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

People Flock to South Korean Crypto Event Despite Market Turmoil

Treasury Dept. Blacklists Crypto Platform Used in Money Laundering

One of the Decade’s Hottest Bond Markets Is Imploding in China

U.S. Solar Shipments Are Hit by Import Ban on China’s Xinjiang Region

U.S. Lawmakers Look to Digital Dollar to Compete With China

Rapid Wage Growth Keeps Pressure on U.S. Inflation

Electric Cars Too Costly for Many, Even With Aid in Climate Bill

Home Inventory Soars at Record Rate With US Buyers Pulling Back

We Will All End Up Paying for Someone Else’s Beach House

Data Show Gender Pay Gap Opens Early

Axios Agrees to Sell Itself to Cox Enterprises for $525 Million

Pfizer Agrees to $5.4 Billion Deal for Global Blood Therapeutics

Domino’s Pizza Quits Italy After Locals Shun American Pies

BlackRock Opening ‘Snowbird Office’ in Miami for Dozens of Staffers

Carlyle’s Billionaire Founders Reached a Breaking Point With CEO

Roman Abramovich’s London Empire Unravels as Sanctions Bite

Farewell, Years-Long GOP Effort to Help the Wealthy Not Pay Taxes

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Trex Earns 79 Cents per Share
Posted by Eddy Elfenbein on August 8th, 2022 at 4:19 pm

After the close, Trex (TREX) reported fiscal Q2 earnings of 79 cents per share. Wall Street had been expecting 67 cents per share.

Sales rose 24% to $386 million. That was just above the company’s own range of $375 million to $385 million. EBITDA is up 41% to $129 million.

“Trex executed effectively on our wood-to-composite market share conversion strategy during the second quarter as consumers continued to invest in enhancing their outdoor living experience. Revenue increased 24%, aided primarily by favorable pricing as well as mid-single digit growth in volume at Trex Residential, reflecting both consumer demand and continued distributor inventory build, particularly in the pro channel. We delivered strong EBITDA margins in the second quarter as a result of our pricing, favorable mix, focused cost reduction efforts and production efficiencies, enabling us to successfully offset ongoing raw material and logistics inflationary pressures, while we continued to invest in our brand. Supported by our strong free cash flow, we repurchased 2.8 million shares of our outstanding common stock during the quarter, which we believe will provide long-term benefits to our shareholders,” said Bryan Fairbanks, President and CEO of Trex.

During the quarter, Trex bought back 2.8 million shares for an average price of $60.39 per share. They still have 4.3 million left in the current authorization.

Trex said it expects a significant slowdown in business for the rest of this year. Trex sees Q3 revenue of $185 million to $195 million, and Q4 between $180 million and $190 million.

On Pace for a Three-Month High
Posted by Eddy Elfenbein on August 8th, 2022 at 11:07 am

The stock market is up again this morning. The S&P 500 is on place for its highest close in more than three months. There’s still a long way to go to get back to the high-water mark from January. So far this morning, the S&P 500 has been as high as 4,186.62. It hasn’t been this high since May 5.

Thanks to the strong jobs report, Wall Street is leaning towards a 0.75% rate increase from the Fed next month, followed by 0.25% increases in November and December. Traders still expect an initial rate cut by the middle of next year. The Fed meets again on September 21.

We’re heading towards the close of earnings season but there are still several reports left to go. The S&P 500 is currently on pace for earnings growth of 9.63%. Some of the popular meme stocks are back again. Shares of Bed Bath & Beyond (BBBY) are up more than 40% this morning. For Q2, profits from the energy sector are on pace to quadruple last year’s.

Trex (TREX) is due to report after the close. Wall Street expects earnings of 67 cents per share.

