech and Foes Spar Over Bill to Curb Market Power of Dominant Internet Platforms

Activision Sexual Misconduct Fallout Prompted Microsoft to Pursue Deal

What’s All the Hype About the Metaverse?

JPMorgan Raises Salaries for Junior Bankers for Second Time

Standard General, Apollo Close In On $9 Billion Deal for Tegna

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CWS Market Review – January 18, 2022
Posted by Eddy Elfenbein on January 18th, 2022 at 7:15 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

The Stock Market Drops to a One-Month Low

The stock market had another rough day today. The index dropped over 1.8%. The poor folks at Goldman Sachs (GS) saw their stock drop by 7%. (Don’t worry too much for them. I have a feeling they’ll be fine.)

At one point, the S&P 500 was down over 2% on the day. The index is still below its 50-day moving average which is often a bad omen.

The S&P 500 has now closed lower seven times in the last ten sessions. The S&P 500 closed lower today than where it was just before Halloween. That means the stock market has been completely flat for nearly three months. That’s actually better than some areas of the market. This Nasdaq Composite is lower than where it was in early July.

Whenever there’s a drop like today, I like to look at how different stock groupings are performing. If growth stocks drop more than value, then I know the market is concerned about valuations. Today, the growth index fell by 1.08% more than the value index. That’s interesting as it signals possible nervousness about the pace of the recent rally.

Further evidence of the market’s desire for safety can be found in the bond market. The yield on the 10-year Treasury soared all the way up to a two-year high. Of course, it seems odd writing that since we’re only talking about a yield of 1.8%. That’s far less than inflation, but it does tell us how much things have changed. Eighteen months ago, the yield on the 10-year was about 0.5%.

Small-cap stocks were especially weak today. The Russell 2000 lost over 3% today. The small-cap indexes are skewed toward domestic manufacturers. I think of the Russell 2000 as a semi-cyclical index. Indeed, we saw some weakness in financial and tech stocks today.

The three worst-performing stocks today in the S&P 500 were all banks: Goldman Sachs (GS), JP Morgan (JPM) and Morgan Stanley (MS). What kind of day was it? Put it this way: Exxon (XOM), Chevron (CVX) and ConocoPhillips (COP) all made new 52-week highs today while Zoom (ZM), Snap (SNAP) and Twitter (TWTR) all made new lows.

Microsoft Buys Activision Blizzard for $68.7 Billion

The big merger news today is that Microsoft (MSFT) is buying videogame giant Activision Blizzard (ATVI) for $95 per share. That works out to $68.7 billion.

That may sound like a lot, and it is, but it’s less than 3% of Microsoft’s overall market value. The deal will be all cash. If you’re curious, Microsoft has $130 billion in cash on hand. This will be Microsoft’s largest deal ever. Globally, three billion people play video games.

Shares of ATVI soared today. The stock closed Friday at $65.39 per share. Interestingly, ATVI jumped to $82.32, which is still well short of MSFT’s offer. Perhaps the market has some reservations about this deal. Or maybe they think it will take longer than expected.

If you were to buy ATVI today and the deal goes through, you’d make a 15% return on your investment. Of course, that’s not a sure thing and we don’t know how long it would take. Also anti-trust regulators have said they want to be tougher on mergers, especially tech mergers.

Activision Blizzard is best-known for being the folks behind Call of Duty and many other games. The stock has been extremely successful. Gaming is a massive industry. In 2020, the U.S. video game market grew to $57 billion. According to NPD Group, that’s bigger than music and movies combined. In 2008, Activision merged with Vivendi and five years later, they split off from them.

Less than a year ago, ATVI reached $104.53 per share. The stock had received some speculative attention lately because it had done so poorly. Last month, ATVI dropped down to $56.40.

Activision Blizzard is one of those companies that seems to generate terrible news for itself and it’s usually their fault. They’re facing several sexual harassment lawsuits. Worse yet, their CEO, Bobby Kotick, allegedly knew about the behavior and failed to inform the board.

