Morning News: September 15, 2022
Posted by Eddy Elfenbein on September 15th, 2022 at 7:05 am

US Railroads, Unions Reach Tentative Pact on Eve of Deadline

Households a Wild Card as Europe Moves to End Russian Gas Dependence

A Chinese Spy Wanted GE’s Secrets, But the US Got China’s Instead

New Inflation Developments Are Rattling Markets and Economists. Here’s Why.

Ray Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%

Janet Yellen Will Pledge 5,000 New I.R.S. Hires to Bolster Taxpayer Responsiveness

U.S. Senate to Grill SEC’s Gensler Over Climate, China and Crypto

F.D.A.’s Drug Industry Fees Fuel Concerns Over Influence

Ethereum Finishes Long-Awaited Energy-Saving ‘Merge’ Upgrade

The Founder of Patagonia Is Giving His Company Away to Help Fight Climate Change

At Detroit Auto Show, Biden Announces Money for Charging Stations

Shell Names New CEO as Longtime Boss Steps Down

California Files Antitrust Lawsuit Against Amazon

Inside Starbucks’ Plan to Speed Up Service

The World’s Best Business Schools, Ranked

Disney to Roll Out Israeli Superhero in ‘Captain America’ Film — Irking Arabs

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Morning News: September 14, 2022
Posted by Eddy Elfenbein on September 14th, 2022 at 7:05 am

Chinese Manufacturers Get Around US Tariffs With Some Help From Mexico

Rail Strike Threat Is Set to Halt Shipments of US Crops, Autos

U.S. Inflation Remained High in August

Markets Plunge as Inflation Data Undercuts Wall Street’s Optimism

US Stocks Set for Bounce After $1.5 Trillion Inflation-Led Rout

Gundlach Urges Fed to Slow Rate Hikes as Summers Prefers 1% Jump

Are We In a Recession? Both Sides React

U.S. SEC to Propose Treasury Market Clearing Reforms to Address Resilience Fears

Credit Suisse-Tycoon Clash Has Wealth Industry Holding Its Breath

Pandemic Aid Cut U.S. Poverty to New Low in 2021, Census Bureau Reports

Social Security’s Cost-of-Living Increase Will Be Largest in Four Decades, an Estimate Says

U.S. Mortgage Interest Rates Top 6% for First Time Since 2008

E.U. Scores Major Legal Victory Against Google

Battery Recycling Race Heats Up After Inflation Reduction Act

Rio Tinto Forges Deal With China for $2 Billion Iron-Ore Mine

China Evergrande’s Other Spending Spree—on Soccer—Is Also Running Into Trouble

Nearly 20% of Congress Trades Stocks that Present Conflicts of Interest

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CWS Market Review – September 13, 2022
Posted by Eddy Elfenbein on September 13th, 2022 at 7:40 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 Suffers Its Worst Day Since 2020

This morning, the government released its report on inflation for August. Wall Street had been eagerly anticipating this report. Last month inflation was unchanged, and it was hoped that we would see more good news on the inflation front.

The equation is simple: If inflation backs off, then the Federal Reserve may back off with its rate hikes as well. After all, gasoline prices have fallen for over 90 days in a row. Up and down Wall Street, all eyes were hoping for good news.

Well, we didn’t get it.

Instead, inflation is alive and well. According to the Bureau of Labor Statistics, the U.S. economy had inflation of 0.1% last month. That beat expectations of -0.1%.

Over the last year, inflation is running at 8.3%. Wall Street had been expecting 8%. At that rate, that means if you’re paid a salary at a constant rate for one full year, then you work one month for free.

We know that falling energy costs have had a major impact on the overall inflation rate, so let’s also look at core inflation which excludes food and energy prices.

Eh, not much good news. For August, core inflation was up 0.6% (see chart below). That doubled Wall Street’s forecast of 0.3%. I think this is the stat that really stung people. Over the last year, core inflation is now running at 6.3%.

Here are some details:

Energy prices fell 5% for the month, led by a 10.6% slide in the gasoline index. However, those declines were offset by increases elsewhere.

The food index increased 0.8% in August and shelter costs, which make up about one-third of the weighting in the CPI, jumped 0.7% and are up 6.2% from a year ago.

Medical care services also showed a big gain, rising 0.8% on the month and up 5.6% from August 2021. New vehicle prices also climbed, increasing 0.8% though used vehicles fell 0.1%.

