Morning News: July 21, 2020
Posted by Eddy Elfenbein on July 21st, 2020 at 7:07 am

E.U. Adopts Groundbreaking Stimulus to Fight Coronavirus Recession

The Inside Story of How Europe Landed Its Massive Stimulus Plan

Coronavirus Threatens the Luster of Superstar Cities

‘Less Optimistic’ and ‘More Cautious’: Top C.E.O.s Fret as Virus Cases Rise

Global Presence An Advantage As U.S. Companies Brace for Second-Half Slump

Frackers Are in Crisis, Endangering America’s Energy Renaissance

Fed, Walmart Share The Push To #maskup

EBay Sells Classified Ad Unit for $9.2 Billion

Alibaba’s Ant Could Be Bigger Than Some Wall Street Banks — What You Need to Know About the Dual IPO

Concerts Aren’t Back. Livestreams Are Ubiquitous. Can They Do the Job?

Discount Grocer Aldi To Open More Than 70 Stores By End Of Year As Part Of National Expansion

Howard Lindzon: Momentum Monday – From Frothy To Constructive

Jeff Miller: Weighing the Week Ahead: What is Your Personal Downside Risk?

Ben Carlson: Mortgage Rates Are Insanely Low

Joshua Brown: How the S&P 500 Uncoupled From Your Local Economy, Spending By The Unemployed Led The Recovery & Will Tesla Be Added to the S&P 500?

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Quiet Monday for Stocks
Posted by Eddy Elfenbein on July 20th, 2020 at 9:47 am

It’s a fairly quiet Monday. We’re heading to the heart of earnings season. On Friday, shares of Ericsson (ERIC) jumped 13% on a good earnings report. It’s up again today. Shares of Trex (TREX) are also near a new 52-week high.

Oxford University had a coronavirus vaccine that tested well in early trials.

There’s not much in the way of economic news today. Tomorrow, the Senate Banking Committee will vote on two of President Trump’s nominees for the Federal Reserve Board. One appointee is Christopher J. Waller, and his selection isn’t very controversial.

However, the other one is Judy Shelton and she may get significant opposition, even from Republicans. She called for a return to the gold standard.

We’ll have lots of earnings news this week.

Morning News: July 20, 2020
Posted by Eddy Elfenbein on July 20th, 2020 at 7:06 am

Global Real Estate Investment Plunges 33%

It’s ‘Only a Matter of Time’ Before Gold Hits a Record, Citi Says

Trump’s Hot-Button Fed Pick Faces Senate Committee Vote This Week

Trump’s Wrong-Track Economy Means Voters Shrug at Stocks Rebound

When The U.S. Sneezes, The World Catches A Cold. What Happens When It Has Severe COVID-19?

Businesses Are Supposed to Cut Debt in a Downturn. Why Not Now?

Some Companies Got Both Government Contracts and PPP Loans

China’s Ant To Go Public In Dual Shanghai-Hong Kong Listing

Amazon Says Exports from India-Based Sellers Cross $2 Billion

With Tourists Gone, Bali Workers Return to Farms and Fishing

Chevron to Buy Noble Energy in $5 Billion Deal

Twitter Hack Revives Concerns Over Its Data Security

Ben Carlson: How Rich People Go Broke & How the U.S. Consumer Became the Most Resilient Force in the Economy

Michael Batnick: The Most Vulnerable Cities & Waiting for a Fat Pitch

Joshua Brown: How to Turn a Recession Into a Depression & Universal Basic Income Is Inevitable

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CWS Market Review – July 17, 2020
Posted by Eddy Elfenbein on July 17th, 2020 at 7:08 am

“Rapidly changing industries are the enemy of the investor.” – Mohnish Pabrai

Second-quarter earnings season has finally arrived. Over the next three weeks, earnings reports will dominate the news on Wall Street.

I’ll warn you now–most reports will be pretty ugly. Of course, it’s not really the fault of the companies. It’s not so easy to make a profit when the whole world, it seems, has been locked down.

