Morning News: May 19, 2021
Posted by Eddy Elfenbein on May 19th, 2021 at 7:05 am

Crypto Tumble Wipes $600 Billion Off Digital Tokens in a Week

What Beijing’s New Crackdown Means for Crypto in China

U.S., Canada, Mexico Hold ‘Robust’ Trade Deal Talks, Downplay Differences

Specter of 1960s Inflation Take-Off Haunts U.S. Economy Today

No Pain, No Gain for Big Funds Hunting the Next Tesla

Banks Always Backed Fossil Fuel Over Green Projects—Until This Year

The Big Money Is Going Vegan

After Media Detour, AT&T Confronts Old Problems

Target Sales Jump 23% As Exclusive Brands, Curbside Pickup Draw In Shoppers

Ex-TikTok CEO Seen as Contender for Discovery-WarnerMedia Streaming

Burger King to Enter Chicken Sandwich Wars with the Ch’King

Nick Maggiulli: Should You Ever Invest in a Leveraged Index Fund?

Howard Lindzon: Social Leverage Companies In The News Growing and Raising Capital

Joshua Brown: Will Inflation Crash the Stock Market? & Post Traumatic Shopping

Michael Batnick: Inflation Doesn’t Have to Crash the Stock Market & A Shortage of Everything

Ben Carlson: What Advice Would You Offer Newly Minted Dogecoin Millionaires?

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CWS Market Review – May 18, 2021
Posted by Eddy Elfenbein on May 18th, 2021 at 3:49 pm

“I have no idea how this works.” – Dave Portnoy

(This is the free version of CWS Market Review. Don’t forget to sign up for the premium newsletter for $20 per month or $200 for the whole year. Thank you for your support.)

You’re not alone, Dave. I recently said that I’ve been waiting 15 years for Nike (NKE) to pull back. Alas, it’s never hit the bargain bin. The sneaker company only seems to climb higher.

See that flat blue line? That’s actually a 1,075% gain for the S&P 500. It just looks flat in comparison to 26,000% for Nike.

For the overly literal who missed my point, I meant to say that sometimes it’s worth paying a premium for a company. Especially if it’s a premium company. There’s little point in trying to save 15% on the buy while missing the next 1,500% move. Pennywise and billions foolish.

This is a key point in stock analysis. Nike is a wonderful company and by most conventional metrics, it’s over-priced. It’s almost always overpriced. Even now it’s going for 43 times this year’s earnings. Yet it’s still done so well.

What are we missing? When you’re overly focused on a stock’s value you may overlook its most important asset, that being its ability to grow. All investing is at some level growth investing. A good investment may double its P/E Ratio. It’s rare but it happens. But a company often can grow the E in the P/E Ratio (the earnings) by many, many fold.

Here’s a thought exercise. Imagine if you know beforehand that a stock will grow its earnings by tenfold in, say, ten years. Are you going to haggle much over 10 cents on the buy price? I wouldn’t.

Warren Buffett often cites Ben Graham as his mentor. Buffett worked for Graham, and his eldest son is named Howard Graham Buffett. But there’s another inspiration to Buffett’s thinking and that’s Philip Fisher (the father of Ken Fisher). Fisher as much as anyone can be called the father of growth investing. His best-known book is Common Stocks and Uncommon Profits. Fisher stressed the importance of a long-term perspective and buying for growth.

John Train said that Warren Buffett is 85% influenced by Benjamin Graham and 15% by Philip Fisher. That sounds about right. Of course, too much of a focus on growth investing can be a pitfall as well. It can lead you to vastly overpay for a stock. With investing, there’s a magic formula outside of discipline and patience.

I was recently looking at the stock of Celanese (CE). This is one of those big companies that doesn’t get much attention in the trading universe. The company has a market cap of $20 billion and about 8,000 employees. Still, you rarely hear it mentioned in investing circles.

What do they do? Celanese is the world’s leading producer of acetic acid. Sexy, I know. Still, the stock has outperformed Netflix over the past one, two and three years. Who would have guessed that?

The truth is, there are lots of companies like Celanese but too many investors shy away from investing in all but a few well-known stocks. There are thousands of stocks out there and they’re not all overpriced.

A good clue that a company has a strong market position is what I call the nice, smooth earnings line. This is when companies consistently increase their earnings-per-share.

Here’s an example. This is the earnings-per-share history of AmerisourceBergen (ABC).

