Morning News: September 6, 2021
Posted by Eddy Elfenbein on September 6th, 2021 at 7:12 am

China’s ‘Mr. Income Distribution’ Explains Common Prosperity

Oil Down After Deep Saudi Price Cuts Spur Demand Concerns

Bitcoin Price Pump Movement Grows Ahead of El Salvador’s Adoption

Aluminum Jumps Again as Guinea Coup Adds to Supply Worries

Crypto Banking and Decentralized Finance, Explained

We’ll Give You a Week Off. Please Don’t Quit.

Jobless Are Stuck in Backlog Nightmare as Benefits Expire

When Hard Jobs Turn Hazardous

A Century Ago, Miners Fought in a Bloody Uprising. Few Know About It Today.

Goldman Lines Up $5 Billion Petershill Private Equity Asset Float

Tesla and Apple Are a Clear Match, But Their Products Oddly Don’t Work Well Together

BMW CEO Expects Chip Supply to Remain Tight for Another 6-12 Months

Texas City to Offer Samsung Large Property Tax Breaks to Build $17 Billion Chip Plant

How’s Hollywood to Plan When It Doesn’t Know Who’s Watching What?

Disney’s ‘Shang-Chi’ Breaks Labor Day Record With Asian Turnout

Kraft Heinz to Pay More Than $62 Million to Settle SEC Accounting Charges

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The August Jobs Report
Posted by Eddy Elfenbein on September 3rd, 2021 at 8:37 am

The August jobs report is out! The US economy created 235,000 new jobs last month. That’s well below expectations of 720,000. That’s not exactly the Fed’s “substantial further progress.”

The unemployment rate fell to 5.2% which is a post-Covid low. There were 243,000 private sector jobs added, and in manufacturing, 37,000 jobs were created.

August’s total was the worst since January and comes with heightened fears of the pandemic and the impact that rising Covid cases could have on what has been so far a mostly robust recovery. The weak report could cloud policy for the Federal Reserve, which is weighing whether to pull back on some of the massive stimulus it has been adding since the outbreak in early 2020.

“Today’s jobs report reflects a major pullback in employment growth likely due to the rising impact of the Delta variant of COVID-19 on the U.S. economy, though August is also a notoriously difficult month to survey accurately due to vacations,” said Tony Bedikian, head of global markets at Citizens.

The jobs gain number for July was revised from 943,000 to 1,053,000. June was revised to 962,000 from 938,000.

Average hourly earnings rose by 0.6% last month. That’s a very big increase. Over the past year, wages rose by 4.3%. The labor force participation rate was 61.7%. The broader U-6 rate was 8.8%.

Morning News: September 3, 2021
Posted by Eddy Elfenbein on September 3rd, 2021 at 7:03 am

Fraying Relations With China Are About to Hit Australian Economy

What ‘Common Prosperity’ Means and Why Xi Wants It

U.S. Has No Plans to Release Billions in Afghan Assets, Treasury Says

Inflation Could Repeat the 1960s, When the Fed Lost Control, Niall Ferguson Says

Car Buyers Face Bleak Prospects This Labor Day Weekend

Oxygen Shortage Forces Texas Oil Refinery to Curtail Operations

Insurers Could Face $1 Billion Hit from Hurricane Ida Damage to Offshore Rigs

Corporate America Is Lobbying for Climate Disaster

U.S. Economy’s Hot Vax Summer Ends in Cool COVID Fall as Delta Rises

As U.S. Unemployment Benefits End, Firms Hope for a Wave of Applicants

Amazon Tells Delivery Partners Not to Screen for Marijuana Amid Labor Shortage

Forget Finance. Supply-Chain Management Is the Pandemic Era’s Must-Have MBA Degree

States Dole Out Cash to College Kids, Theaters With $200 Billion

Goodbye to the ‘Office Mom’

The Poetic Justice of Amanda Gorman’s Estée Lauder Contract

Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.

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Morning News: September 2, 2021
Posted by Eddy Elfenbein on September 2nd, 2021 at 7:39 am

Chinese Firms Rush to Embrace ‘Common Prosperity’ Slogan

Businesses Push Biden to Develop China Trade Policy

U.S. Weighs Quota System in Bid to End EU Steel-Tariff Feud

The Business of Voting in Texas

Lurch to the Right May Imperil Texas’s Attraction for Employers

U.S. Initial Jobless Claims Decline to Fresh Pandemic Low

Meet the Unsung Hero of the $11 Trillion Index Revolution

Bill Gross Says Bonds Are ‘Investment Garbage’ Amid Low Yields

Facebook’s WhatsApp is Fined for Breaking the E.U.’s Data Privacy Law

Justice Dept. Is Said to Accelerate Google Advertising Inquiry

Apple Hit with Antitrust Case in India Over In-App Payments Issues

Apple Offers Small Concession in Easing App Store Rules for Netflix, Others

YouTube Has Finally Figured Out How to Get People to Pay for Music

2 Siblings, Ages 14 and 9, Say They Make More than $30,000 a Month Mining Bitcoin, Ether, and Ravencoin

People with More than 10,000 Twitter Followers Can Now Earn Money from Tweeting — Here’s How