Morning News: August 8, 2022
Posted by Eddy Elfenbein on August 8th, 2022 at 7:06 am

Can Global Shipping Be Fixed? One Regulator Will Try

Russia Keeps Investors from ‘Unfriendly’ Nations Frozen Out

World’s Biggest Miner Rebuffed on $5.8 Billion Copper Play

Indonesia Says Tesla Strikes $5 Billion Deal to Buy Nickel Products

How This Economic Moment Rewrites the Rules

In an Unequal Economy, the Poor Face Inflation Now and Job Loss Later

Hiring Gets Easier for Some Employers Despite Hot Job Market

The Market Read the Federal Reserve All Wrong

Senate Passes Democrats’ Climate, Healthcare and Tax Bill

Antitrust Bill Targeting Big Tech in Limbo as Congress Prepares to Recess

How YouTube Keeps Broadcasting Inside Russia’s Digital Iron Curtain

Carlyle CEO Resigns in Sudden Reversal of Generational Shift

Mitsui Sumitomo Insurance to Buy U.S. Reinsurance Broker for $400 Million

CVS Plans to Bid for Signify Health

Why HBO Max Spent $130 Million to Shelve ‘Batgirl’ and ‘Scoob 2’

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Morning News: August 5, 2022
Posted by Eddy Elfenbein on August 5th, 2022 at 7:03 am

Japan’s GPIF Posts $28 Billion First-Quarter Investment Loss on Market Turbulence

Gloomy About the Economy and Inflation, Americans Remain Upbeat About Jobs

The Vibes in the Economy Are … Weird. Really Weird.

Pimco Clients Pull $29 Billion as Rate Hikes Hit Bond Funds

Crypto Companies Are Spending $2.4 Billion on Sports Sponsorships

After Losing Favor to Electric Cars, Plug-In Hybrids Gain Ground

The Great American Road Trip Is Almost Electric

How Deadbeat Landlords are Fueling Housing Crisis by Evading Taxes

Facebook Parent Meta Set to Raise $10 Billion in Bond Debut

Musk Says Twitter Committed Fraud in Dispute Over Fake Accounts

Warner Bros. Discovery Weighs Free Ad-Supported Streaming Plan

DoorDash Revenue Climbs as Restaurants Raise Prices, Consumers Continue Spending

Beef Prices are Poised for a Surge that Could Last Years, Experts Say

Beyond Meat Plans to Lay Off 4% of Global Workforce

AMC Plans to Issue 517 Million Shares of Preferred Stock, Under the Ticker Symbol ‘APE’

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Morning News: August 4, 2022
Posted by Eddy Elfenbein on August 4th, 2022 at 7:06 am

Big Tech Is the West’s Surprise Weapon in Competition With Russia, China

Copper Worth Nearly Half a Billion Dollars Goes Missing in China

Japan Once Led the World in Microchips. Now, It’s Racing to Catch Up

Russian Oil Cap Push Faces Doubts From Energy, Finance Industry

Stockholm Instead of Rome? October Instead of July? How Heat Waves Are Changing Tourism in Europe

The Bank of England Raises Rates by a Half-Point, Biggest Increase in 27 Years

Brazil’s Central Bank Raises Selic Lending Rate to 13.75%, Considers Increase in September

Labor Hoarding Holds Key to How Severe a US Recession May Get

A Recession-Proof Plan for Your Money

Wall Street Bonuses Poised to Plunge Following Slowdown in Deals

Companies From Google to Pepsi Are Boosting Capital Spending

Netflix Is Scrambling to Learn the Ad Business It Long Disdained

Disney World Prices Up 3,871% In 50 Years — More Than Wages, Rent and Gas

How a Little-Known Stock Soared 21,000% to Overtake Costco

How a Celebrity CEO’s Rule of Fear Helped Bring Down Hot Startup Zilingo

MicroStrategy Founder Michael Saylor Once Lost $6 Billion in a Day. His Big Bet on Bitcoin Might Sink Him Once and for All

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Miller Industries Earned 33 Cents per Share for Q2
Posted by Eddy Elfenbein on August 3rd, 2022 at 4:26 pm

Miller Industries (MLR) announced financial results for the second quarter ended June 30, 2022.

Net sales were $201.5 million, an increase of 11.2%, and net income was $3.8 million, or 33 cents per diluted share. That’s down 42% from last year.

Gross profit for the second quarter of 2022 was 9.1% of net sales, compared to 11.4% of net sales, for the second quarter of 2021. Selling, general and administrative expenses were $12.7 million, or 6.3% of net sales, compared to $12.0 million, or 6.6% of net sales, in the prior year period.