2005: $0.83
2006: $1.08
2007: $1.31
2008: $1.46
2009: $1.69
2010: $2.17
2011: $2.54
2012: $2.76
2013: $3.14
2014: $3.97
2015: $4.96
2016: $5.62
2017: $5.88
2018: $6.49
2019: $7.09
2020: $7.90
2021: $8.53 (est)
2022: $9.10 (est)
2023: $9.93 (est)

Notice how it’s a nice, steady climb.

My Watch List

I’m often asked how I go about finding the stocks for my Buy List. What I do is track a Watch List of about 100 stocks. These are stocks that I generally define as good stocks. They usually have thriving businesses and consistent operating histories.

I think of the stocks on the Watch List as the minor leagues and the Buy List is like getting called up to the majors. I’m constantly adding and deleting names to the Watch List. I’m not terribly disciplined, and the list often grows larger than 120 stocks. That’s too many. I’ve recently pared the list back to 100 stocks.

Here’s a sample of 20 stocks that are currently on my Watch List.

You can see the entire list by joining our premium service.

Stock Focus: Tyler Technologies

I’ll highlight one of the Watch List stocks above. Tyler Technologies (TYL) of Plano, Texas is the largest U.S. software company that’s solely focused on the public sector. That’s a nice market to focus on since the government has deep pockets and it never goes bankrupt.

Tyler’s software comes in handy for a local government trying to manage its mission. This includes dozens of different applications. Local governments have to do a lot from managing payroll and accounting to billing and HR management. Tyler helps smooth the process. More importantly, it controls costs.

Tyler divides its software business into six categories: appraisal and tax software and services, integrated software for courts and justice agencies, enterprise financial software systems, planning/regulatory/maintenance software, public safety software, records/document management software solutions and transportation software solutions for schools.

Tyler has implemented 21,000 installations in more than 10,000 local government agencies. Tyler doesn’t just work in the U.S. The company has aided governments in Canada, Australia and many other countries.

Consider some numbers. The software market for state and local governments is currently at $15 billion per year. In the U.S., the government exists at several levels which means there are thousands of government agencies at the state and local level, plus school districts. Moreover, many of the current systems used by governments are outdated and in desperate need of an upgrade. You’d be shocked to learn how many government offices still use filing cabinets.

It looks like this year Tyler will pass the $1.3 billion revenue mark, plus reach 5,600 employees.

Last year, Tyler’s subscription revenue grew 12.6%. Free cash flow was up over 50%. Approximately 30% to 50% percent of Tyler’s new software clients choose their software-as-a-service (SaaS) model, as new business continues to gradually transition toward subscriptions.

Tyler is very popular with its client base. The company maintains a 98% retention rate. That’s very good when two-thirds of your revenue is recurring subscriptions. The company has a solid balance sheet. Since 2002, Tyler has bought back nearly 28 million shares.

Tyler has impressive plans for growth. The problem with local governments is that they often operate on several disparate systems. In simple terms, they don’t talk to each other. They have no incentive to. Tyler wants to bring them all together. That way, the government can be more efficient and more responsive to their constituents.

Here’s Tyler’s remarkable growth in EPS. Another nice, smooth line:

2012: $1.00
2013: $1.51
2014: $2.09
2015: $2.54
2016: $3.49
2017: $3.92
2018: $4.80
2019: $5.30
2020: $5.52
2021: $6.15 est
2021: $7.09 est

Like Nike, I’ve been waiting for Tyler to get clobbered, and we recently got our chance. The stock had an earnings miss for Q4. The shares also got dinged after Tyler went to the bond market to fund some recent acquisitions.

A few weeks ago, Tyler reported Q1 earnings of $1.43 per share which beat the street by 11 cents per share. That was up 14% over last year’s Q1. Not good enough. In March, Tyler was as high as $480 per share. Lately, it’s around $400.

This year’s estimate for $6.15 per share is ambitious but very doable. Best of all, the American Rescue Plan Act has $350 billion earmarked for state and local governments.

This is a strong growth company with a solid moat. I’d like to see TYL come down a lot more. Still, the ghost of Nike shares lost haunts me.

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

– Eddy

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My Watch List
Posted by Eddy Elfenbein on May 18th, 2021 at 3:30 pm

Here’s my latest Watch List. This is my unofficial list of high-quality stocks I like to follow. If a stock is on this list, then there’s a very good chance that it’s in the upper 5% of well-run companies on Wall Street. This is the elite.