This bout of inflation is unusual in that it appears to be hitting regular consumers harder than the overall numbers suggest. It’s one thing to say that inflation has increased by 8.3% over the last year, but that’s just the average. For example, the index for food is up by 11.4% over the last 12 months. That’s the highest rate since 1979. The price for electricity is up nearly 16% in the past year.

Larry Summers, the former Treasury Secretary, tweeted:

Today’s CPI report confirms that the US has a serious inflation problem.
Core inflation is higher this month than for the quarter, higher this quarter than last quarter, higher this half of the year than the previous one, and higher last year than the previous one.

— Lawrence H. Summers (@LHSummers) September 13, 2022

Traders hated the report. I mean, they hated this report. Prior to the report coming, the futures indicated that the stock market was ready to open higher. Today could have been the market’s fifth up day in a row.

But as soon as the report came out, so did the bears. They loved the lousy inflation news. This was the stock market’s worst day since 2020. The S&P 500 lost 4.32% and the Dow gave up more than 1,200 points. The Nasdaq Composite lost more than 5% on the day. Today was just ugly.

The strong inflation news gives political cover to Jerome Powell and his friends at the Fed to continue hiking interest rates. When the Fed hikes rates, risky stocks suffer the most and conservative stocks provide much greater protection. I feel like a broken record on this point, but we saw it so clearly today.

Here are some numbers from today that make the story clear. The S&P 500 High Beta Index lost 5.16% today while the S&P 500 Low Volatility Index fell “only” 2.89%. It’s a similar story with growth and value. The S&P 500 Growth Index lost 5.19% while the S&P 500 Value lost 3.49%.

Amazon and Netflix were both off by more than 7%. Facebook was down more than 9%.

On our Buy List, Hershey (HSY) is probably one of the best examples of a conservative, defensive stock. It’s our top-performing stock this year. Not surprisingly, it was among our top-performing stock today. In fact, today really was a microcosm for the whole year so far. Our Buy List outperformed the S&P 500 today by more than 1% today.

Where do we go from here? The Federal Reserve meets again next week. We can almost certainly expect another 0.75% rate increase. This would be its third 0.75% rate hike in a row. There’s even a decent chance (around 33%) that we’ll see a full 1% increase, but I doubt that will happen. Six months ago, the Fed’s range for short-term interest rates was 0% to 0.25%. After next week, it will be 3% to 3.25%.

The meeting after next week will be on November 2, just before Election Day. Yesterday, the futures market was indicating only a 14% chance of a 0.75% rate hike. Thanks to today’s inflation report, that’s up to 53.5%. That would bring the upper range to 4%.

One of the reasons why I like to track the two-year Treasury yield is that it serves as an unofficial estimate for what the Fed will eventually do. It’s not perfect, but it’s a decent proxy for what Wall Street is thinking. Today the two-year yield got as high as 3.75%. That’s a 14-year high (see chart below). More importantly, it’s much higher than you see in most stocks. The yield on the 30-year Treasury topped 3.5% today. Eighteen months ago, during Covid, it was at 1%.

Today’s message is clear. The Fed still does not have a handle on inflation. Despite assurance that inflation is merely transitory, inflation is becoming annoyingly persistent. The Fed now realizes that it will have to take bold action to defeat inflation. Christopher Waller, a Fed governor, said, “This is a fight we cannot, and will not, walk away from.”

As long as the Fed is determined to raise interest rates, then the stock market will be soggy. I’m not predicting a crash, or even a downward market, but bulls will find it difficult to get a sustained rally going. As fun as this summer’s rally was, it’s come to an end.

The other important takeaway is that holding risky assets right now is dangerous. I’m mostly speaking of high-volatility stocks, but this spills into NFT and crypto as well. With higher rates on the way, conservative stocks will fare much better. That’s been consistent for the last 10 months. These stocks aren’t nearly as impacted by the Fed’s inflation battle as is the rest of Wall Street.

BofA’s Investor Survey

Bank of America recently conducted a survey of major investors. I’m brining this to your attention because I was struck by the level of fear it revealed. Personally, I like to keep an attitude of reasonable optimism. In most cases, it’s too easy to let fear overtake what should be a sober process.

According to the survey, 52% of investors are underweighted in stocks, and another 62% are overweight in cash. I would not have guessed it’s that high.

As concerns over the economy escalate, the number of investors expecting a recession has reached the highest since May 2020, strategists led by Michael Hartnett wrote in a note on Tuesday. Sentiment is “super bearish,” with the energy crisis further weighing on risk appetite, they said. A net 42% of global investors are underweight European equities, the largest such position on record.

