Tesla Joins the S&P 500
Posted by Eddy Elfenbein on November 17th, 2020 at 10:15 am

Yesterday, the S&P 500 announced that it’s adding Tesla (TSLA) to its famous index. The stock will join up on December 21. By market cap, it will be one of the largest stocks in the S&P 500. After the announcement, the shares shot up 13% in yesterday’s after-hours trading.

Business Insider said it the announcement added $15 billion to Elon Musk’s net wealth and made him the third-richest person in the world. He just passed the Zuck.

Home Depot said that thanks to rising sales, it will spending $1 billion more on employee compensation.

Walmart reported very good earnings this morning. Walmart’s earnings report might as well be an American consumer spending report. Same-store sales rose by 6.4%. Expectations were for 3.8%.

Interesting detail from Walmart’s earnings report: in the US, transactions were down 14% but the average transaction price rose by 24%. Folks are shopping less but buying more.

E-commerce sales rose by 79%. For the quarter, Walmart made $1.34 per share which beat by 16 cents per share.

There were two economic reports this morning. Industrial production rose by 1.1%. Like so many other data series, IP has rebounded a lot but it’s still well below its high.

We also got the retail sales report. For October, retail sales were up 0.3%. That was a bit below Wall Street’s forecast of 0.5%. The good news is that September’s strong figure of 1.6% was revised even higher to 1.9%.

Excluding automobiles, gasoline, building materials and food services, retail sales nudged up 0.1% after a downwardly revised 0.9% increase in September. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have risen 1.4% in September.

We’re probably looking at GDP growth of around 5% for Q4.

Morning News: November 17, 2020
Posted by Eddy Elfenbein on November 17th, 2020 at 7:04 am

Biden’s China Policy? A Balancing Act for a Toxic Relationship

Don’t Fear the Robots, and Other Lessons From a Study of the Digital Economy

Vaccine Unproven? No Problem in China, Where People Scramble for Shots

Pfizer To Start Pilot Delivery Program For Its COVID-19 Vaccine In Four U.S. States

Tesla Value Set To Jump $40 Billion As S&P 500 Beckons

Amazon Expands Push Into Health Care With Online Pharmacy

Rupert Murdoch’s News Corp Bids for Simon & Schuster

Walmart Sales Surpass Expectations With Buyers Still Stocking Up

Home Depot To Spend $1 Billion More On Employees As Sales Surge

Delta Skirts Trump Tariffs by Sending Airbus Jets on World Tour

How Copart Is Making A Billion Dollars From A Junkyard

Ben Carlson: Is the Vaccine Our One Giant Leap?

Joshua Brown: When’s The Best Time To Buy A Value Stock? When It Figures Out How to Become A Growth Stock Again.

Howard Lindzon: Momentum Monday – The Bull Market in Puppies…And More Great Vaccine News

Jeff Carter: Corporate Education

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The Market Rallies on More Positive Vaccine News
Posted by Eddy Elfenbein on November 16th, 2020 at 3:05 pm

First, Pfizer’s vaccine claimed a 90% success rate. Now Moderna has claimed a 94.5% success rate. The stock market has responded with another increase. Today’s market action is somewhat similar to Monday’s but not as dramatic.

Right now, the S&P 500 is up 0.83%. The Dow is up 1.22% and the Nasdaq is up 0.40%. The S&P 500 High Beta Index is up 3.69% today while the S&P 500 Low Vol Index is up 0.24%.

We’re seeing the typical pattern of reopening stocks, like Disney (DIS), do well. On the other hand, stars of the lockdown, like Zoom (ZM), aren’t doing so well.

Morning News: November 16, 2020
Posted by Eddy Elfenbein on November 16th, 2020 at 7:04 am

Japan’s Economy Vaults Back From COVID-Induced Recession, But Outlook Murky

Controversial Fed Nominee Set To Prevail In Senate Confirmation Vote This Week

Be Serious, There’s No Difference Between the Federal Reserve And Congress

Moderna Says Its Vaccine Is 94.5% Effective In Preventing COVID-19

Doctors Are Calling It Quits Under Stress of the Pandemic

Black Friday Plus Covid Adds Up to Crunch Time for U.S. Retail

The Shipping Industry Transformed 100 Years Ago. It Can Do it Again

Morgan Stanley Says Go Risk-On and ‘Trust the Recovery’ in 2021

Walmart Sells Majority Stake In Seiyu, Nearly Exiting Japan

PNC Strikes $11.6 Billion Deal to Buy U.S. Operations of Spanish Bank BBVA

A Covid Baby Bust Is Bad News for These Businesses

Joshua Brown: “I’ll Invest After The Dust Settles” + Nick Colas On Why US Stocks Will Keep Outperforming

Jeff Miller: Weighing the Week Ahead: Learning from Swiss Cheese

Ben Carlson: How Much is $20 a Month Worth? & Why Your Paycheck Is Probably Lower Than It Should Be

Michael Batnick: Animal Spirits: But What Happens Tomorrow?, How I Invest My Money & The End of Moore’s Law

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CWS Market Review – November 13, 2020
Posted by Eddy Elfenbein on November 13th, 2020 at 7:08 am

“A good decision is based on knowledge and not on numbers.” – Plato

The entire world got encouraging news this week with the promising results of a vaccine for the coronavirus. The stock market was elated by the news as the Dow and S&P 500 rallied to new all-time intra-day highs. Our Buy List also reached a new high.