I’m often asked how I go about selecting the stocks for my Buy List. It’s actually very simple. I have this Watch List of stocks and if one of them falls down to a very attractive price, then it becomes a contender for the new Buy List. I like to think of the Watch List as the minor leagues for the Buy List. Strong prospects earn their way up the ladder.

The Watch List is very informal. Unlike the Buy List, I’m constantly adding and deleting names. In fact, I have a bad habit of letting the Watch List grow too large. I often find myself adding three names for every one I delete. Ideally, I like to keep the Watch List below 100 names.

AbbVie (ABBV)
AmerisourceBergen (ABC)
Adobe (ADBE)
Automatic Data Processing (ADP)
AMETEK (AME)
American Tower (AMT)
Anthem (ANTM)
Amphenol (APH)
Atrion (ATRI)
AutoZone (AZO)
Boeing (BA)
Balchem (BCPC)
Brown-Forman (BF-B)
Biogen Inc. (BIIB)
Booking Holdings (BKNG)
Celanese (CE)
Colgate-Palmolive (CL)
Clorox (CLX)
The Cooper Companies, Inc. (COO)
Costco Wholesale Corporation (COST)
Copart, Inc. (CPRT)
salesforce.com, inc. (CRM)
Cintas Corporation (CTAS)
CVS Health Corporation (CVS)
Ecolab Inc. (ECL)
The Estée Lauder Companies Inc. (EL)
Edwards Lifesciences Corporation (EW)
Expeditors International of Washington, Inc. (EXPD)
Exponent, Inc. (EXPO)
Fastenal Company (FAST)
F5 Networks, Inc. (FFIV)
Fair Isaac Corporation (FICO)
General Dynamics Corporation (GD)
General Mills, Inc. (GIS)
Gentex Corporation (GNTX)
Alphabet Inc. (GOOG)
Global Payments Inc. (GPN)
Hingham Institution for Savings (HIFS)
Huntington Ingalls Industries, Inc. (HII)
Henry Schein, Inc. (HSIC)
IDEXX Laboratories, Inc. (IDXX)
IDEX Corporation (IEX)
International Flavors & Fragrances Inc. (IFF)
Intuit Inc. (INTU)
Intuitive Surgical, Inc. (ISRG)
Gartner, Inc. (IT)
J.B. Hunt Transport Services, Inc. (JBHT)
J & J Snack Foods Corp. (JJSF)
Jack Henry & Associates, Inc. (JKHY)
Johnson & Johnson (JNJ)
Kellogg Company (K)
Kimberly-Clark Corporation (KMB)
Lockheed Martin Corporation (LMT)
Mastercard Incorporated (MA)
Masimo Corporation (MASI)
Medtronic plc (MDT)
McCormick & Company, Incorporated (MKC)
Mesa Laboratories, Inc. (MLAB)
3M Company (MMM)
Altria Group, Inc. (MO)
Microsoft Corporation (MSFT)
Mettler-Toledo International Inc. (MTD)
Neogen Corporation (NEOG)
NIKE, Inc. (NKE)
Northrop Grumman Corporation (NOC)
ServiceNow, Inc. (NOW)
Novo Nordisk A/S (NVO)
Old Dominion Freight Line, Inc. (ODFL)
Oracle Corporation (ORCL)
O’Reilly Automotive, Inc. (ORLY)
Paycom Software, Inc. (PAYC)
Paychex, Inc. (PAYX)
Prosperity Bancshares, Inc. (PB)
PayPal Holdings, Inc. (PYPL)
ResMed Inc. (RMD)
Rollins, Inc. (ROL)
Roper Technologies, Inc. (ROP)
Raytheon Technologies Corporation (RTX)
Starbucks Corporation (SBUX)
SEI Investments Company (SEIC)
Simulations Plus, Inc. (SLP)
S&P Global Inc. (SPGI)
Constellation Brands, Inc. (STZ)
TransDigm Group Incorporated (TDG)
The TJX Companies, Inc. (TJX)
Tractor Supply Company (TSCO)
The Toro Company (TTC)
The Trade Desk, Inc. (TTD)
Texas Roadhouse, Inc. (TXRH)
Tyler Technologies, Inc. (TYL)
Universal Health Services, Inc. (UHS)
UnitedHealth Group Incorporated (UNH)
United States Lime & Minerals, Inc. (USLM)
Visa Inc. (V)
Veeva Systems Inc. (VEEV)
Verisk Analytics, Inc. (VRSK)
VeriSign, Inc. (VRSN)
Waters Corporation (WAT)
WD-40 Company (WDFC)
Winmark Corporation (WINA)
Waste Management, Inc. (WM)
Watsco, Inc.(WSO)
Wolverine World Wide, Inc. (WWW)
Zimmer Biomet Holdings, Inc. (ZBH)

Morning News: May 18, 2021
Posted by Eddy Elfenbein on May 18th, 2021 at 5:27 am

China’s Biggest ‘Bad Bank’ Tests Beijing’s Resolve on Financial Reform

Japan’s Yo-Yoing Economy Shrinks as Virus Spreads and Vaccinations Lag

Inflation Fears Abound as Gas and Lumber Shortages Bite. Should the Fed Worry?