Purdue Pharma Is Dissolved and Sacklers Pay $4.5 Billion to Settle Opioid Claims

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14 Monthly Gains in 17 Months
Posted by Eddy Elfenbein on September 1st, 2021 at 10:31 am

The stock market wrapped up another solid month last month. The S&P 500 gained 2.90% in August and 3.03% with dividends. This was our seventh monthly gain in a row and the 14th of the last 17 months. The last three monthly gains all had 2% handles.

This morning’s ISM manufacturing index showed a slight increase to 59.9 from the reading for July of 59.5. The employment index was at 49.0. That’s down from 52.9 in July.

The ADP payroll report showed a gain of 374,000 jobs last month. That was well below expectations of 638,000. The government will release the official numbers on Friday morning.

Morning News: September 1, 2021
Posted by Eddy Elfenbein on September 1st, 2021 at 7:11 am

‘Can’t Go Up Forever’: Muni Bonds See First Loss Since February

September Is the Stock Market’s Worst Month. History Says This Time Could Be Different.

Biden Infrastructure Plan Takes on EV Charging’s Inequality Problem

Wall Street Sees Nothing but Good News, Even When It’s Bad

China Hedge Funds Pay $300,000 to Beat Wall Street to Best Graduates

Japan Needs a Lot More Tech Workers. Can It Find a Place for Women?

Amazon CEO Unveils 55,000 Tech Jobs in First Hiring Push Under His Watch

She’s the Investor Guru for Online Creators

‘Forever Changed’: CEOs Are Dooming Business Travel — Maybe for Good

Cathie Wood’s New ETF Shuts Out Banking, Fossil Fuels and Vice

The Silent Partner Cleaning Up Facebook for $500 Million a Year

Walgreens Boosts Minimum Wage to $15 an Hour

Four Powerful Art Dealers Join Forces, Upending Traditional Model

Free Parking Is Killing Cities

How Flying Got So Awful

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CWS Market Review – August 31, 2021
Posted by Eddy Elfenbein on August 31st, 2021 at 9:18 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.)

What Makes a Stock a Good Value?

In late 2019, I was strongly considering adding Trex (TREX) to our Buy List. I really liked the business, but I was very concerned about the price.

I hate overpaying for any stock. After running all my calculations, I determined that $45 per share was a good price for Trex. If I could add it at $43 per share, well then that was very good. But if it climbed to $47 or higher, then I was apprehensive.

I stressed about this decision a lot. Ultimately, I added it to our Buy List at $44.94 per share. Here we are 20 months later and Trex is just over $109 per share. We have a 140% gain in just 20 months!

Trex has been a home run for us. In retrospect, why was I stressing so darned much? It seems silly that I was so concerned about a few dollars on a stock that was prepared to rally. Of course, I didn’t know that at the time.

This raises a good lesson for investors and it’s something I want to share with you in this issue. The question: What is a good value?

Conventionally, it means a stock with generous valuation metrics. It may have a high dividend yield or a low price-to-earnings ratio. But shouldn’t we concern ourselves with other factors? Perhaps the company’s ability to grow may be its most undervalued asset. If so, that changes the way we value businesses, and that’s what I want to get at this week.

I’ll give you an example. In late 1998, Wall Street was taking notice of these new-fangled Internet stocks. Shares of Amazon, in particular, were soaring to the moon. On October 9, 1998, Amazon closed at $86-3/16 (remember those fractions!). By mid-December, it got to $242-3/4 per share.

Then things really got crazy! Henry Blodget, a well-known analyst, gave Amazon a $400 price target. Wall Street went bonkers and Amazon jumped $46 per share that day. It took less than a month for Amazon to reach Blodget’s price target. In fact, it smashed through it. Amazon got over $550 per share in early January (these numbers are not adjusted for splits).

Obviously, this was a massive stock bubble. Right? Once the bubble burst, shares of Amazon plunged 95%.

Hold on a second. That’s only if you sold. But what if you didn’t? In the two decades since then, Amazon has grown fantastically. Viewed that way, Blodget’s price target was a bargain—a huge bargain. (Here’s an article I wrote on the 20th anniversary of Amazon’s IPO>)

If you had paid $3,000 for Amazon and held on to it to today, then you’d have made a huge profit and also outperformed the market by a good margin.