This week’s market action was very unusual. I covered some of this in a special alert I sent you on Monday. Just to give you an idea of how dramatic trading was, consider this stat: The ten worst-performing stocks this year through November 8 were up an average of 23% on Monday and Tuesday!

Everything seemed to go haywire. On Monday and Tuesday, the Nasdaq Composite lost 340 points while the Dow gained 1,100 points. The S&P 500 is off to its best November start in 65 years.

In this week’s issue, I’ll sort it out for you. Frankly, what we’re seeing isn’t new. Instead, it’s a continuation of a trend that started in September: namely, value stocks outperforming growth.

Also in this issue, I’ll go over the recent earnings report from Hershey. The chocolate folks not only beat the Street, but they raised guidance as well. Disney also had an encouraging earnings report. Later on, I’ll preview next week’s earnings report from Ross Stores, a stock that’s gained 23% since October 30. But first, let’s look at this hectic week on Wall Street.

Wall Street Celebrates Vaccine News

After the news of Pfizer’s successful vaccine test broke, stocks immediately shot higher. At one point on Monday, the S&P 500 was up nearly 4%. The Dow rallied 1,600 points.

Right now, 86% of stocks are trading above their 200-day moving average. That’s the broadest the market has been since January, and the second highest in the last five years.

Equally important were the kinds of stocks that were rallying this week. It seemed that all the stocks that been caged up for months were suddenly let loose. Banks and financial stocks soared. Oil and energy stocks charged higher. Airlines, cruise stocks and malls all saw huge gains. (Heck, even Denny’s soared.)

At the other end of the trade, so many stocks that had been doing so well under the coronavirus started to sag. For example, while the Nasdaq did close higher, it only did one-third as well as the S&P 500. Zoom, the video-conferencing stock, has been the super star stock of the pandemic. This week, Zoom lost one-quarter of its value in two days.

Housing stocks, in particular, were hit hard. Our favorite deck stock, Trex, got knocked down. I’ll have more to say on Trex in a bit. Even cleaning stocks like Clorox dropped sharply. It’s a good reminder of how broad the economic impact of the coronavirus has been. It’s also interesting to note that the big shifts came despite little or no news specific to each company. Instead, traders were playing the economic impact. (Or I should say, the perceived economic impact.)

The larger theme that connects all these points is the shift from growth stocks to value stocks. We saw the first hint of this shortly after Labor Day. At that time, the rotation was fast and hard. Stocks like Tesla lost one-third of their value in a week. Meanwhile, many value stocks held up well.

On Monday and Tuesday of this week, the S&P 500 Value Index rose by 5.35%. Meanwhile, the S&P 500 Growth Stock Index dropped by 1.66%. That’s a very big divergence for such a short period of time. (In the chart above, value is blue and growth is black.)

The rotation also signals an optimistic outlook for the economy. In particular, you can see that in the strength of energy stocks. The S&P 500 Energy Index gained an amazing 17% on the first two days of this week. Of course, that sector has been in a world of pain for a long time. Still, a recovering economy needs fuel.

The rotation to value began after Labor Day, but soon let up. This week, it returned with a vengeance. I don’t think it’s over. Bear in mind that there have been several false starts for value. This time, I think it’s real. Don’t expect to see more of those easy tech gains like we saw this summer. Going forward, the market is going to place greater emphasis on valuation and dividends. Make sure your portfolio has plenty of high-quality names. Speaking of which, let’s look at the earnings report from Hershey.

Hershey Beat Earnings and Raised Guidance

We had a very good earnings report from Hershey (HSY) last week. On Friday, the chocolate company earned $1.86 per share for its third quarter. Wall Street had been expecting $1.72 per share. Quarterly revenues were up 4.2% to $2.22 billion. That beat the Street by $60 million. Organic sales grew by 3.8%. Consensus was for 2.5%.

CEO Michele Buck said:

“We had a strong third quarter, with accelerated reported net-sales growth of 4%, adjusted diluted EPS growth of more than 15% and confectionery share gains across markets, including an almost 190-basis-point gain in the U.S. Our core U.S. business remains healthy as consumers reach for small treats during the pandemic, and our decision to lean into Halloween ahead of the season supported consumers’ desire to find new and creative ways to celebrate safely. We also saw sequential improvement in the areas of our business hit hardest by COVID-19, including our international markets, owned retail locations and food-service business.”

