Q3 GDP Revised Slightly Higher
Posted by Eddy Elfenbein on December 22nd, 2020 at 10:43 am

This morning, the government released the final revision to Q3 GDP. The U.S. economy grew at a 33.4% annualized rate for the third quarter of the year. That’s a 0.3% increase over the previous estimate. That’s a very large number but it comes after the big drop during Q2.

This morning’s existing-home-sales report saw a larger drop than expected.

The National Association of Realtors said on Tuesday that existing home sales fell 2.5% to a seasonally adjusted annual rate of 6.69 million units last month. Economists polled by Reuters had forecast sales declining 1.0% to a rate of 6.70 million units in November.

Existing home sales, which account for the bulk of U.S. home sales, surged 25.8% on a year-on-year basis in November.

Congress also officially passed the stimulus bill. Here’s a chart of real GDP.

Morning News: December 22, 2020
Posted by Eddy Elfenbein on December 22nd, 2020 at 7:03 am

Virus Disrupts Travel and Trade Between U.K and Europe

Who Takes the Eurostar? Almost No One, as the Pandemic Fuels a Rail Crisis

Europe’s Embattled Banks Look to Mergers as Way Out of Malaise

Airbus to Lose Over $5 Billion in Orders Under AirAsia X’s Proposed Restructuring

Massive Package of Virus Relief, Federal Funding Passes Congress

Confusion Reigns As Companies, Industries Try to Navigate U.S. COVID-19 Vaccine Rollout

Commercial Real Estate’s Pandemic Pain Is Only Just Beginning

Covid Spurs Families to Shun Nursing Homes, a Shift That Appears Long Lasting

Cryptos Dive As Ripple Expects To Be Sued by the SEC

Apple Targets Car Production by 2024 and Eyes ‘Next Level’ Battery Technology

Google and Facebook’s Antitrust Pileup: A Readers Guide

SoftBank Just Filed for a $525 Million SPAC IPO. Here’s Why.

Ben Carlson: What If You Only Invested at Market Peaks?

Michael Batnick: This Is The Way

Howard Lindzon: Extra Special Momentum Monday- Everyone Knows The Narrative…Ben Hunt Joins Me On Panic With Friends

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The “Lock-Down Trade” Reappears
Posted by Eddy Elfenbein on December 21st, 2020 at 1:46 pm

The good news is that Congress finally came to an agreement on another stimulus bill. Treasury Secretary Steven Mnuchin said that stimulus checks could go out as soon as next week.

The bill would extend aid to millions of struggling households through stimulus checks, enhanced federal unemployment benefits and money for small businesses, schools and child care, as well as for vaccine distribution. It also repurposes $429 billion in unused funds provided by the Cares Act for emergency lending programs run by the Federal Reserve.

For Wall Street, the stimulus is already old news. I think some agreement was assumed several weeks ago. The stock market slipped early this morning on worries of a new virus strain in the U.K. Within minutes, the S&P 500 was down nearly 2%.

Once again, we saw the “lockdown trade” take shape. This was the pattern that was so prevalent earlier this year; travel stocks like airlines, hotels and vacation businesses took a big hit. Meanwhile, the stay-at-home and financial stocks did the best, or least-worst.

The stock market hit its lowest before 10:30 and it’s been making back lost ground since then. The Dow is already positive. FactSet is doing poorly today despite a good earnings report.

FactSet Earns $2.88 per Share
Posted by Eddy Elfenbein on December 21st, 2020 at 9:16 am

Earnings are out for FactSet (FDS). For its fiscal Q1, FactSet earned $2.88 per share. That beat Wall Street’s estimate of $2.75 per share. That’s up 11.6% over last year’s Q1.

Adjusted operating margin improved 0.4% to 34.3%. Annual Subscription Value (ASV) plus professional services rose 5% to $1.56 billion. User count increased by 5,187 to 138,238. Annual ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention was 90%.

Here’s FactSet’s guidance:

Organic ASV plus professional services is expected to increase in the range of $55 million and $85 million over fiscal 2020.

GAAP revenue is expected to be in the range of $1,570 million and $1,585 million.

GAAP operating margin is expected to be in the range of 29.5% and 30.5%.

Adjusted operating margin is expected to be in the range of 32.0% and 33.0%.

FactSet’s annual effective tax rate is expected to be in the range of 15.0% and 16.5%.

GAAP diluted EPS is expected to be in the range of $10.05 and $10.45. Adjusted diluted EPS is expected to be in the range of $10.75 and $11.15.