What also stood out to me is that a new 92% of the respondents expect profits to fall next year. Investors are clearly shying away from risk.

Persistently high inflation is seen as the biggest tail risk, followed by hawkish central banks, geopolitics and a global recession. Only 1% of participants see a resurgence in the Covid-19 pandemic as a tail risk.

Unfortunately, investors see more problems in Europe. According to the survey, 70% of respondents think Europe’s energy crisis will push the continent into a recession.

One positive note is that 79% of investors expect to see inflation calm down in the U.S. over the next year, and 36% see the Fed ending rate hikes by Q3 of next year.

Stock Focus: McGrath RentCorp

One of my hobbies is finding interesting (and hopefully profitable) businesses that few on Wall Street know about. I’ve featured many of them in these pages. This week, I want to introduce you to McGrath RentCorp (MGRC). This is a fascinating and little-known stock. The company is involved with business-to-business renting.

McGrath rents relocatable modular buildings, portable storage containers, electronic test equipment and liquid containment tanks. This means things like modular classrooms. Or imagine a construction site in the middle of nowhere. McGrath can rent the foremen an instant office. These things are more common than you might expect.

But McGrath does more than that. They also rent test equipment and storage tanks. The company currently operates through four segments: Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex.

Only two Wall Street analysts currently follow the stock, but despite being almost completely ignored by Wall Street, this is a very sound company. McGrath has raised its dividend for 31 years in a row. Earlier this year, they bumped up the quarterly dividend from 43.5 to 45.5 cents per share.

The company was founded by Bob McGrath in March 1979 in a small two-acre inventory center in San Leandro, California. McGrath was quickly successful and by 1984, the stock IPO’d on the Nasdaq at $6 per share.

Since then, McGrath has split 2-for-1 three times which comes to 8-to-1. That means that McGrath’s split-adjusted IPO price was 75 cents per share. Today it’s at $85.37 per share.

Check out this chart:

And it’s only gotten the attention of two analysts!

McGrath was hurt during Covid but it still managed itself well. The company’s EPS dropped from $4.16 in 2020 to $3.66 in 2021. I think the company has a good shot this year of topping its all-time EPS high from 2020.

During Q1 of this year, the company made 77 cents per share which beat by five cents. For Q2, McGrath made $1.07 per share which beat consensus by 17 cents per share. (Please bear in mind that with so few analysts following it, that’s a stretch to call it a “consensus.”)

The current market cap is a little over $2 billion. McGrath runs a very strong business and the shares are going for a very good price. That may not last long.

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

– Eddy

P.S. If you want to learn more about the stocks on our Buy List, please sign up for our premium service. It’s $20 per month, or $200 per an entire year.

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

European Manufacturers Reel From Russian Gas Shutoff

Inflation Is Upending Politics in the Most Unequal Region on Earth

Inflation Explained: The Good, the Bad and the Uncertain

Bond Yields Dip Ahead of Key August Inflation Report

BofA Survey Shows Investors Fleeing Equities en Masse on Fear of Recession

U.S. Banks’ Key Performance Metric Set to Turn Around in Second Half

There’s a New Cop on the Banking Beat: Chief Climate Risk Officer

Who Are America’s Missing Workers?

US Falls to 18th Place in Global Retirement Ranking

Strike Threat on Freight Railroads Is New Supply Chain Worry

Peloton Chairman John Foley to Exit in Management Shake-Up

Instagram Stumbles in Push to Mimic TikTok, Internal Documents Show

A $100 Million Bet on Finding the Next ‘Mr. Beast’

King Charles Inherits Untold Riches, and Passes Off His Own Empire

Most Twitter Shareholders Vote in Favor of Sale to Musk

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Looking to Tomorrow’s CPI Report
Posted by Eddy Elfenbein on September 12th, 2022 at 9:53 am

The stock market opened higher modestly this morning. This could be our fourth up day in a row. On Friday, the S&P 500 closed above its 50-day moving average. That came after a seven-day stretch of being below the 50-DMA.

I think Wall Street is more focused on tomorrow’s CPI report. Some of the major Wall Street investment houses are saying that it’s possible that we’ll see a month-over-month decline in prices. Of course, that would be heavily influenced by energy since gasoline has dropped markedly.

So far, energy and tech stocks are leading the way on Wall Street. On our Buy List, shares of Silgan Holdings (SLGN) made a new 52-week high. At one point, Trex (TREX) was up close to 6%.