Miller Industries also announced a quarterly cash dividend of $0.18 per share, payable September 12, 2022, to shareholders of record at the close of business on September 5, 2022, the forty-seventh consecutive quarter that the Company has paid a dividend.

“Supply chain issues persisted during the quarter, however, despite this, we were pleased with our ability to improve profitability as we navigate these challenging times,” said William G. Miller, II, Chief Executive Officer of the Company. “We continued to experience issues securing certain parts, which impacted the amount of finished goods we could deliver and our overall revenue growth. That said, the price increases we enacted through the first and second quarters of 2022 have begun to take effect and, as a result, profitability improved sequentially in the quarter, despite a slightly unfavorable product mix that impacted our consolidated gross margin.”

Mr. Miller, II continued, “We continue to be extremely encouraged with the demand for our products and how this contributes to the continued strength in our backlog, as our backlog grew substantially in the second half of 2021 and has remained very stable to date in 2022. To meet this demand for our products, we are continuing our strategy of accumulating available inventory to service customers and quickly complete and deliver finished goods as soon as part sourcing allows, all while keeping disciplined capital allocation as a top priority. In the meantime, we will continue to focus on improving operational efficiency, mitigating inflationary impacts, providing excellent service to our customers, and delivering value for all stakeholders.”

“Although supply chain pressures are ever present in both our North American and foreign markets, we remain optimistic about our business’ long-term fundamentals. We have yet to see any significant slowdown in demand, despite the ongoing conflict in Ukraine. While the consequences of the war between Russia and Ukraine, and its ultimate effect on our business, are difficult to predict, we are encouraged by initial demand signals and the fact that the conflict has had limited impact on our European operations thus far,” concluded Mr. Miller, II.

The Market Rallies on Positive Economic Data
Posted by Eddy Elfenbein on August 3rd, 2022 at 11:00 am

The stock market is turning back its two-day slide from earlier this week. So far, many of the aggressive stocks are doing well. For example, the Nasdaq is leading the S&P 500 this morning by one full percentage point.

James Bullard, the top guy at the St. Louis Fed, said he sees more rate hikes this year. He added that we’re not in a recession and he projects rate increases of 1.5% left to come this year.

His comments have been the latest in a string of remarks from Fed officials adopting a more hawkish tone. The market started to rally in the middle of last week as Jerome Powell’s comments were seen as more dovish.

We also got some surprisingly strong economic data this morning. The ISM Non-Manufacturing Index was 56.7. That beat expectations of 54. Also, the factory orders report showed an increase of 2%. Economists were expecting 1.2%.

After the close, we’ll get earnings reports from FICO (FICO) and Miller Industries (MLR). Of course, the big jobs report is due out on Friday morning.

Morning News: August 3, 2022
Posted by Eddy Elfenbein on August 3rd, 2022 at 7:00 am

Congress Is Giving Billions to the Chip Industry. Strings Are Attached.

As US Eyes New China Chip Curbs, Turmoil Looms for Global Market

Dollar Jumps Vs. Yen as Fed Officials Hint More Rate Hikes Coming

As Russia Threatens Europe’s Energy, Ukraine Braces for a Hard Winter

The End of Snow Threatens to Upend 76 Million American Lives

There’s a Miracle in Washington, and It’s All About Taxes

Who Will Listen To These Truckers?

CEOs Ditch the Warm Talk as Economy Cools

Crypto Takes a New Hit as Thousands of Solana Wallets Hacked

Nomura’s 97% Profit Drop Adds Urgency to Plans to Shift Away From Trading

SocGen Targets Higher Revenue With Boost From Rising Rates

Southwest Made It Easier to Use Travel Credits. Will Other Carriers Follow?

Profits Slump at CNN as Ratings Plummet

New York Times Reports a Gain of 180,000 Digital Subscribers

Forbes Explores Sale After SPAC Deal Collapses

Robinhood Lays Off 23% of Staff as Retail Investors Fade From Platform

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CWS Market Review – August 2, 2022
Posted by Eddy Elfenbein on August 2nd, 2022 at 7:23 pm

It’s Been a Good Earnings Season for the Market

We’re still in the middle of earnings season and so far, it’s been a pretty good one. The S&P 500 is currently on track to post Q2 earnings growth of 8.09%. That’s not bad. Not that long ago, Wall Street had been expecting a lousy Q2 earnings season.

