• CWS Market Review – December 4, 2020
    Posted by on December 4th, 2020 at 7:08 am

    “There’s no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating.” – Peter Lynch

    Before I get to today’s newsletter, I have a quick announcement. I’ll be unveiling next year’s Buy List three weeks from today, on December 25. The market is closed that day, but I’ll send you an email with the new portfolio. As usual, five stocks go in and five stocks go out, and twenty stocks will remain the same. This will be our 16th annual Buy List.

    I announce the portfolio changes a bit early so that no one can claim I’m somehow rigging the track record. The new Buy List will go into effect on the first day of trading in the new year, which will be Monday, January 4, 2021. The 25 positions will be equally weighted based on the closing price on December 31. On January 1, I’ll send you another email with all the portfolio stats and a summary of our performance in 2020.

    Now, onto this week’s newsletter.

    The Best November for the S&P 500 Ever

    The stock market has been in the holiday spirit lately. The S&P 500 just came off its best November on record. The rally continued into December as the S&P 500 closed at an all-time high on Wednesday. Since the March 23 low, the S&P 500 has rallied more than 63%. I wonder how many people expected that eight months ago! I’m pleased to say that our 2020 Buy List has also enjoyed recent gains.

    What’s the reason for the rally? That’s hard to say precisely, but my guess is that it’s two things. First, the positive news about a Covid vaccine. The FDA is currently reviewing two vaccine candidates for approval. If everything goes well, the next step will be rolling them out as quickly as possible. This is a difficult time as new coronavirus cases have soared across the U.S. Many states seem to be moving back to lockdown procedures.

    The other reason for the market’s optimism is that Congress seems to be coming together to support a stimulus deal. Before the election, no one was interested in striking a deal. Now that the election has passed, the mood is quite different.

    This week, a group of bipartisan legislators came together to support a $908 billion stimulus package. That probably won’t become law, but it may serve as a starting point for future negotiations. It seems very likely that some sort of deal will ultimately be reached before the end of the year. The details still haven’t been worked out, but the important point is that everybody wants a deal to be done before the end of the year. It’s in no one’s interest to let this drag on.

    It’s true, the stock market isn’t the economy. But they are related. Here’s a long-term look at share prices and GDP:

    The November jobs report is due out later this morning. The consensus on Wall Street is for a net gain of 500,000 jobs and for the jobless rate to fall to 6.7%. I haven’t seen the results yet, but there’s been some sogginess in the recent economic data. One exception was this week’s initial jobless claims report, which showed another pandemic low.

    Most economists expect GDP growth for Q4 of around 4%. However, one outlier is the Atlanta Fed’s GDPNow, which sees Q4 GDP growth of 11.1%. That’s very good, and it’s well above expectations. What helped increase their forecast was this week’s ISM Manufacturing report, which came in at 57.5.

    We’re continuing to see the trend I’ve talked about in recent issues. Value stocks are outpacing growth stocks. That’s not always the case in a rising market. The big drivers of value’s lead in recent weeks has been the performance of financial stocks and energy stocks. Of course, it’s not so much that these stocks are doing well. Rather, they’re bouncing back after terrible performances. Still, that counts.

    Here’s a look at the performance of finance stocks (in blue) and tech stocks (in black):

    This trend is still going strong. It also suggests that the Atlanta Fed may be right and that the outlook for the economy is improving. This has caused a seeming contradiction. At one end, coronavirus cases and hospitalizations are rising. Some healthcare systems may even be overwhelmed. At the same time, some vaccines may soon be ready, and that could mean life may get back to something like normal in 2021.

    Hormel Misses by a Penny per Share

    On November 24, Hormel Foods (HRL) reported earnings for its fiscal Q4, and the results were on the weak side. Hormel made 43 cents per share for the quarter, which was one penny per share below the Street’s forecast. This was for the three months ending October 25.

    Wall Street wasn’t pleased, and frankly, neither was I. The shares dropped over 5% that day, and they had been falling going into the report.

    Let’s look at some details:

    • Volume of 1.2 billion lbs., down 2%; organic volume down 3%
    • Net sales of $2.4 billion, down 3%; organic net sales down 4%
    • Operating margin of 11.4%, compared to 12.8% last year
    • Effective tax rate of 15.9%, compared to 21.0% last year
    • Diluted earnings per share of $0.43, down 9% from $0.47

    Those are some soggy numbers across the board. Here’s how the quarter broke down by Hormel’s different business units:

    Refrigerated Foods
    Volume down 4%; organic volume down 5%
    Net sales down 5%; organic net sales down 7%
    Segment profit down 17%

    Grocery Products
    Volume up 1%
    Net sales down 1%
    Segment profit up 1%

    Jennie-O Turkey Store
    Volume down 2%
    Net sales down 6%
    Segment profit down 21%

    International & Other
    Volume down 1%
    Net sales up 8%
    Segment profit up 55%

    Not that great. Obviously, doing business in the world of the coronavirus is difficult. One silver lining is that business in China picked up a bit.