Hershey also raised its guidance. The company now expects full-year earnings of $6.18 to $6.24 per share. That’s up 7% to 8% over last year. For the first three quarters of this year, Hershey has made $4.80 per share. That implies Q4 earnings of $1.38 to $1.44 per share. Wall Street had been expecting $1.38 per share.

I like these results. On Thursday, the stock snapped a seven-day winning streak where it rallied more than 11%. I’m raising our Buy Below on Hershey to $160 per share.

Winter of DIS Content

After the bell on Thursday, Disney (DIS) said it lost 20 cents per share for its third quarter. Despite the loss, Disney exceeded expectations on nearly every count. Wall Street had been expecting a loss of 71 cents per share.

Quarterly revenue came in at $14.71 billon, which topped estimates of $14.2 billion. Total revenue was down 23% from a year ago. The parks business is still hurting. Disney said it expects Disneyland to be closed for the rest of the year. Disney World is operating at 35% capacity. Disney estimated that Covid-19 has cost their parks $2.4 billion in operating income in the fourth quarter. Revenue for the Parks division was down 61% from a year ago.

The big number everyone’s been waiting for is 73 million. That’s the number of Disney+ subscribers. The service is now one year old, and it’s been an amazing start for them. That’s a net increase of 12.5 million subscribers for the third quarter.

Disney continues its successful strategy of placing its streaming service at the center of its business model. The entertainment giant continues to have more and better content than just about everyone.

I cautiously use this comparison, but Netflix currently trades at 54 times next year’s earnings estimate, while Disney is in the ballpark at 52 times earnings. This comparison isn’t precise, because Disney is involved in so many businesses that aren’t remotely similar to Netflix. Still, the plan for Disney is to move to a business that can generate a Netflix-like earnings multiple.

Disney was also pleased with the results from Mulan. This is an interesting story because Disney offered the movie for “Premium Access.” Subscribers could buy the film for $30.

Shares of DIS jumped about 4% in Thursday’s after-hours trading. This week, I’m lifting my Buy Below on Disney to $150 per share.

Earnings Preview for Ross Stores

Few stocks have been impacted by the coronavirus quite like Ross Stores (ROST). There’s been good news recently for the deep discounter, and it couldn’t have come at a better time. Ross is due to report earnings next Thursday, November 19.

Optimism for an economic reopening has greatly helped shares of Ross. In a recent seven-day stretch, shares of Ross vaulted more than 28%, and that includes a 15% leap on Monday. (Check out the chart below.)

Ross had a terrible fiscal Q1 earnings report. That’s to be expected when you have to shut down all of your stores. For Q2, which ended on August 1, business was a little better. Ross was able to make a profit for Q2 of six cents per share. That’s small, but Wall Street had been expecting a loss of 26 cents per share. For comparison, Ross made $1.14 per share for last year’s Q2.

Business still remains tough. Total sales for Q2 dropped from $4.0 million last year to $2.7 million this year. Comparable-store sales, which is a key metric for retailers, dropped by 12%.

I’m expecting better results for Q3. The consensus on Wall Street is that Ross will report earnings of 60 cents per share and sales of 3.42 billion. Thanks to the recent rally, I’m lifting my Buy Below on Ross Stores to $110 per share.

Buy List Updates

Given this past week’s drama, I have two more Buy Below price adjustments to make. I’m lowering our Buy Below on Trex (TREX) to $78 per share. There’s nothing wrong with Trex. I just want the Buy Below to reflect the recent rotation.

I’m also raising our Buy Below price for AFLAC (AFL). The last earnings report was very good. The duck stock is a buy up to $44 per share.

Hormel Foods (HRL) will report its Q4 earnings before the market opens on Tuesday, November 24. This is for the quarter ending in October. For Q3, Hormel earned 37 cents per share, which was a three-cent beat. The Spam folks said that Q4 should mirror the strength seen in Q3. The food-service business will likely post a year-over-year decrease for Q4.

Stryker (SYK) completed its acquisition of Wright Medical. The deal was first announced a year ago. Stryker paid $30.75 for each share of Wright. The company recently reported great numbers for Q3. Due to the pandemic, Stryker can’t offer guidance for Q4. I’m raising Stryker’s Buy Below to $233 per share.