This is an interesting day where the market is rallying. At noontime, we’re up about 1% and Utility Sector ETF (XLU) is at a new 52-week high.

Morning News: September 12, 2022
Posted by Eddy Elfenbein on September 12th, 2022 at 6:52 am

Flurry of New Rules Leave Turkish Banks Struggling to Lend

Janet Yellen Warns U.S. Gas Prices Could Spike this Winter as Oil Soars Once Europe Stops Buying Russian Crude

Energy Costs Are So High Aga Owners Are Ripping Out £5,000 Cookers

The World’s Hottest Housing Markets Are Facing a Painful Reset

US Economy a Safer Bet Than ‘Dire’ Europe, Goldman Strategists Say

Zoltan Pozsar Sees a New Dollar Regime. His Longtime Collaborator Disagrees

Fed’s Exit Puts World’s Biggest Bond Market on Shakier Ground

Why the U.S. SEC is Looking to Reform the Treasury Market

Startups Are Borrowing More as the Easy Venture Capital Money Vanishes

Store Shelves Are No Longer Bare, but Baby Formula Remains in Short Supply

Rise in Deaths Spurs Effort to Raise Alcohol Taxes

New Starbucks CEO to Learn Role Alongside Howard Schultz

Activist Investor Dan Loeb Backs Off Pushing Disney to Sell ESPN

At Corporate Pep Rally, Disney C.E.O. Pitches Warmer, Fuzzier Side

Take Your Fries and Leave: Why Fast Food Is Racing to Ditch the Dining Room

Nikola Founder Faces Securities-Fraud Trial Over Promises About Electric Trucks

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Morning News: September 9, 2022
Posted by Eddy Elfenbein on September 9th, 2022 at 7:05 am

Shock Waves Hit the Global Economy, Posing Grave Risk to Europe

Lagarde Says ECB Can Offer Liquidity to Banks, Not Energy Firms

Bank of England Delays Next Interest Rate Decision Following Queen’s Death

How Silicon Chips Rule the World

Climate Change Could Worsen Supply Chain Turmoil

Companies Are Buying Large Numbers of Carbon Offsets That Don’t Cut Emissions

The World’s Third-Richest Man Sells the World a Green Dream Built on Coal

The Days of Energy Deregulation Are Over in Europe

Wall Street’s Commodity Traders on Track to Break Profit Records

BofA Says ‘Appalling’ Mood Fuels $11 Billion US Stocks Exodus

Yellen Embarks on Economic Victory Tour as Midterm Elections Approach

US Housing Market to Remain ‘Especially Frigid’ as Mortgage Rates Spike

Despite What Politicians Tell You, Credit Cards Are the Embodiment of ‘Main Street’

EY Leaders Green Light Split Plan

Summer Movie Season Fizzles Out, With Few Blockbusters to Count On This Fall

How Do Japanese Show They Care? By Sending a Telegram.

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Morning News: September 8, 2022
Posted by Eddy Elfenbein on September 8th, 2022 at 4:50 am

China Debt Restructuring Policy Under Scrutiny as More Countries Demand Relief

Europe Says Putin’s Gas Power Is Weakening

California Avoids Blackouts a Third Day With More Tests Looming

The Case for a Soft Landing: How High Inflation Could End Without Recession

Goldman Lifts Forecasts for Fed Hikes in September and November

Fed on Path for Another 0.75-Point Interest-Rate Lift After Powell’s Inflation Pledge

New Fed Banking Chief Targeting Crypto and Climate Change as Top Priorities

U.S. Bank Regulator Warns of Crisis Risk from Fintech Proliferation

Work From Home Is Loved Worldwide, Even If Wall Street Hates It

Vice, Exploring a Sale, Weighs a Content Deal With a Saudi-Backed Firm

Amazon Breaches TV’s Last Stronghold With $13 Billion Bet on NFL

Google’s ‘News Showcase’ Stalls in U.S. as Media Outlets Balk at Terms

Apple Unveils New iPhone 14 Lineup, Keeps Prices Steady

Inside Bed Bath & Beyond, Concerns Over Mounting Stress for CFO

Elon Musk Allowed to Amend Twitter Countersuit to Add Whistleblower Claims

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

From the U.S. to China, Major Economies Are Stalling. But Not India.