Rural Areas Are Looking for Workers. They Need Broadband to Get Them.

America’s Restaurant Apocalypse Has Been Greatly Exaggerated

Burry of ‘Big Short’ Fame Places Big Bet Against Musk, Tesla

Censorship, Surveillance and Profits: A Hard Bargain for Apple in China

Apple Faces Continued iPad Pro Delays Due to Next-Gen Displays

AT&T Set to End Media Voyage with $43 Billion Discovery Deal

An Old-School Media Titan Pushes Aside an Upstart

Amazon’s MGM Deal Would Add to Frenzy for Streaming Assets

Amazon Hoping To Invoke the Power of Positive Affirmations To Reduce Workplace Injuries

Howard Lindzon: Momentum Monday – Bitcoin Goes Down?

Joshua Brown: Stimulating the Housing Market Is Psychotic

Michael Batnick: “I’ll buy on the next pullback”

Ben Carlson: The Pros & Cons of Liquidating Your Portfolio To Buy a House With Cash

Be sure to follow me on Twitter.

Homebuilders Are Concerned About Inflation
Posted by Eddy Elfenbein on May 17th, 2021 at 1:15 pm

It’s a fairly quiet day of trading on Wall Street. This morning’s report from homebuilders shows that confidence is still high, but there are concerns about inflation.

Builder sentiment in the single-family housing market was unchanged at 83 in May, according to the NAHB/Wells Fargo Housing Market Index. Anything above 50 is considered positive sentiment.

The index had plummeted to 37 last May, as the pandemic lockdown hit and the housing market shut down. It then rebounded dramatically in June and July, as consumers rushed out to buy suburban homes, seeking more space for working and schooling from home.

Builders now say they continue to see a steady stream of buyers, due in large part to the extreme shortage of existing homes for sale. Continued low mortgage rates are helping some with affordability, but with prices rising fast, purchasing power is weakening.

The overall market is down today with tech down the most. Energy is up the most and some defensive sectors like Staples and Healthcare are just barely positive.

I posted this on Twitter so I’ll report it here. Here’s a list of stocks you may not have known are publicly traded:

Churchill Downs (CHDN)
MSG Sports (Knicks and Rangers) (MSGS)
WD-40 (WDFC)
Jack in the Box (JACK)
Nathan’s Famous (NATH)
Tootsie Roll (TR)
Utz Brands (UTZ)
Boston Beer (Sam Adams) (SAM)
Value Line (VALU)
Mace Security (MACE)
Crazy Woman Creek Bancorp (CRZY)

Morning News: May 17, 2021
Posted by Eddy Elfenbein on May 17th, 2021 at 7:02 am

The World Economy Is Suddenly Running Low on Everything

Ignore The Pessimists, The ‘Baby Bust’ Is A Bullish Market Signal

Elon Musk Just Reopened an Old Wound in the Bitcoin World

Charging 589% Interest in the Pandemic Is a Booming Business

The Mogul in Search of a Kinder, Gentler Capitalism

Japan’s Top Bank MUFG Forecasts Lower Credit Costs, Beats Profit View

BP’s Lobbying for Gas Shows Rifts Over Path to Net-Zero Emissions

JD Logistics Launches Hong Kong IPO to Raise Up to $3.4 Billion

AT&T Is Preparing to Merge Media Assets With Discovery

AT&T-Discovery Deal Would Create a Media Juggernaut

A $100 Million Bet on Cross-Country Restaurant Delivery

As Lumber Prices Climb, DIY-ers Cut Out The Middle Man And Mill Their Own

Ben Carlson: 12 of My Biggest Post-Pandemic Questions & Life is Too Short to Save Everything

Michael Batnick: Bitcoin is Crashing. This is What it Does, When The Music’s Over & Animal Spirits: Growth At a Reasonable Price

Be sure to follow me on Twitter.