Kotick took a 99.9% pay cut which dropped his annual pay from $154 million to $62,500. Apparently, it’s going to stay down until the company’s gender roles are met. We’ll see.

By the way, the $154 million was the reduced figure following criticism.

Kotick is quite a piece of work. A few years ago, he also allegedly threatened to have one of his assistants killed. Allegedly. Employees last year staged a walkout in protest of Kotick’s behavior.

Kotick is expected to step down after the deal closes. (Microsoft isn’t dumb.)

Look for Strong Earnings from Thermo Fisher

Earnings season started on Friday when a few of the big banks reported Q4 earnings. Some of these big banks have been very profitable. On Friday, Wells Fargo said it made $1.25 per share for Q4 which beat by 12 cents per share. Citigroup made $1.46 per share versus estimates of $1.38 per share.

JP Morgan made $3.33 per share while analysts had been expecting $3.01 per share. The bank had net income of $10.4 billion. BlackRock, which owns just about everything, made $10.42 per share for Q4. That beat estimates of $10.16 per share.

This morning, the disappointment came from Goldman Sachs. The Wall Street powerhouse made “only” $10.81 per share. The Street had been expecting $11.76 per share. Morgan Stanley reports tomorrow, and Netflix is on Thursday.

Earnings for our Buy List stocks are about to start soon. One stock that I’m particularly excited about is Thermo Fisher Scientific (TMO). The company is due to report its earnings on February 2.

For Q3, the company had an outstanding quarter. Thermo said it made $5.76 per share for Q3. That easily beat Wall Street’s estimate of $4.67 per share.

Q3 revenue increased by 9% to $9.33 billion. Of that, COVID-19 response revenue was $2.05 billion. Thermo’s adjusted operating margin was 29.8% compared with 32.9% in the third quarter of 2020.

Thermo increased its full-year revenue guidance by $1.2 billion to $37.1 billion. That’s revenue growth of 15%. The company also raised its EPS guidance by $1.30 to $23.37. That’s growth of 20% over last year.

Let’s get mathy. For the first three quarters, TMO made $18.57 per share so that works out to Q4 guidance of $4.80 per share. There’s no way they’re going to make that little. Wall Street isn’t fooled, either. The current consensus on Wall Street is for earnings of $5.23 per share. Last year, the stock gained 43% for us. I currently rate TMO a buy up to $640 per share.

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

– Eddy

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Morning News: January 18, 2022
Posted by Eddy Elfenbein on January 18th, 2022 at 7:10 am

In China, the Economic Buzzword for 2022 Is Stability

With Omicron, Global Economy Spots Chance to Push Past COVID

Texas, Arizona Have Recovered All the Jobs Lost When Covid-19 Hit

Nimble Cash Investment Needed to Reap Advantage of Fed Tightening

In Battle for Workers, the Humble 401(k) Gets Richer in 2022

BlackRock CEO Says Stakeholder Capitalism Isn’t ‘Woke’

Shipping Companies Had a $150 Billion Year. Economists Warn They’re Also Stoking Inflation

Sales of Electric Vehicles Surpass Diesel in Europe, a First

In Quest for Energy Independence, Mexico Is Buying a Texas Oil Refinery

Exxon Sets a 2050 Goal for Net Zero Greenhouse Gas Emissions

Olympic Athletes Advised to Leave Phones at Home to Dodge Spying

Airlines Warn of ‘Catastrophic Disruptions’ in U.S. 5G Rollout

Amazon Simmers Down, Says It Won’t Block Visa Credit Cards in UK Store on Jan. 19 After All

Unilever Sees Investor Backlash Over $68B Bid for GlaxoSmithKline Consumer Unit

Goldman Sachs Profit Misses Estimates on Weak Equity Trading

Sotheby’s Unveils 555.55-Carat Black Diamond Thought to Come From Outer Space

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Morning News: January 17, 2022
Posted by Eddy Elfenbein on January 17th, 2022 at 7:02 am

Davos Without ‘Davos’