So far, 74.8% of companies in the S&P 500 have beaten earnings estimates and 67.9% have beaten sales estimates, although it’s true that Wall Street has lowered its estimates in recent weeks.

That’s an old Wall Street game: keep lowering the bar until you can easily step over and claim victory. I don’t make the rules. Of the companies that have reported so far, 57.2% have beaten on both earnings and sales. For the most part, our Buy List earnings have been quite good.

Here’s a look at the S&P 500 (black line, left scale) along with its earnings (red line, right scale). I scaled the two lines at a ratio of 20-to-1. That means whenever the lines cross, the P/E Ratio is exactly. The orange line is Wall Street’s forecast.

After yesterday’s close, AFLAC (AFL) released a solid report. The duck stock posted operating earnings of $1.46 per share. That was 18 cents above expectations. AFLAC has beaten expectations every quarter for the last five years. That’s why it’s been on our Buy List. Shares of AFLAC gained 3.6% today.

Since last week was so cramped with earnings, I wanted to address the economic news we’ve had. Let’s start with the biggest which was the Federal Reserve’s decision to raise interest rates.

This is important because Jerome Powell appeared to hint that the Fed may be nearing the end of its rate hikes. Or at least, the aggressive portion of those rate hikes. Last Wednesday, the Fed decided to raise short-term interest rates by 0.75%. This is the second meeting in a row in which the Fed raised rates by that amount. The new target range for Fed funds is 2.25% to 2.50% and the vote was unanimous. This was the Fed’s fourth rate hike of this cycle.

Unfortunately, the Federal Reserve doesn’t have a terribly good track record of raising interest rates, slowing inflation and avoiding a recession. Fed Chairman Jerome Powell was clear that the economy is not currently in a recession. While Powell stated the need for ongoing increases in rates, he said that any more unusually large increases would depend on the data.

Investors took that as a hint that the Fed could be easing up soon. The stock market always prefers lower interest rates, and that’s why the S&P 500 rallied strongly on Wednesday afternoon after the policy statement came out. The index closed the day above 4,000 for the first time in seven weeks.

The rally continued through Thursday and Friday, and the S&P 500 closed last week 12.6% above its low from June 16. This makes this the largest rally of this bear market, but we still have a long way to go to reach a new all-time high. July turned out to be the best month for the market since 2020. It was also the market’s fifth-best month in the last 30 years.

The Fed is talking tough, but investors are skeptical. Earlier today, San Francisco Fed President Mary Daly said, “our work is far from done.” Chicago Fed President Charles Evans said that he’s open to another 0.75% increase.

For now, traders aren’t buying it. The futures market now sees a 70% chance of a 0.50% increase at the Fed’s September meeting. That’s probably about right. After that, things start to cool down. Traders see a 0.25% hike coming in November, just a few days before Election Day, followed by another 0.25% increase in December.

But that’s it. After that, the forecast is for the Fed to hold rates steady for several months. Traders even lean toward the Fed cutting rates by next June. That’s a shocker. It’s not unusual for the Fed to pivot abruptly in its policy decisions, but I can’t think of a time when a pivot was expected. There are even people claiming that the Fed misread the entire inflation situation. The Fed doesn’t meet in August, but it will have its traditional shindig in Jackson Hole at the end of this month.

We’re Not in a Recession. For Now.

On Thursday, the government released its initial estimate for Q2 GDP growth, and it showed that the economy contracted by 0.9% during the second three months of the year. This was the second quarter in a row of falling GDP. That’s often used as a short-hand definition of a recession. To be technical, that’s not the precise definition of a recession.

This generated a lot of debate over what is and what is not a recession. To be honest, I’m not much interested in that debate, but the numbers clearly show that the economy is slowing down. In particular, the weak spots are business and residential construction. Consumer spending is positive, but it appears to be slowing down.

My view is that the economy is not currently in a recession, but the odds of a recession starting within the next 12 months are quite high. I’d say 75%.