Morning News: May 14, 2021
Posted by Eddy Elfenbein on May 14th, 2021 at 7:02 am

U.S. Investors Looking for Protection As Inflation Pressures Bubble, Stocks Volatile

CDC’s Mask U-Turn Puts Business in a Bind

A ‘Friend of Tom’ or ‘Can’t Be Bothered’: One Man’s Rules at Bank of America

Colonial Pipeline Ramps Up as U.S. Seeks to Emerge From Fuel Crunch

Colonial Pipeline Paid 75 Bitcoin, or Roughly $5 Million, to Hackers

EV Startups Lose Over $40 Billion After Taking SPAC Route Public

Juul Finds Hell Hath No Fury Like an Army of Really Rich Parents

He’s A Dogecoin Millionaire. And He’s Not Selling.

Ant Leapfrogs Banks to Top China Fund Sale Rankings

Disney Adds Fewer Streaming Subscribers Than Hoped; Revenue Falls Short

Amazon, McDonald’s, Others Woo Scarce Hourly Workers With Higher Pay

Airbnb Has Mo Money, Mo Problems

Ben Carlson: The Future of Bear Markets & Recessions

Michael Batnick: 10 Questions People Only Ask in a Bull Market

Michael Batnick & Ben Carlson: Houses That Sell the Fastest

Howard Lindzon: Nithin Kamath, Founder and CEO of Zerodha, Joins Me on Panic with Friends to Discuss India’s Growing Market Opportunities

Be sure to follow me on Twitter.

Jobless Claims Fall to 473,000
Posted by Eddy Elfenbein on May 13th, 2021 at 12:13 pm

The stock market is getting a nice snap-back rally today after yesterday’s drop. I usually don’t pay much attention to the wholesale inflation report, but that came out today and it was also on the hot side. The PPI was up 0.6% last month which doubled expectations. In the last year, the PPI is up 6.2%. That’s the highest since they started tracking the data in 2010.

Core PPI was also high:

The core PPI, which excludes volatile items like foods, energy and trade services, rose 0.7% in April from the previous month and jumped 4.6% year over year. The increase from a year ago was the biggest jump since 2014 when the department first calculated the data.

This morning’s jobless claims report came in at 473,000. That was another pandemic low and it was below Wall Street’s forecast of 490,000.

Generous unemployment benefits, fears of catching Covid-19, parents staying home to care for children and raw material shortages as well as pandemic-related retirements and career changes have been blamed for the disconnect. The economy created 266,000 jobs in April after adding 770,000 in March, the government reported last week.

Some economists believe the enhanced unemployment benefits programs, including a weekly $300 government subsidy, could be encouraging some people to attempt to file a claim for assistance, keeping claims well above the 200,000 to 250,000 range that is viewed as consistent with a healthy labor market.

It’s a strong market today but I’m suspicious. Everything that had been doing well is doing poorly and the ones that had been poor are now leading the charge. Energy, in particular, is down today.

Morning News: May 13, 2021
Posted by Eddy Elfenbein on May 13th, 2021 at 7:06 am

Biden’s Trillions Test Economists Weighing Bang for the Buck

Inflation Is Here. What Now?

Musk Sends Bitcoin Tumbling With Shock U-Turn on Payments

Elon Musk Just Helped Ease the Semiconductor Shortage

The SPAC King Is Doing Just Fine Even as the Bubble Starts to Burst

Boeing Says F.A.A. Has Approved New Fix for 737 Max

How ‘Put That on Top Shot!’ Became a New N.B.A. Mantra

New Generation of Digital Banks Bets on Minority Markets

Samsung Boosts Non-Memory Chip Investment to $151 Billion as South Korea Offers Bigger Tax Breaks

SoftBank’s Masayoshi Son Says He Expects Even More Massive Returns From His Vision Fund Portfolio

America’s Gas Panic Has a Long History

Wealthy Nations Once Lauded As Successes Lag in Vaccinations

Cullen Roche: Let’s Talk About Inflation

Joshua Brown: The Thing You Need to Hear About Inflation

Michael Batnick: Inflation is Here. But is it Here to Stay?

Jeff Carter: When To Lock In A Mortgage?

Be sure to follow me on Twitter.

Q1 2021 Earnings Calendar
Posted by Eddy Elfenbein on May 13th, 2021 at 4:16 am

Twenty-two of our 25 Buy List stocks are reporting their earnings in this current quarterly earnings reporting season. Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results.