Supply Chain Woes Could Worsen as China Imposes New Covid Lockdowns

China Cuts Interest Rate as Growth Risks Worsen With Omicron

There’s No Way Vladimir Putin Could Freeze Europe, and No Way the U.S. Could Freeze Putin

One of the World’s Wealthiest Oil Exporters Is Becoming Unlivable

Global Bonds Under Siege as Treasuries Selloff Spreads

Treasury’s Yellen Sees ‘Much More Work’ Ahead to Narrow Racial Wealth Divide

The Federal Reserve Needs to ‘Shock and Awe’ the Market with One Big Rate Hike ‘To Restore Its Credibility,’ Says Hedge-Fund Star Bill Ackman

‘Please Don’t:’ Analysts Scorn Unilever’s Takeover Ambitions

Walmart Drawing Up Plans to Enter Metaverse, Create Cryptocurrency

Target CEO Sees Fewer Store Trips as Shoppers Confront Inflation

Rolls-Royce, Bentley, BMW Sales Surge as Cheaper Brands Lag Behind

These Are the World’s Top Hedge Funds for 2021

Credit Suisse Chairman Resigns, Apologizes for Breaking Swiss Covid Rules

Ex-Banker ‘Twisted’ Whistle-Blower Role to Seek $10 Million

‘Pharma Bro’ Martin Shkreli Ordered to Repay $64 Million and Banned for Life From Drug Industry

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Fascinating MLK Interview
Posted by Eddy Elfenbein on January 15th, 2022 at 5:39 pm

From 1967:

Sherwin-Williams Lowers Guidance
Posted by Eddy Elfenbein on January 14th, 2022 at 10:28 am

The big banks kicked off Q4 earnings season this morning, and so far, they’ve soundly beaten expectations. Wells Fargo (WFC) earned $1.38 per share which was 26 cents more than Wall Street had been expecting.

Citigroup’s (C) beat was even bigger. For Q4, the bank made $1.98 per share. That beat by 61 cents per share.

BlackRock (BLK) made $10.42 per share compared with estimates of $10.15 per share.

The only dud was JP Morgan (JPM). They made $2.86 per share versus estimates of $3.01 per share. Still, the bank had net income of $10.4 billion. The shares are down about 5% this morning.

Sherwin-Williams (SHW) won’t report earnings until January 27, but the paint people warned that results will be below expectations. Sherwin blamed “slower than expected improvement in raw material availability and COVID-related labor headwinds in December.”

The company released preliminary results. They said Q4 sales rose by 6.1% and earnings were $1.15 per share which includes 20 cents of acquisition-related amortization expenses. Wall Street had been expecting $1.69 per share. For the year, that brings earnings to $8.15 per share.

“While we met our consolidated fourth quarter net sales guidance and demand remains robust, we are disappointed in our weaker than expected earnings results in the quarter,” said Chairman, President and Chief Executive Officer, John G. Morikis. “Our lower than expected earnings relative to our prior guidance is related to a shortfall in The Americas Group, where sales were below our guidance due to slower than expected improvement in raw material availability and COVID-related labor headwinds in December. While availability of some raw materials has improved slightly, others including select resins and additives specific to our professional contractor products remain in tight supply. Logistics and transportation issues have further impacted the supply chain. Additionally, we faced meaningful labor challenges in The Americas Group in December related to the COVID Omicron variant, as our workforce, including store managers, field sales reps and drivers, experienced reduced staff availability and store hours in some locations. Many of our suppliers and customers have also reported labor-related impacts due to the ongoing COVID resurgence. Sales in our Consumer Brands Group exceeded expectations, driven primarily by non-paint products. Performance Coatings Group’s top line results also exceeded expectations and were strong in all businesses and regions.

“As we enter 2022, demand remains strong across the majority of our end markets, though we expect raw material availability and COVID-related issues to persist through the first quarter. Raw material and other costs remain elevated, and we continue to respond with pricing actions in every Group to offset higher costs, including a 12% price increase in The Americas Group effective February 1st. We have continued to invest in our business, including adding 50 million gallons of incremental architectural capacity that is now online. Additionally, we opened 79 paint stores in the U.S. and Canada during 2021, including 32 in the fourth quarter. We remain highly confident in our strategy, our people, and our ability to emerge as an even stronger Company following the current near-term disruptions.”