On Monday, the latest ISM Manufacturing Index came in at 52.8. That was the lowest number in two years. Any number above 50 means the factory sector of the economy is growing.

Earlier today, the Labor Department said there were 10.7 million job openings in June. That’s a big drop from May’s number of 11.3 million. This was the lowest number since September. Despite the big drop, there are still 1.8 job openings for every unemployed worker.

The next big test for the market will be this Friday when the July jobs report comes out. During June, the economy created 372,000 new jobs and the unemployment rate held at 3.6%.

For this Friday, the consensus of economists is that the economy created 258,000 net new jobs during July. If the number comes in weak, that could be more impetus for the Fed to abandon its plans for higher interest rates. In fact, I wouldn’t be surprised to see the market rally on a lower-than-expected jobs report.

Earlier this week, I looked at the historical numbers regarding job growth and recessions. I found that it’s very unusual for the economy to add jobs in a month that’s during an official recession. It’s happened just 20 times in 776 months of growing jobs. Bottom line: If Friday’s jobs report is positive, then it’s very doubtful that we’re in a recession.

As is often pointed out, the Federal Reserve prefers to follow the Personal Consumption Expenditures Price Index for its inflation figure rather than the Consumer Price Index. This has drawn some attention because the PCE has generally been lower than the CPI.

On Friday, we got the latest PCE report, and it showed that inflation is still going strong. For the 12 months ending in June, the PCE Price Index increased by 6.76%. That’s the steepest increase in 40 years.

The PCE increases had peaked in March. That is, until we got Friday’s report for June. The core PCE Price Index is up 4.79% over the last year. That’s still below its peak of 5.31% which it hit in February. In single-month terms, PCE was up 0.95% in June while the core rate was up by 0.59%.

The next inflation report will come out next Wednesday, August 10. This will be the first one that will include the recent drop in gasoline prices. According to GasBuddy, gasoline prices peaked at $5 per gallon in mid-June. Since then, prices have gradually drifted lower and are now at about $4.15 per gallon.

Update on Simulations Plus

In May of 2021, I told you about one of my favorite stocks to watch which is Simulations Plus (SLP). I said that as much as I liked the stock, the price was too high for me. At the time, SLP was going for $57 per share. I said that if SLP “ever drops below $40, it could be a very good buy.”

That was a steep drop I was asking for, and that’s what happened. In fact, SLP fell below $40 per share twice. The last time was earlier this year, and it turns out that that was a very good buying opportunity. Today SLP closed at $64.53 per share.

So what does Simulations Plus do? The company makes software that lets drug companies simulate tests of their products in the virtual world before using any human or animal test subjects. That’s a big cost-saver for drug companies. Simulations Plus helps streamline the R&D process by making it faster and more efficient. Not only is this cost effective, but it also helps drug companies in dealing with time-consuming regulatory hurdles.

There are times when the results from SLP’s products have allowed companies to waive clinical studies. The cost savings are substantial. This means drug companies don’t have to deal with the time and expense of recruiting test subjects and analyzing test results.

By using SLP’s software, drug companies can experiment with many variables like fine tuning dosage amounts. Companies can also see potential harmful side effects. Another important factor is that companies can identify treatments that have no benefits.

The stock has been rallying strongly since mid-June. That was helped by a very good earnings report. In early July, SLP reported its fiscal Q3 earnings for the quarter ending on May 31. Revenue rose 17% to $15 million. The company has two business segments. Software revenue increased 16% to $9.7 million, and Services revenue was up 19% to $5.3 million.

SLP’s gross margins are at 83%. In simpler terms, they can charge six times what it costs them to make their products. Net income was 20 cents per share. That beat the consensus of 17 cents per share.

By the way, I use the term “consensus” very carefully since only four analysts follow the stock. When I first started watching the stock, no one was following it. It’s interesting how coverage only comes after the stock starts to move.

For Q4, which ends later this month, SLP expects revenue growth of 12% to 15%. They didn’t provide an estimate for EPS, but Wall Street expects 25 cents per share. There’s a lot I like about SLP and it will certainly be a candidate for next year’s Buy List.

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

– Eddy

P.S. 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.”