    The balance sheet is still pretty clean, and Hormel has $1.7 billion in cash. For the year, Hormel made $1.66 per share. That’s down from $1.74 per share last year. I’ve not been pleased with Hormel’s performance this year.

    Here’s an interesting chart. This is shares of Hormel divided by the S&P 500 ETF (SPY). You can see that HRL crushed the market during the panic in February and March. That’s exactly what defensive stocks are supposed to do. Since then, HRL has lagged, and the gap has only grown wider recently. This is the other side of the coin of cyclical stocks leading. Defensive stocks are lagging.

    Buy List Updates

    There’s been a lot of news impacting our stocks recently.

    First, I have to comment on shares of Disney (DIS) making a new 52-week high. That’s astounding. The company has really suffered under the pandemic. The parks business has been squeezed. No one’s going to the movies. The cruise industry is in the docks, and pro sports is having a rough time.

    Despite it all, the Mouse House continues to rally. Every day the company becomes more of a streaming business with a side business of amusement parks. I would guess that the pandemic caused Disney to do five years of evolution in less than one. I’m lifting our Buy Below on Disney to $160 per share.

    I saw that Hershey (HSY) recently altered its famous Jingle Bells ad with Hershey Kisses. Apparently, this has outraged Hershey fans! As you might guess, they took to the Internet to express their displeasure. Some practically blamed the chocolatier for ruining Christmas. Mind you, Hershey merely altered the ad. Fortunately, Hershey finally caved and said it will run the classic version of the ad.

    A lot of this is harmless fun, but there is a serious business point underneath it. It’s that we see a company that has very strong brand loyalty. The customers know and love the product, and they feel a sense of ownership. That’s very important. These facts don’t show up on a balance sheet, but they’re real.

    We also had three of our Buy List stocks recently raise their dividends. They all extended long streaks of continuous dividend hikes.

    Let’s start with Stryker (SYK). The company just bumped up its quarterly dividend from 57.5 cents to 63 cents per share. That’s an increase of 9.6%. This is Stryker’s 28th annual dividend increase.

    Stryker’s last earnings report blew the doors off. For Q3, the orthopedics company earned $2.14 per share. That was up 12% over last year. Wall Street had been expecting earnings of $1.41 per share. I’m raising our Buy Below on Stryker to $240 per share.

    Becton, Dickinson (BDX) raised its quarterly dividend from 79 to 83 cents per share. That’s an increase of 5.1%. This is their 49th annual dividend increase in a row.

    The new dividend will be payable on December 31 to holders of record on December 10. The indicated annual dividend rate for next year is $3.32 per share.

    Earlier I mentioned the earnings report from Hormel Foods (HRL). The company also raised its quarterly dividend from 23.25 cents to 24.5 cents per share. This is the 55th annual dividend increase in a row. Not bad for Spam!

    The dividend will be paid on February 16 to stockholders of record at the close of business on January 11. Since becoming a public company in 1928, Hormel has paid a regular quarterly dividend without interruption.

    Lastly, FactSet (FDS) said it will release its fiscal Q1 results on Monday, December 21. Wall Street expects earnings of $2.75 per share.

    That’s all for now. The November jobs report is due out later today. For October, the jobless rate fell to 6.9%. There’s not much in the way of economic reports next week. On Tuesday, productivity growth for Q3 will be updated. The job-openings report comes out on Wednesday. On Thursday, the CPI report is due out along with the initial-jobless-claims report. So far, inflation has been relatively tame. 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 4, 2020
    Posted by on December 4th, 2020 at 7:03 am

    Chinese Scientists Claim Breakthrough in Quantum Computing Race

    United States Adds China’s SMIC and CNOOC to Defense Blacklist

    More Than 400 Lawmakers From 34 Countries Back ‘Make Amazon Pay’ Campaign

    DOJ Sues Facebook, Alleging Bias Against U.S. Workers In Favor of Temporary Visa Holders

    Trump Is Holding Out On Supporting The $908 Billion COVID-19 Stimulus Bill Despite More Lawmakers Rallying Round It