Both GAAP operating margin and GAAP diluted EPS guidance do not include certain effects of any non-recurring benefits or charges that may arise in fiscal 2021. Please see the back of this press release for a reconciliation of GAAP to adjusted metrics.

Morning News: December 21, 2020
Posted by Eddy Elfenbein on December 21st, 2020 at 7:08 am

U.K. Confronts Threat of Food Crisis as Virus Blocks Trade

Stimulus Deal Provides Economic Relief, for Now

The Stimulus Deal: What’s in It for You

Big Tech’s Stealth Push to Influence the Biden Administration

Tesla’s Rise Made 2020 the Year the U.S. Auto Industry Went Electric

Agios to Sell Its Cancer Portfolio to Servier for $1.8 Billion

JPMorgan Ousted as Mideast-Africa’s Top Dealmaker by U.S. Rivals

Shell to Write Down Assets Again, Taking Cuts to More than $22 Billion

McDonald’s Sells ‘Spam Burger’ with Cookie Crumbs in China

Nick Maggiulli: 5 Lessons From the Only 2 Stocks I’ve Ever Owned

Cullen Roche: This Man Lost Everything Betting on Stocks

Jeff Miller: Weighing the Week Ahead: What Can Investors Expect before Springtime?

Ben Carlson: The Hardest Market Environment Ever

Michael Batnick: Animal Spirits: How to Start Your Financial Life & This Is Not The Way

Howard Lindzon: I Love Seeing My Friends Do Well…

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CWS Market Review – December 18, 2020
Posted by Eddy Elfenbein on December 18th, 2020 at 7:08 am

“See, the stock market only deals in facts, in reality, in reason, and the stock market is never wrong. Traders are wrong.” – Jesse Livermore

Before I begin, let me remind you that I’ll be unveiling the 2021 Buy List in next week’s newsletter. On Friday, December 25, I’ll send you an email with the new Buy List. In honor of our new Buy List, the NYSE has agreed to close that day.

As in previous years, I’ll be adding five new stocks and deleting five old stocks. The Buy List will remain at 25 stocks. The new Buy List will be equally weighted based on the closing prices on December 31. The new Buy List will take effect at the start of trading on January 4, which is the first trading day of the new year. Stay tuned. Now, on to the issue.

The big news this week is that congressional leaders appear to be close to an agreement for an economic stimulus plan. Now that the election is behind us, a deal is only a matter of time. The other big news is that the vaccine for the coronavirus has finally been rolled out. While the numbers are still quite severe, if all goes well, we’ll finally turn the tide on this terrible virus.

The S&P 500 closed at a new all-time high on Thursday. Since the March low, the index has rallied more than 66%. The S&P 500 has racked up 64 daily gains of more than 1%. That’s the highest number in at least 70 years. The Dow and Nasdaq are also at new highs. (Bitcoin has tripled this year!)

We also had a Federal Reserve meeting this week. As expected, the Fed didn’t offer any policy changes, but we did get a sense of how much longer the Fed plans to backstop the U.S. economy (spoiler alert: a long time!). I’ll explain what it all means. I’ll also preview next week’s earnings report from FactSet. Plus, I have some Buy List updates. (Did anyone else notice the big jump last Friday from Disney? Good. Me, too.)

The Federal Reserve Goes All In

The Federal Reserve met again this week, and as expected, the central bank didn’t make any changes to its policy. The current policy has two aspects. The first is to keep interest rates as low as possible. The target range for the Fed funds rate is 0% to 0.25%. You can’t get more accommodative than that.

The other part is bond buying. Each month, the Fed buys up massive numbers of bonds. The Fed currently buys $80 billion worth of Treasuries every month, plus $40 billion in mortgage-backed securities. That’s why mortgage rates have plunged. In fact, they just fell to another record low. Not surprisingly, the housing market has responded. For example, Thursday’s housing-starts report was very strong.

The housing boom has filtered through much, though certainly not all, of the economy. Later on, I’ll talk about Trex, which has seen its business flourish. The stock just hit a new all-time high. I think it’s interesting that housing stocks fell sharply on November 9 after the encouraging vaccine news came out.

Where does the Fed go from here? The short answer is nowhere. The Fed members have made it clear that they don’t see the need to raise interest rates any time soon. All 17 members of the FOMC agreed that the Fed shouldn’t raise rates this year or next, and only one member of the 17 predicted the need to hike in 2022. A strong majority were still against any rate hikes in 2023. The Fed has made it clear that it intends to do whatever it can to help the economy.