We’ve already seen disappointing results from stocks like Netflix. Delta Airlines reported a staggering loss of $5.7 billion. Wells Fargo bombed its earnings report and slashed its dividend by 80%.

Since the start of this year, Wall Street has cut its estimate for Q2 earnings in half. The stock market, however, has held up much better, which suggests it sees this as a temporary problem. In fact, the S&P 500 recently got to a five-week high, and it’s not far from a four-month high.

We’ll also get the first of our Buy List earnings reports next week. Four reports are due on Wednesday and we’ll get another three on Thursday. I’m not expecting stellar results this season. Instead, I’m more concerned about how well our companies are managing themselves through this difficult time and I want to hear any guidance for the rest of this year.

Next Week’s Buy List Earnings Reports

Over the next three weeks, 22 of our 25 Buy List stocks will report their earnings results. Here’s an Earnings Calendar. I’ve listed each stock along with its earnings date and Wall Street’s current estimate.

One footnote. RPM International (RPM) is one of our “off-cycle” stocks. RPM’s fiscal Q4 ended in May. With their Q4 reports, companies are allowed a little more time. That’s why RPM is reporting in July.

Seven of our Buy List stocks are due to report next week. The first four report on Wednesday.

Check Point Software (CHKP) got my attention in its last earnings report when it said that it had seen an uptick in cyber-attacks since the coronavirus made landfall. For Q1, the cyber-security firm earned $1.42 per share, which beat the Street by four cents.

The stock recently ran off a streak of closing higher nine days in a row (see the chart below). The share price has sailed above our Buy Below price, and it’s close to a new 52-week high. I’ll probably adjust it next week, but I want to see the earnings results first. It’s never a good strategy to chase after a stock. For Q2, Wall Street expects earnings of $1.43 per share.

Our three financial stocks are our three worst performers this year. Globe Life (GL) has been the least bad of the three. Shares of Globe Life not only lagged the market through the nasty bear months, but also has lagged during the rally.

Three months ago, GL had a pretty good earnings report. It beat earnings by two cents per share. At the time, the insurance company cut its full-year guidance. The original range was $7.03 to $7.23 per share. Globe Life cut that to a range of $6.65 and $7.15. Honestly, that’s not that bad. If Globe Life’s guidance is close to being correct, that means the stock is going for about 11 times this year’s earnings. Don’t throw in the towel on Globe Life.

Silgan Holdings (SLGN) is one of our new stocks this year, and it’s gotten off to a good start for us. SLGN has been trending upward lately. Through Thursday, Silgan is up close to 10% for us this year.

In April, the metal-container company had a pretty good earnings report. For Q2, Silgan sees earnings between 55 and 70 cents per share. That’s a pretty wide range. Wall Street expects 64 cents per share, which is almost certainly too low.

For the whole year, Silgan estimates earnings will range between $2.30 and $2.50 per share. That’s an increase from the previous range of $2.28 to $2.38 per share. Not many companies have raised guidance in this environment. I’m expecting good news from Silgan.

Three months ago, Stepan (SCL) reported Q1 earnings of $1.04 per share. That easily beat Wall Street’s consensus of 78 cents per share. I should add that Stepan is only followed by three analysts, so that’s not much of a consensus.

If you’re not familiar with Stepan, the company is a major manufacturer of specialty and intermediate chemicals that are used in a broad range of industries.

Although Stepan is classified with other specialty-chemical companies, it’s unique in the industry. Stepan doesn’t have a competitor or competitors to precisely match its businesses because its products have a specific focus. (Note this week’s epigraph.)

The CEO said that Stepan had a solid start to the year. Last quarter, Stepan paid out $6.2 million in dividends and bought back 260,605 shares for $7.2 million. The company has increased its dividend every year for 52 years. For Q2, the “consensus” is for earnings of $1.20 per share.

There are three more earnings reports on Thursday.