China’s Foreign Exchange Reserves Drop to Near Four-Year Low

Xi’s ESG Boom Funnels Billions Into Coal, Liquor, Defense Stocks

How China Has Added to Its Influence Over the iPhone

Will A New Line of iPhones Help Apple Shares Rebound? Don’t Bet On It

How Russian Gas in Europe Is Dwindling

Europe’s Banks Dim Lights as they Brace for Winter Blackout

Railroads Reverse Years of Streamlining in Effort to Improve Freight Service

European Central Bank Could Unleash A Jumbo Rate Hike As The Economy Slides Toward Recession

Goldman Strategists Warn Stocks Yet to Make ‘Decisive’ Low

Investor Who Made 1,700% on Mt. Gox Crash Circles Crypto Again

The Supply Chain Broke. Robots Are Supposed to Help Fix It.

United Threatens to End JFK Airport Service Without More Flights

Americans Snap Up Teslas, Bentleys, Lamborghinis as the Luxury-Auto Market Booms

Kim Kardashian’s Latest Business Venture: Private Equity

Juul Settles Multistate Youth Vaping Inquiry for $438.5 Million

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CWS Market Review – September 6, 2022
Posted by Eddy Elfenbein on September 6th, 2022 at 7:18 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 late summer stall is now turning into something substantial. In 14 trading days, the S&P 500 has given back 9.22% which is more than half of what it gained in the previous two months. As I’ve said, all bear market rallies should be assumed to be phony until proven otherwise.

On Friday, the government reported that the U.S. economy created 315,000 net new jobs last month. Perhaps the most remarkable stat from this report is that it was very close to Wall Street’s forecast of 318,000. I’m afraid Wall Street economists don’t normally have a very good track record of predicting the monthly jobs reports. Or much else.

This was the second-lowest monthly gain of the last 16 months. That’s not a reflection on August being so poor but rather on the previous 16 months being very good. In July, the economy added 526,000 jobs. In two months (March and April 2020), the U.S. economy lost 21.991 million jobs. In the 28 months since then, it has made back 22.231 million jobs. That certainly makes for an interesting chart.

Much of the media reported that the unemployment rate rose 0.2% to 3.7%. While that’s technically correct, I dug through the numbers and found that the unemployment rate rose to 3.65% which rounds up to 3.7%. Sure, it’s not a major issue, but the uptick in unemployment is nothing out of the ordinary. Part of that was driven by more people entering the workforce. The labor force participation rate increased to 62.4%.

The labor force participation rate gets a lot of attention, perhaps too much, but one issue with that number is that it’s heavily influenced by demographics. In the 1960s and 70s, that meant women entering the workforce. In recent years, it’s been the aging of the population. That’s why one key stat I like to follow is the labor force participation rate for prime working-age adults (aged 25 to 54). For August, that was 82.8%. That’s very good, and it’s nearly back to pre-pandemic levels.

One weak spot is wage growth, or lack thereof. In August, wages rose by 0.4%. Over the last 12 months, wages are up 5.6%. That’s still below the rate of inflation. We really need to see this number improve.

Another weak spot is that the number of full-time jobs fell to 242,000. Part-time jobs increased by 413,000. This jobs report had ammo for the bulls and the bears.

I should add that historically the August jobs report has been notoriously volatile. Last year, the initial estimate for August was 235,000. That was later revised higher to 483,000. If that’s the case, I have to wonder if it’s even worthwhile to release the initial estimate.

The government also lowered the June jobs number by 105,000. The number for July was lowered by 2,000.

Professional and business services led payroll gains with 68,000, followed by health care with 48,000 and retail with 44,000. Leisure and hospitality, which had been a leading sector in the pandemic-era jobs recovery, rose by just 31,000 for the month after averaging 90,000 in the previous seven months of 2022. The unemployment rate for the sector jumped to 6.1%, its highest since February.

Manufacturing rose 22,000, financial activities gained 17,000 and wholesale trade increased by 15,000.

We’re in an odd situation where the labor market is strong, yet companies are announcing layoffs. The market took the report as being “weak.” That seems off base to me, but the stock market started off Friday well; but then share prices lagged as the day wore on. Nearly the same thing happened on Tuesday.

The next test for the market will come next Tuesday when the government releases the CPI report for August. While there’s been some encouraging news regarding inflation, we still have a long way to go. The price for gasoline has been falling consistently for several weeks.

The big battle on Wall Street right now is for what the Fed will do at its meeting later this month. Some traders expect a 0.5% rate hike while others think it will be 0.75%. Thanks to Powell’s “pain” comment in Jackson Hole, the 0.75% crowd has the upper hand. Still, the jobs report gave the 0.5% hike faithful some ammo. My take is that we should listen to Powell. There’s going to be more pain ahead.