I expect that at some point, the Fed will lay out guidelines for how-to plans to stop buying bonds. I imagine it will be something like, if we hit unemployment rate of X%, then we’ll reduce our bond-buying by $Y billion.

There is a concern about inflation. You can’t help but be nervous at the thought of all those new dollars being thrown around. There aren’t many examples of the economy being pinned down and then suddenly released. One example is World War II. In the immediate aftermath of the war, inflation jumped in the U.S. due to pent-up demand. Could we see that again? I doubt it. Perhaps certain sectors such as travel-related industries will see a surge in demand.

The Fed has said that it will take a more lenient attitude towards inflation. Within reason, that’s probably the right move. We can get a clue by looking at the bond market. The 10-year “breakeven” rate is the market’s guess as to what inflation will be. The 10-year breakeven has soared in recent months (see chart above), and it’s still below 2% which is the Fed’s long-run target for inflation. At some point, inflation may be a concern; but for now, it’s not something to worry about. Now let’s preview our final Buy List earnings report for 2020.

FactSet Earnings Preview

FactSet (FDS) is due to report its fiscal Q1 earnings on Monday, December 21 before the market opens. In August, the financial-data company wrapped up another very good fiscal year. For the year, FactSet earned $10.87 per share.

To give you some perspective on that result, FactSet initially told us to expect full-year earnings to range between $9.85 and $10.05 per share. The company later raised that by 55 cents per share at both ends of the range. Even with that increase, FDS still managed to blow past its own forecast. In the year before that, FDS earned $10 per share on the nose, so it was an 8.7% earnings increase.

This was FactSet’s 24th year in a row of earnings growth and its 39th year in a row of revenue growth. For Q4, client count increased to 5,875, and user count reached 133,051. The company now has 10,484 employees. That’s an increase of 8.3% in the last year.

“We executed well on our second-half pipeline to end our fiscal year in a strong position,” said Phil Snow, FactSet CEO. “I am proud of our team’s performance and remain confident in our investment plan. Our programs in content and technology are expanding the universe of knowledge our clients trust and meeting demand for the workforce of the future.”

For the quarter, FactSet’s organic revenue grew by 4.9% to $383.4 million. A key stat for the company is its Annual Subscription Value, or ASV. At the end of the quarter, the ASV stood at $1.56 billion. The organic-growth rate was 5.3%. The annual retention rate is 95%.

During Q4, FactSet bought back 81,948 shares, for $28.6 million. That’s an average price of $349.25 per share. In March, the company approved an increase to its share-repurchase program of $220 million. There’s now $259 million available to buy more shares.

Now let’s look at guidance. For the current fiscal year, FactSet expects earnings between $10.75 and $11.15 per share. Wall Street had been expecting $10.84 per share. The company sees operating margin ranging between 32% and 33%. That’s very good.

For Q1, Wall Street expects earnings of $2.75 per share. FDS is a 28.7% winner for us this year.

Buy List Updates

In October, Cerner (CERN) reported another strong quarter. The company made 72 cents per share, which was inside its guidance. For Q4, Cerner expects revenue between $1.365 billion and $1.415 billion and earnings between 76 and 80 cents per share.

On Friday, Cerner announced that it’s hiking its dividend. The quarterly payout will rise from 18 cents to 22 cents per share. That’s a 22% increase. The new dividend will be payable on January 12 to shareholders of record as of the close of business on December 28.

Last year, Cerner reached a deal with Starboard Value, an activist investor. In exchange for some seats on the board, Cerner agreed to start paying a dividend and to buy back some shares. The initial quarterly dividend was for 18 cents per share, so this is Cerner’s first dividend increase.

This week, I’m lifting our Buy Below for Cerner from $75 to $82 per share.

On November 9, shares of Trex (TREX) got pounded for a 14% loss. This was the reaction to Pfizer saying its vaccine was 90% successful. That’s a bizarre reaction, but traders were probably guessing that it would spark higher mortgage rates and that would choke off Trex’s business.

Not even close. Trex has now made back everything it lost, and shares broke out to a new high this week. From the November low to the December high, Trex rallied back over 30%. We have an 84% gain this year in Trex. I’m raising our Buy Below to $88 per share.

In last week’s issue, I mentioned Disney’s (DIS) positive Investor Day and how it impressed shareholders. I said that Disney had been trading up over 3% in Thursday’s after-hours market. As it turns out, Friday’s reaction was much more positive than expected. At one point on Friday, Disney was up 16% on the day.