Danaher (DHR) is having another great year for us. Through Thursday, the stock is up over 23% this year. Earlier this year, Danaher closed its very big deal to buy GE’s biopharma business for $21.4 billion. That business is now called Cytiva. Last year, Danaher IPO’d Envista, its dental business. Wall Street expects earnings of $1.08 per share.

Eagle Bancorp (EGBN) has been one of our problem stocks this year. However, the earnings results have been fine. The problem is that Eagle’s legal bills have weighed on it. The important point is that the folks who caused the problems are no longer with Eagle.

Wall Street expects Q2 earnings of 74 cents per share which would be a big drop from the $1.06 per share Eagle earned in last year’s Q2. Even if Eagle’s earnings are a bust this year, the bank is currently going for 7.5 times last year’s earnings. The bank is not going out of business. It just needs to move past its scandal.

Last is Hershey (HSY). The chocolatier has badly lagged the market over the past three months. Part of that is simply because Hershey is a defensive stock. Much of the rally has been folks pouring out of defensive stocks and into tech shares.

I like Hershey, but I was disappointed with its last earnings report. Sales were flat, and earnings came in eight cents below the Street.

In January, the company said it expected full-year earnings between $6.13 and $6.24 per share. Hershey later withdrew that guidance, although the company said it stands by its long-run goal of growing EPS by 6% to 8%. For Q2, the consensus on Wall Street is for earnings of $1.15 per share.

Before I go, I want to make two adjustments to our Buy Below prices. Shares of Hormel Foods (HRL) have been improving lately. This week, I’m going to bump up our Buy Below price to $53 per share.

Shares of Ross Stores (ROST) have been sliding downward for the last few weeks. I think Ross may be one of the best bargains on our Buy List. I’m dropping our Buy Below to $92 per share. That’s not in any sense a downgrade. I simply want to the Buy Below to better reflect the current market environment.

That’s all for now. There’s not a lot in the way of economic reports next week. Most attention will be on earnings. On Wednesday, the existing-home sales report is due out. On Thursday, we’ll get another jobless-claims report. The last 17 in a row have topped one million. On Friday, the report on new homes is due out. 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: July 17, 2020
Posted by Eddy Elfenbein on July 17th, 2020 at 7:03 am

Where Did All The Bulls Go? Rallies Stall As EU Summit Begins

Coronavirus Surge, Renewed Lockdowns Fan Fresh Worries About Global Fuel Demand

The U.S. Set Up These Programs to Offset Covid Hardship. They’re All About to Expire

Consumers Came Back in June, but for How Long?

For Owners of Century-Old Businesses, Shutting Down Brings a Special Pain

Mortgage Rates Drop Below 3% for First Time, Tempting Home Buyers

Twitter Struggles to Unpack a Hack Within Its Walls

Netflix Stock Tumbles as the Covid Subscriber Boom Comes to an End

British Airways Is Grounding Its Fleet of 747 Jets for Good

‘Let’s Go Fly, for God’s Sake.’ Behind American Airlines Chief’s All-In Strategy

German Finance Minister Knew of Wirecard Issues a Year Before Collapse

Voices From Travel’s Frontlines: ‘We Walk in Fear, We Work in Fear’

Ben Carlson: The Greatest Danger Investors Face

Howard Lindzon: Ultimate Freedom

Jeff Carter: $300 Billion; 51 Million Students

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17 Weeks Straight Above 1 Million
Posted by Eddy Elfenbein on July 16th, 2020 at 10:40 am

We had two important economic reports this morning. The jobless claims report topped 1 million for the 17th week in a row. Initial weekly claims came in at 1.3 million for the week ending July 11. Economists had been expecting 1.25 million. Continuing claims came in at 17.338 million.

The retail sales report for June rose by 7.5%. That’s on top of the monster 18.2% increase for May.

Economists had been expecting an increase of 5%. Excluding autos, the increase was 7.3%.