But remember those words I just wrote, “if you held on to it.” For the long-term investor, the stock market is always cheap.

A value investor is looking to get a cheap stock based on today’s valuation. Let’s say that you buy a stock at 10 times earnings that should be going for 20 times earnings. If that eventually adjusts within a year or two, that’s a great trade. But there’s a limit an investor can make when the earnings multiple regresses to the mean. Earnings, by contrast, can keep growing and growing.

For example, shares of Colgate-Palmolive currently yield 2.3%. That’s not bad. But if you had bought it 30 years ago, then it would now be yielding you 35% based on the original purchase price. This is what I talked about in last week’s issue, the importance of spotting a stock with a competitive advantage.

The lesson is to not get bogged down with the ratios. Just about every investor can do long division. You also have consider what the company is doing.

Masimo Corporation (MASI)

Having said that, I want to talk about one of my favorite growth stocks and a stock with a definite competitive advantage, Masimo Corporation (MASI). Masimo is a medical technology company based in Irvine, CA. This is a fascinating company that’s not well-known but it’s a cool story. What I particularly like about Masimo is the role that it’s playing in combating the coronavirus.

Masimo was founded by Joe Kiani, an Iranian immigrant. Kiani came to the U.S. when he was only nine years old and he knew three words of English. Still, he graduated high school at 15 and by 22 he had a bachelor’s and master’s degree in electrical engineering. Kiani founded Masimo in 1989 when he was 25 years old.

Today, Masimo is a $15 billion enterprise. It employs 2,000 people and last year it had sales of $1.14 billion. Masimo is perhaps best known for its pulse oximetry. This is a noninvasive method for monitoring a person’s oxygen saturation. This is a great product with enormous potential.

Masimo has developed a SafetyNet device which is a disposable smart wristband with a pulse oximetry that’s taped around your finger. It monitors your vitals like your pulse and oxygen levels. If there’s a problem, an update is sent to your smart phone, and it alerts your doctor. It can also be connected to a central monitor like a hospital.

Each year, over 200 million patients are monitored with Masimo’s technology. Nine of the top ten hospitals rated by U.S. News primarily use their technology.

Did you know that unpredictable reactions to opioids kill more people than car crashes? It’s impossible to know who’s at risk. But with continuous monitoring, we can spot adverse reactions quickly.

Interestingly, the device was meant to be used for opioid addicts, but plans changed once the pandemic hit. Now it’s being used on coronavirus patients. Since the technology is wireless, it’s also safer for healthcare workers.

Tying back to my earlier point, Masimo has been a great growth stock. Consider these numbers. Masimo’s earnings-per-share rose from $2.28 in 2016 to $3.13 in 2017. Earnings then fell in 2018 to $3.03 per share but rebounded to $3.22 per share in 2019. Earnings then rose to $3.60 per share last year.

What about for this year? Masimo recently revised its guidance higher for 2021. Masimo now expects $3.85 per share for this year. That’s very doable. Masimo has already made $1.80 per share for the first half of the year.

I don’t think Wall Street fully understands the potential of Masimo. Only seven analysts follow it. The stock has beaten earnings for 28 consecutive quarters. The average beat has been more than 14%.

Thanks to the growing earnings, shares of Masimo have performed very well. Masimo IPO’d in 2007 at $17 and the shares are now at $271. The stock is up about 16-fold in 14 years.

There’s so much I like about this company. Here’s an interview Kiani did last year with Jim Cramer:

Interesting side note: Masimo has been in a big legal fight with Apple. Masimo claims that Apple poached their trade secrets for their Apple Watch. I should add that Kiani is no stranger to these kinds of legal battles, and he’s already won a few cases with big settlements. The odd thing with this one is Apple’s complete intransigence. Kiani said that Apple has also picked off some of Masimo’s top talent. I guess rules are a little different when you have a market cap of $2.5 trillion. Still, my money’s on Kiani in any courtroom.

One month ago, Masimo beat earnings again. For Q2, the company earned 94 cents per share. That topped the Street by four cents per share. I also like that its operating margin often runs around 22% to 24%.

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said “We are happy to report strong second quarter results. While we expected the drivers and capital orders of 2021 to be lower than we achieved in 2020 due to high demand during the height of COVID-19, and expected sensor volumes to rebound as elective surgeries recover, we did not anticipate the very strong increase in single-patient-use sensors that we realized this quarter. This produced higher revenues that exceeded expectations for this period.”

I got excited earlier this year when shares of MASI tanked. The stock fell from $284 in January down to $205 by June. I love when stocks of companies I like get hammered. MASI has already made back nearly everything it lost.