Check out this list of upcoming Disney movies. No one has content quite like the Mouse. I’m raising our Buy Below to $182 per share.

That’s all for now. With the holidays approaching, the economic calendar will get shifted around a little bit. On Tuesday, December 22, we’ll get the second update on Q3 GDP growth. The initial report showed that the U.S. economy grew (or rather, rebounded) at a 33.1% rate for Q3. The first revision was unchanged. On Wednesday, we’ll get reports on consumer income and spending. On Thursday, December 24, the stock market will close at 1 p.m. ET, and trading will be closed all day on Christmas Day. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Morning News: December 18, 2020
Posted by Eddy Elfenbein on December 18th, 2020 at 7:02 am

Ghana’s Central Bank Shuts Door on Lending Government More Money

How to Reset the Relationship Between the U.S. and China

Reopening Rally? Speculative Bubble? These Days, It’s Hard to Tell

Hijacking the Fed to Bail Out States

Bitcoin Is In A ‘Massive Bubble’ And Investors Don’t Understand How Its Supply Works, Says Economist David Rosenberg

U.S. FDA Advisory Panel Sets Stage for Moderna Vaccine Authorization

U.S. Retailers Want Shoppers to Help Santa With Curbside Pickup

Russia-Linked SolarWinds Hack Ensnares Widening List of Victims

Google’s Legal Peril Grows in Face of Third Antitrust Suit

Robinhood Pays $65 Million Fine to Settle Charges of Misleading Customers

The Quest to Replicate Tesla’s Success Keeps EV Mania Alive

Joshua Brown: The Goldmine

Howard Lindzon: Individualism and The Unbundling of The Stock Market Indexes

Cullen Roche: The 2020 Podcast World Tour Continues!

Ben Carlson: Penis Thieves & Asset Bubbles

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Eagle Bancorp Announces Big Share Buyback
Posted by Eddy Elfenbein on December 17th, 2020 at 10:24 pm

After the closing bell, Eagle Bancorp (EGBN) issued a press release which touched on two items. The first is that the bank is paying out a quarterly dividend of 22 cents per share. That’s not really news because Eagle has paid a 22-cent dividend for several quarters. The cash dividend will be payable on February 1 to shareholders of record on January 8.

The other item is that the Board of Directors adopted a new share repurchase program. The new program will start on January 1. The board authorized Eagle to buy back 15.89 million shares of stock. That’s about 5% of the outstanding shares. Eagle currently has 31.78 million shares outstanding as of December 16.

Over the last three months, shares of Eagle have gained more than 63%.

Housing Starts and Initial Claims
Posted by Eddy Elfenbein on December 17th, 2020 at 8:48 am

We got two important economic reports this morning, and we got good news and bad news.

Let’s start with the bad. The initial claims report came in at 885,000. That’s not so good. That’s an increase of 23,000. We’re moving in the wrong direction. On top of that, the number for last week was revised higher by 9,000. A silver lining is that continuing claims came in at 5.508 million. That’s a pandemic low.

The good news is that the housing starts number was very strong. Housing starts were up 1.7% last month compared with expectations for a decline of 0.7%. That works out to 1.547 million (that’s an annualized and seasonally adjusted number). Permits were up 6% to 1.639 million.

The futures indicate that the S&P 500 will open at an intra-day high.

Morning News: December 17, 2020
Posted by Eddy Elfenbein on December 17th, 2020 at 7:05 am

BOE Maintains QE Plan, Extends Company Aid on Prolonged Crisis

Bitcoin Soars Above $23,000 as More Wall Street Firms Pile In

Why the US Government Hack Is Literally Keeping Security Experts Awake At Night

Fed Leaves Rates Unchanged and Commits to Ongoing Bond Purchases

What’s New With the Fed’s 2020 Bank Stress Tests?

$900 Billion Covid-Relief Plan Inches Forward With Talks Down to Final Details

Workers Tap Retirement Savings as a Last Resort

10 States Accuse Google of Abusing Monopoly in Online Ads

Samsung Works Its Way Into European 5G Race to Fill Huawei Gap

A 1958 ’Vette Translated Into Modern Chinese

Amazon Has Turned a Middle-Class Warehouse Career Into a McJob

Mackenzie Scott’s Gifts Cast Unflattering Light on Bezos’ COVID Capitalism

Joshua Brown: “take all your common stocks and sell them”

Howard Lindzon: The Killer B’s … Biotech and Bitcoin

Michael Batnick: Animal Spirits: IPO Mania

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