For investors, this means they should continue to focus on conservative stocks such as those you’ll find on our Buy List. In fact, we’ve been outpacing the market in recent days. This is common—our stocks will fall when the market retreats but not as much as the overall market does.

What Happened to the 60/40 Portfolio?

One of the old standbys on Wall Street is the 60/40 portfolio. This is the idea that your portfolio should be 60% in stocks and 40% in bonds.

The idea of the 60/40 portfolio is pretty simple. If stocks started to fall, then the bond market would probably rise which would cushion the blow. Conversely, if bonds started to retreat, stocks were likely to rally.

Since 1976, stocks and bonds have fallen in the same month only 15% of the time. After lots of testing, the 60/40 allocation seems to work best. That gives investors nice gains while reducing volatility.

Except for this year. This has been the annus horribilis for 60/40. It’s having its worst year since 1936.

The culprit isn’t hard to find. It’s inflation. Inflation acts like kryptonite to financial markets. This means that the two elements of the 60/40 portfolio aren’t balancing each other out. Both are down. Higher prices have caused bonds to fall. Plus, the Fed’s response to inflation has led stocks to fall.

There’s also been an important calendar effect. The stock market peaked on the first trading day of the year while many bond indexes peaked a few weeks before the end of 2021.

Another important point is that the 60/40 had a strong run in the years leading up to 2022. Even when adding in 2022, that still means the 60/40 has delivered gains close to its long run average. The 60/40 will have its day in the sun again, but that probably won’t happen until the Fed gets inflation under control again.

We’re also in the period of the year that’s historically been weak for stocks. Looking at the complete history of the Dow Jones Industrial Average, the stock market has historically hit a peak on September 6. After that, stocks retreat until October 29. Historically, the loss has averaged about 2.23%. That may not sound like much, but it stands out when compared to a 126-year average.

Tootsie Roll Is a Stock Like No Other

I used to be a big fan of Tootsie Roll. Not just the candy but the stock. I bet most people assume that Tootsie Rolls are made by Hershey or some other big-time chocolatier.

Not so. Tootsie Roll is its own company. Or to be proper, Tootsie Roll Industries. Its ticker symbol is TR. I remember it as being a classic defensive stock with a great long-term track record.

Then the oddest thing happened. Tootsie Roll disappeared. Not the candy but the stock. It became a ghost. It’s a mystery wrapped in an enigma wrapped in a Tootsie Pop.

Yet, TR still exists. It trades. It pays a small dividend. It’s even a member of the small-cap S&P 600. While some companies keep a low profile, Tootsie went full D.B. Cooper.

The crux of the matter is that a majority of Tootsie is owned by one family. No other company in the S&P 500 has that high a percentage of insider ownership, even Elon at Tesla.

Since the Gordon family owns a majority, they can pretty much do whatever they want. In this case, that means running TR as if it were a private company. The current CEO is 90-year-old Ellen Gordon who was the wife of Melvin Gordon who ran the company from 1962 until he retired shortly before his death in 2015. Before Melvin ran the company, it was headed by Ellen’s father and before that, her uncle. This is a family business.

Tootsie basically ignores the investing world. No Wall Street analyst bothers following the stock. Try calling the company. You won’t get far. They don’t do interviews or investors calls.

Then in early 2021, the improbable happened. Tootsie somehow became a meme stock. The shares nearly doubled in three days. Traders quickly lost interest and TR soon settled back where it had been.

The sad truth is that Tootsie Roll’s business hasn’t done very well in recent years. It’s been mostly flat. The company has issued 3% stock dividends each year for the last several years. (That’s effectively a 103-to-100 stock split.) Although the quarterly dividend has stayed at nine cents per share since 2015, the stock splits have increased the actual payout for long-term shareholders.

One thing going for it is name recognition. That’s very important in business. I bet Tootsie Roll has at least 95% name recognition.

The typical bull case for Tootsie is that it will eventually be bought out for a nice premium. Eh, I’m not so sure. You might have to wait a long time for that to pan out. The family seems determined to keep control.

With Tootsie, perhaps I’m being too cynical and I’m overlooking what’s really a positive story. There’s a family that’s been running their business their own way for decades and they’re determined to ignore the hordes of the investing world.

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

– Eddy

P.S. If you want to learn more about the stocks on our Buy List, please sign up for our premium service. It’s $20 per month, or $200 per an entire year.