Frankly, I’m not wild about MASI at $270, but if it gets back to $200 or so, then could be a very compelling buy. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

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Morning News: August 31, 2021
Posted by Eddy Elfenbein on August 31st, 2021 at 7:06 am

China Tightens Limits for Young Online Gamers and Bans School Night Play

How Hackers Hammered Australia After China Ties Turned Sour

EU to Reimpose Travel Curbs on U.S. Amid Rise in Covid Cases

Private Equity Firms All Want the Same Thing: British Companies

The Economy Is Booming but Far From Normal, Posing a Challenge for Biden

Fed Now Risks Too-Slow Taper After Too Fast in 2013, Rajan Says

Progressives Urge Biden Not to Nominate Powell as Fed Chair

Fed Chair Race Spotlights Powell-Brainard Wall Street Rule Split

The S.E.C. Head Is Considering Banning A Key Way Robinhood Makes Money

U.S. Treasury Says China Private Equity’s Magnachip Purchase Poses Security Risks

S. Korea’s Parliament Passes Bill to Curb Google, Apple Commission Dominance

Zoom Video Earnings Beat Expectations. Why The Stock Is Falling.

Rivian’s Road to $80 Billion Was Paved by Tesla

Billionaire Investor John Paulson: Cryptocurrencies Will ‘Go to Zero’

Why Do We Work Too Much?

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Support.com: The Latest Meme Stock
Posted by Eddy Elfenbein on August 30th, 2021 at 11:07 am

The latest meme stock is Support.com (SPRT). No, I don’t know anything about it either except it goes up a lot. SPRT is up 40% today, and that comes on top of being up 33% on Friday.

Going back to last Monday’s low, Support.com is up 315%. It’s actually down a lot from Friday’s intra-day high.

So what do they do? Beats me. This is from their recent earnings report:

Support.com, Inc. (NASDAQ:SPRT) is a leading provider of customer and technical support solutions and security software delivered by home-based employees. For more than twenty years, the company has achieved stellar results for enterprise clients, leading businesses, and consumers. Support.com efficiently meets rapidly-changing market needs with a highly-scalable homesourcing model, IoT expertise, omnichannel solutions, and proprietary software. With no bricks and mortar facilities, no commuting, and a secure cloud-based infrastructure, Support.com is a global leader in sustainability.

Hmmm. I’m still not clear on what they do. Here’s the long-term chart:

“Being Bullish Brings a Competitive Advantage”
Posted by Eddy Elfenbein on August 30th, 2021 at 9:53 am

The blogger at Dividend Growth Investor linked to this interview with Nick Train. In it, Train shares a lot of investing wisdom. Here’s a sample.

John Templeton once said, “History shows that time, not timing, is the key to investment success. Therefore, the best time to buy stocks is when you have money” – a philosophy you share. What would you do in a 1999 or2007- like scenario? Continue to invest? Yet another view says, “Wait till there is ‘blood in the streets’.” How do you reconcile these two?

I have never suffered from any delusion that I am an unusually smart or far-sighted investor. A keen sense of my many investing Imitations means I have had to keep my approach simple. I am mostly concerned with avoiding obviously bad or ‘losing’ investment behavior such as over-trading or backing low-quality companies and I’m willing to stick with basic investment principles that seem to me likely to work over time, even accepting there will be periods when they don’t.

Your first question is a good example. For a while, as an inexperienced investment professional, I tried to judge whether equity markets were cheap or expensive. I even allowed myself to express pessimistic views about market prospects in public and, worse, to act on them.

Now looking back over the thirty or more years of my career, it seems to me every one of those negative calls I made on markets was just plain wrong. They’ve gone up a lot over time and in hindsight there was always something to be enthused about. And likely there always will be.

Eventually I acknowledged, for me, the futility of such guesswork about market levels and concluded that it makes good commercial, investment and – perhaps most importantly – emotional sense to be permanently bullish.

This, I believe, is good, ‘winning’ investment behavior. Being bullish brings a competitive advantage over the many market participants who are either negative because that is their habitual outlook on life (an outlook that tends to overstate temporary problems and to underestimate human problem-solving ingenuity) or who back themselves to trade in and out of equity markets on the basis of their hunches about market levels; or both.

Of all the losing investment approaches out there, that of being a pessimistic trader must be the most certain to lead disappointing returns. So I practice the exact opposite – I’m an optimistic buy-and-holder. In this way I put history on my side, given the long-term propensity of stock markets to rise over time, Anglo-Saxon ones at least. In addition, I feel a lot better about myself — optimism keeps you young!

You can see the whole thing here.