Morning News: July 16, 2020
Posted by Eddy Elfenbein on July 16th, 2020 at 7:10 am

Europe Beats U.S. For Private Equity Mega-Deals

India’s Reliance Seen Emerging As Bigger Threat for U.S. Firms Like Amazon, Walmart

China’s Economy Rebounds From Coronavirus, but Shares Fall

A Brazen Online Attack Targets V.I.P. Twitter Users in a Bitcoin Scam

TikTok Enlists Army of Lobbyists as Suspicions Over China Ties Grow

Communication Collapse: Inside Facebook’s Tussle With Brazil’s Central Bank

Billionaires Hunt Real Estate Bargains in Shadow of Pandemic

Bank of America Profit More Than Halves on Pandemic Woes

Carson Block Warns Tesla Short Sellers: ‘I Wouldn’t Do That’

Where to Invest $10,000 Right Now

Professor Whose Formula Predicts Bankruptcies Has a Big Warning

Joshua Brown: An Important Ratio

Howard Lindzon: How to Succeed in Business by Bundling – and Unbundling…Financial Markets, Media and Malls

Michael Batnick: Animal Spirits: This is A Bubble

Ben Carlson: Investment Policy for Institutional Investors

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Five-Week High
Posted by Eddy Elfenbein on July 15th, 2020 at 11:38 am

Yesterday the S&P 500 closed at a five-week high, and it’s up again today. The index is very close to the high from June 8 which is currently the highest close since the rally started on March 23.

This morning’s industrial production report showed an increase of 5.4% for June. That’s quite good although we’re still well below the high from a few months ago.

From the WSJ:

The data suggest U.S. industries have started a slow recovery from April’s record decline. Despite the recent gains, the index for the second quarter as a whole fell at an annual rate of 42.6%, the largest quarterly decrease since World War II.

We have news on Church & Dwight (CHD), Moody’s (MCO) and Danaher (DHR).

Morning News: July 15, 2020
Posted by Eddy Elfenbein on July 15th, 2020 at 7:09 am

Blow For EU As Apple Wins Fight Against $15 Billion Tax Order

U.K. Bars Huawei for 5G as Tech Battle Between China and the West Escalates

Fed’s Brainard Sees Substantial Economic Risks and Slow Recovery

Markets Walk Dangerous Tightrope Before U.S. Stimulus Expires

Banks Stockpile Billions as They Prepare for Things to Get Worse

‘Hero’ Pay Raises Disappear for Many Essential Workers

Google Buys 7.7% of Reliance’s Digital Unit For $4.5 Billion

Electric-Car Subsidies Make Renaults Free in Germany

Disney Parks Are Practically Empty and That Seems to Be the Idea

Will Tesla Be Added to the S&P 500? Here’s How It Will Be Decided

Howard Lindzon: Investing is Hard …and Tesla Topped

Michael Batnick: Brand New “What Are Your Thoughts?

Ben Carlson: It’s Easier to Start a Bull Market Than Prevent a Bear Market

Nick Maggiulli: What Risk Isn’t

Joshua Brown: CHART: The Modern History of Globalization & Musk vs Buffett, Gold vs the S&P 500

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Consumer Prices Rebound in June
Posted by Eddy Elfenbein on July 14th, 2020 at 10:01 am

The stock market couldn’t hold onto its gains from yesterday morning. After 2 pm, stock prices dropped, but this morning share prices appear to have stabilized.

This morning’s CPI reported showed that after three months of deflation, consumer prices rebounded in June. The headline rate rose by 0.6%. That’s the highest in eight years. The core rate rose by 0.2%.

The Fed is pumping money into the economy through extraordinary measures, including large-scale asset purchases and funneling loans to firms. Separately, the government has provided nearly $3 trillion in fiscal stimulus, contributing to a record monthly budget deficit in June.

There have been fears that the unprecedented stimulus could stoke inflation. But with a record 33 million people on unemployment benefits, economists expect inflation is likely to remain benign.