    Futures Near Record Highs As Stimulus Hopes Build

    These Five Charts Throw Cold Water on Chances of Santa Rally

    In Blue States and Red, Pandemic Upends Public Services and Jobs

    The Bloomberg 50: The People Who Changed Global Business in 2020

    Warner Bros. Says All 2021 Films Will Be Streamed Right Away

    Southwest Issues Layoff Warnings to 6,828 Employees

    Inside $1 Billion Meal Kit Startup Gousto, the Pandemic Unicorn Expecting Its First Profit and Doubling Monthly Orders

    Joshua Brown: Here Comes the Digital Dollar! & Gold vs Bitcoin, German Stocks At New Highs, Biotech Breaks Half-Decade of Consolidation

    Ben Carlson: How I Invest My Own Money

    Howard Lindzon: Koyfin Triples Down On Democratizing Investment Research – Adds Global Equities, My Dashboards Widgets, Drag & Drop, and More!

    Be sure to follow me on Twitter.

  • Jobless Claims Fall to Pandemic Low
    Posted by on December 3rd, 2020 at 2:59 pm

    Congress appears to be moving closer to some sort of stimulus deal before the end of the year. Prior to the election, no one was willing to compromise. Now they are. A group of partisan lawmakers put forward plans for a $908 billion plan which could serve as a starting point in negotiations.

    The S&P 500 is up a little bit this afternoon. Earlier today, the initial jobless claims report came in at 712,000. That’s a pandemic low and it was well below estimates of 780,000.

    That marked a decrease from the upwardly revised level of 787,000 a week earlier, a drop likely aided by counting issues associated with the Thanksgiving holiday.

    The jobs market has demonstrated resilience even in the face of the new wave of Covid-19 cases. Claims are off their peak of 6.9 million in late March but remain well above the pre-pandemic record.

    Continuing claims also fell sharply, dropping 569,000 to 5.52 million.

    Tomorrow will be the real test when we get the jobs report. The Buy List is at a new high today although in the Buy List only Disney (DIS) and Intercontinental Exchange (ICE) are at new highs.

  • Morning News: December 3, 2020
    Posted by on December 3rd, 2020 at 7:01 am

    Chinese Companies to Face More Scrutiny as Bill Clears House

    More U.S.-Listed Chinese Firms Seen Seeking Backup Listings As New Audit Law Looms

    Who Got Rescued?

    How American Investors Are Gobbling Up Booming Bitcoin

    Oil Refineries See Profit in Turning Kitchen Grease Into Diesel

    America’s Greenest Energy Giant Isn’t Trying to Save the Planet

    Marc Benioff Sets His Sights on Microsoft

    Landlords Staring Into Retail Abyss Need More Than a Vaccine

    Singapore Approves a Lab-Grown Meat Product, a Global First

    Google Violated U.S. Labor Laws In Clampdown On Worker Organizing, Regulator Says

    Merck Sells Its Investment Stake in Moderna After Recording A ‘Substantial’ Gain

    There’s a Toxic Cloud Behind the Stock Recovery

    Ben Carlson: Animal Spirits: Raising the Minimum Wage

    Michael Batnick: The Best Movies You Haven’t Seen

    Howard Lindzon: TubeMogul Founder and Entrepreneur Brett Wilson Joins Me on Panic with Friends to Discuss His Full Circle Journey from Entrepreneur to Investor

    Be sure to follow me on Twitter.

  • Stryker Hikes Dividend by 10%
    Posted by on December 2nd, 2020 at 6:01 pm

    Stryker (SYK) just raised its quarterly dividend from 57.5 cents per share to 63 cents per share.

    Stryker (NYSE:SYK) announced that its Board of Directors has declared a quarterly dividend of $0.63 per share payable January 29, 2021 to shareholders of record at the close of business on December 31, 2020, representing an increase of 9.6% versus the prior year and previous quarter.

    “We continue to drive solid financial results in a challenging environment, and consistent with our stated capital allocation philosophy, are raising our dividend 9.6%,” said Kevin Lobo, Chairman and Chief Executive Officer.

  • What Happened in Ohio County, Indiana?
    Posted by on December 2nd, 2020 at 4:41 pm

    I’m a fan of Dave Leip’s website which storehouses U.S. election results. I was curious to see what county in the country was the best for the Libertarian Party ticket.

    On Leip’s site, it said that was Ohio County, Indiana where Jo Jorgensen got more than 11.48% of the vote.

    I think that’s a mistake.

    No this won’t change the election. But I think someone goofed.