SHW is currently down about 3%.

Podcast with Trey Lockerbie
Posted by Eddy Elfenbein on January 14th, 2022 at 9:59 am

Here’s a recent podcast I did with Trey Lockerbie:

Morning News: January 14, 2022
Posted by Eddy Elfenbein on January 14th, 2022 at 7:02 am

Oil Producers Aren’t Keeping Up With Demand, Causing Prices to Stay High

Critics Say I.M.F. Loan Fees Are Hurting Nations in Desperate Need

Markets Could Reimpose Discipline on Euro Zone Debt Soon – German Official

Biden Will Nominate Three New Fed Officials

Shopping, Planes and Khloé Kardashian: How Private Debt Helps Power the Global Economy

The Secret Triumph of Economic Policy

What’s Behind the Tech Wreck? Hint: It’s Not All About Rates

As Fintech Eats Into Profits, Big Banks Fight Back in Washington

Cathie Wood Outflows Grow as Diehard Fans Face Biggest Test

JPMorgan Falls on Trading Revenue Slump, Muted Loan Growth

Wells Fargo Profit Beats Estimates on Cost Cuts, Loan Demand

BlackRock Profit Beats Estimates as Assets Cross $10 Trillion

Dogecoin Soars 18% After Elon Musk Says It Can Be Used to Buy Tesla Merchandise

Unionizing Starbucks, Inspired by Bernie Sanders

Netflix Needs New Subscribers. Its Korean Playbook Is Its Secret Weapon.

Google Doubles Down on the Office, Buying London Site for $1 Billion

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Morning News: January 13, 2022
Posted by Eddy Elfenbein on January 13th, 2022 at 7:07 am

Russia Has Worsened Europe’s Gas Crisis, IEA Chief Birol Says

For Macron and France, It’s the Economy, Stupide

Is Gruyère Still Gruyère if It Doesn’t Come From Gruyères?

Shipping Congestion Is Growing at World’s Biggest Port

Libor, Long the Most Important Number in Finance, Dies at 52

Demand for Chocolate Fuels Surge in Price of Cocoa

Consumer Prices Popped Again in December, Casting a Shadow Over the Economy

Fed’s ‘Most Important Task’ Is To Control Inflation, Brainard Says

What Inflation and Rate Hikes Mean for Your Portfolio

Facebook Judge Rejects Argument for FTC Chair’s Recusal: ‘Courts Must Tread Carefully’

TSMC Sees Multi-Year Growth Ahead, to Boost Chip Spending in 2022

Tesla Is Inching Dangerously Close To Taking The Luxury Car Sales Throne

Automakers Say They Won’t Let Tesla Steal the Truck Race

Smart Headlights Are Finally on Their Way

The Florida Financiers Buying Up Europe’s Football Teams

C.E.O.s Were Our Heroes, at Least According to Them

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Buy and Hold and Hold and Hold and ….
Posted by Eddy Elfenbein on January 12th, 2022 at 5:23 pm

From David Baskin’s blog:

We like the style usually called “buy and hold”. It is based on using fundamental research to buy stocks that we think we will want to hold for a long time. Once, when asked what his ideal holding period was for a stock, Warren Buffett answered “forever”.

Eddy Elfenbein, who runs a site and newsletter called Crossing Wall Street creates a stock buy list of twenty-five names every new year, and then holds those stocks for the entire year. I am sure he agonizes over every name on the list, knowing that he will be looking at those stocks each day for 12 whole months. (By the way, he does a terrific job and his newsletter is well worth reading.) He is a good example of a “buy and hold” investor.

But imagine if you had to hold every stock you bought for five years. No mulligans, no do-overs, no substitutions. You buy it, you own it for sixty months. What kind of portfolio would you build?

Check out the whole thing.