That’s all for now. There are a few important economic reports next week. On Tuesday, the retail-sales report and industrial-production report are due to be released. Then on Wednesday, we’ll a get a look at the existing-home-sales report. On Thursday, we get another report on jobless claims. Last week’s report was 709,000, which isn’t that far from the highest numbers we saw during the recession of 2007-2009. Also on Thursday, Ross Stores will report its earnings. 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: November 13, 2020
Posted by Eddy Elfenbein on November 13th, 2020 at 7:01 am

Give Me a W, V, and a K: Describing the Post-COVID Economic Outlook

Economic Risks Are High as Chances for Quick Stimulus Narrow

The $36 Trillion Bill for Neglecting Climate and Free Trade

Wall Street Knows Who It Doesn’t Want at the SEC

‘Hipster Antitrust’ Comes for Joe Biden

Bad News for Home Buyers: Prices Are Going Up Everywhere

What Biden’s Election Could Mean for Student Loans

Trump Bans U.S. Investments In Firms Linked To Chinese Military

China’s President Xi Jinping Personally Scuttled Jack Ma’s Ant IPO

Disney+ Passes 73 Million Subscribers as Streaming Takes Center Stage

Goldman Sachs Names Its Smallest Partner Class in Decades

Ghosn’s Legal Woes Deepen As Nissan Sues for $95 Million in Damages

Michael Batnick: A Work From Home Tax

Ben Carlson: The Glass is Half Full and Half Empty Right Now

Joshua Brown: The Only Way This Election Ends, Why There Are No Financial Celebrities, How to Get a Book Published & Bob Pisani on How I Invest My Money!

Be sure to follow me on Twitter.

Q3 2020 Earnings Calendar
Posted by Eddy Elfenbein on November 12th, 2020 at 4:02 pm

Twenty-one of our 25 Buy List stocks have reported Q3 earnings this earnings season. Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results.

Initial Claims and Inflation
Posted by Eddy Elfenbein on November 12th, 2020 at 2:54 pm

I wanted to remark on this morning’s economic reports.

The initial jobless claims report fell to 709,000. We’re finally not that far from the highest readings of the financial crisis. Last week’s report was revised up to 757,000. This report is another eight-month low. We’re moving in the right direction, but very slowly.

The CPI report showed that inflation was unchanged last month. The core rate was flat as well. Over the past year, inflation is up 1.2% and core inflation is up 1.6%.

Here’s a chart of the year-over-change change in consumer prices (black) and core prices (red). Notice how much more stable the red line is which is why it’s easier to track.

Morning News: November 12, 2020
Posted by Eddy Elfenbein on November 12th, 2020 at 7:02 am

Group of 165 Google Critics Calls For Swift EU Antitrust Action

China Won the Cold War. Here’s What That Means for Free Markets

Alibaba, JD.com Say U.S. Was Top Seller to China During Singles’ Day Event

Biden’s Transition Teams Sideline Industries Trump Put in Charge

Pfizer’s Vaccine Read-Out: What Will Happen To Value Stocks

After a Long Ride, Harley-Davidson Is Leaving India

New PlayStation and Xbox Arrive During a Pandemic Gold Rush

China’s Tencent Profit Surges 89% As It Rides Gaming Boom

Trump Blew Up Tiktok And Now Nobody Knows What’s Going On & ByteDance Desperate for Extension as TikTok Sale Deadline Hits

Putting the Sport Back in S.U.V.s, 2 Jeep Rivals Sell the Off-Grid Life

Hollywood Gets Back To Work As Film Permits Rise 24%

The Evolving Travel ‘Experience’: Virtual, Actual and In Between

Howard Lindzon: Stocks Do Go Down…

Joshua Brown: Why There’s A Shortage Of My Book, Breaking The Top 10 Worldwide On Amazon, How To Get A Signed Copy

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Morning News: November 11, 2020
Posted by Eddy Elfenbein on November 11th, 2020 at 7:07 am

Wall Street to Trump: It’s Over. This Isn’t A Repeat Of 2000

Why Losing The Election Should Be Good For Trump’s Business

More Tech Executives Than Tech Critics On Biden’s Transition Team

Lael Brainard’s Steady Rise Could Culminate in Treasury Secretary Post

The Husband-and-Wife Team Behind the Leading Vaccine to Solve Covid-19

Federal Judge Dismisses Some Claims By Apple In Fight Against Epic Games

China’s Tech Giants Have Lost More Than $280 Billion In Market Value As Regulatory Concerns Mount

Quibi Founders’ $1.7 Billion Failure Is a Story of Self-Sabotage

Amazon Lures Food-Stamp Shoppers as Online Buying Surges 50-Fold

Pandemic Firings Lead to Wave of Bias Claims From Parents

Joshua Brown: 9 out of 10 Investors Expect a Stock Market Crash in the Next 6 Months

Ben Carlson: Could the Bond Market Derail the Stock Market?

Howard Lindzon: Modern Gospel and Moats and Networks in Financial Services

Nick Maggiulli: What a Biden Presidency Means for Your Finances

Michael Batnick: An Uneven Recovery, Animal Spirits: The Vaccine & The First Time In A Long Time

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