    The fault isn’t Leip’s. I checked with the Indiana Elections Division website and he’s presenting the same data they are. Instead, I think someone messed up the numbers.

    That result is so much of an outlier that it makes me question the data. The votes for the Libertarian ticket in Ohio County was five or six times what one world expect.

    Some commenters on Twitter pointed to the strong showing for the Libertarian gubernatorial candidate, Donald Rainwater. That’s true, but he actually trailed his statewide percentage in Ohio County. The Libertarian candidate for Congress got 2.2% which is about what you’d expect.

    Maybe the Libertarian really focused on this county in southern Indiana. I don’t know. It does seem odd that Jorgensen got 353 votes while Rainwater got 335 votes. Those are numbers easy to confuse.

    Being an investor, you spend a lot of time trying to find numbers that don’t make sense. Perhaps there’s an easy explanation. Many times, there is one. Still, I can’t help noticing that if you took 300 votes from Jorgensen and gave them to Trump, the numbers suddenly fall back into expectations.

    I don’t know what happened, but that sure would explain a lot.

  • Disney Hits New 52-Week High
    Posted by on December 2nd, 2020 at 3:26 pm

    The theme parks are closed. The cruise lines are docked. The sports arenas are empty and no one’s at the movies.

    In other news, shares of Disney (DIS) just reached a 52-week high.

    Keep calm and stream on!

  • November ADP = 307,000
    Posted by on December 2nd, 2020 at 2:03 pm

    The stock market is backing off from its all-time highs set yesterday. As I write this, the S&P 500 is barely negative on the day.

    This morning’s ADP report said that private employment increased by 307,000 last month.

    The total represented a decline from the upwardly revised 404,000 in October and is the smallest gain since the 216,000 increase in July, according to the report, which is compiled in conjunction with Moody’s Analytics.

    The revision added 39,000 to the original estimate from October, making the November miss not as bad as it appears. Markets had little reaction to the report.

    “We expected a much weaker number, so this is something of a relief,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

    Wall Street had been expecting 475,000. This is part of a larger trend showing some weakness in the labor market. Tomorrow we get the next initial claims report and on Friday, the big jobs report is due out.

  • Morning News: December 2, 2020
    Posted by on December 2nd, 2020 at 7:04 am

    U.K. Clears Pfizer Covid Vaccine for First Shots Next Week

    Treasury Yield Spike Risks Spreading Across Markets

    100-Year Bonds Can Save Us From Inflation

    The Biden Spin on ‘America First’

    Salesforce’s Benioff Escalates Microsoft Rivalry With Slack Deal

    This Japanese Shop Is 1,020 Years Old. It Knows a Bit About Surviving Crises.

    Nobody Is Going to Conventions. Convention Centers Are Growing Anyway.

    Walmart Axes $35 Delivery Minimum On Website Purchases For Membership Program

    Hewlett Packard Enterprise Is the Latest Tech Company to Leave Silicon Valley, And Is Moving to Houston

    Elon Musk Would Consider Having Tesla Acquire A Legacy Automaker

    Nick Maggiulli: Rich As I Say, Not As I Do

    Ben Carlson: How Personal Finance Helped Launch Dazed and Confused

    Michael Batnick: The Biggest S&P 500 Addition Ever

    Joshua Brown: Josh Is Still Bullish, Would You Buy Airbnb IPO, Dow 30K Takes, Tesla Added to SPX

    Howard Lindzon: Airbnb: The Disaster Artist…And 8 to 80 Portfolio Ready at IPO

    Be sure to follow me on Twitter.

  • Hershey Upsets Its Fans
    Posted by on December 1st, 2020 at 8:20 pm

    You know your product is popular when a minor change can upset people. Hershey has altered its classic Christmas bells ad. This did not sit well with everyone.

    Commenters were quick to call out the company for revising the commercial in a year that’s already been packed with difficult changes. Multiple people even suggested Hershey create a separate ad with the dad and little girl, in addition to airing its seasonal marketing mainstay.

    “I don’t mind an ADDITIONAL holiday commercial for Hershey’s, but warping the classic bells commercial SUCKS!” one person commented on the YouTube video of the new ad.

    “The perfect representation of 2020: completely ruined!” added another.

    “Look forward to original every year. Why change it? Don’t ruin it just make a separate commercial,” wrote a third.

    Criticism of the new ad took off on Twitter, too.

    “Hershey’s redoing their christmas commercial is personally the last straw of 2020 for me,” one person tweeted. “I simply cannot go on without hearing the little hershey kiss sigh after the performance of his lifetime.”