• CWS Market Review – March 6, 2020
    Posted by on March 6th, 2020 at 7:06 am

    “The stock market is going to fluctuate. Sometimes it will fluc down; other times it will fluc up.” – Louis Rukeyser

    In last week’s issue, I wrote, “I think there’s a good chance the Fed will cut rates before the next meeting.”

    Sure enough, that’s exactly what happened. On Tuesday, the Federal Reserve cut interest rates by 0.5% two weeks before its scheduled meeting. And the market responded…by falling flat on its face. The S&P 500 fell by 2.8%, which came after one of the market’s best days in decades.

    So how come a rate cut didn’t work? Well, as much as we hope, low rates won’t cure any virus. Simply put, the market is on edge right now. It’s hard to state just how volatile the market has become. It hasn’t been like this in years. Check out the daily changes for the S&P 500.

    Consider some stats. The S&P 500 has now closed up or down by more than 2.5% for four straight days. It hasn’t done that in more than eight years. At one point, the S&P 500 closed up or down by more than 4% three times in five days. In the eight years prior to that, it happened just twice. (For that last stat, Brian Sullivan gave me a shout-out on CNBC.).

    In this week’s issue, I’ll break down what’s happening, and more importantly, I’ll tell you how to position yourself. But I’ll warn you, it’s very likely we’re not done just yet. I’ll also update you on this week’s earnings report from Ross Stores. The deep-discounter beat earnings and hiked its dividend, but guidance wasn’t so hot. I’ll have more on that in a bit. But first, let’s look at the Fed’s surprise rate cut.

    The Fed Cuts Rates and the Market Drops

    I’d like to credit my Fed prediction to my wisdom and sagacity. In reality, I simply saw that the Fed had few other choices. They had to cut, and cut fast. The stock market was plunging, bonds were soaring and commodity prices were in free fall.

    I like to follow the “break evens.” That’s basically the market’s estimate for what inflation will be. The 10-year break-even had dropped sharply in just a few days. That was a clear sign from the market that a rate cut was needed. The entire TIPS (Treasury Inflation Protected Securities) yield curve is negative. I wasn’t surprised to see that the Fed’s vote this week was unanimous.

    In its statement, the Fed said, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity.” We may see negative rates soon.

    Of course, lower rates won’t do much to stop the spread of coronavirus, but they may help soften the economic dislocations caused by the virus. Cruise stocks, for example, have been creamed. Many airline stocks are near multi-year lows. Natural gas is at a four-year low.

    I think it’s likely that economic growth will take a hit this year, but it’s too early to say how long and by how much. But the slide in the yield of long-term bonds suggests that Wall Street isn’t expecting much in terms of growth this year. At a first guess, I’d say we can expect a flat economy with 0% growth. Look at how steeply the 10-year yield fell.

    The fallout from the world of the coronavirus isn’t always so obvious. For example, shares of Clorox (CLX) have done well. Makes sense once you think about it. Campbell Soup (CBP) is also up. (People staying at home?)

    Quick quiz: Guess what country’s stock market just hit a fresh two-year high?

    Give up? The answer may surprise you. It’s China. “The blue-chip CSI 300 Index jumped 2.2% on the day to 4,206.72, its highest point since February 2018.” In China, seven of 31 provincial-level governments have pledged to spend $505 billion on infrastructure projects. That’s a staggering number and it will get even bigger as other cities join in. I’m curious to see if the U.S. will do something similar.

    I also want to point out that our Buy List continues to do well in a relative sense. Outperforming in a down market is a key aspect of long-term success. I don’t yet have Friday’s final numbers, but it looks like our Buy List is set to outperform the S&P 500 for the fifth week in a row. Since our portfolio is focused on high-quality stocks, it tends to fare better in downdrafts. We also beat the market last year in a strong up year. Since February 20, the S&P 500 has shed 10.52%, but our Buy List is down by 8.97%.

    What to Do Now

    There are three things to do now.

    1. Do not panic and sell.
    2. Expect more volatility. We’ll probably retest the low.
    3. Pick up bargains with any free cash.

    I’ll restate the Peter Lynch quote from last week: “The real key to making money in stocks is not to get scared out of them.”

    I can’t predict that we’ve already seen the low. Going by historical patterns, we probably haven’t. The market likes to test and retest prior low points. Last Friday, the S&P 500 got down to 2,855.84. I think we’ll test that soon. If it breaks, then the bears will be back. On Thursday, the S&P 500 closed below its 200-day moving average, which is not an encouraging sign.

    Now to point #3. What bargains? Thanks to the downturn, some of our Buy List stocks look pretty good. Here are three:

    Shares of AFLAC (AFL) are quite attractive here. The stock has gotten seriously beaten. Remember that most of their business comes from Japan. In fact, the company had a coronavirus case in one of its call centers. The shares are now down more than 25% from their 52-week high.

    Don’t forget how well run this company is. Going by yesterday’s close, AFL currently yields 2.7%. That’s a solid dividend, too. Last month, AFLAC raised its dividend for the 37th year in a row. For 2020, the duck stock expects earnings of $4.32 to $4.52 per share. I think there’s a chance that AFL many lower guidance at some point.

    I’m dropping my Buy Below down to $46 per share, but if you can pick up AFL below $42, then you’ve made a good deal.

    Globe Life (GL) also looks very good in this range. For 2020, Globe life expects earnings of $7.03 to $7.23 per share. That gives the stock a P/E Ratio of less than 13. I’m lowering my Buy Below to $100 per share, but if you can get GL below $90, that’s a very good entry price.

    I also like Check Point Software (CHKP). The stock recently hit a 52-week low. The last earnings report was pretty good. I’m dropping my Buy Below price on Check Point to $110 per share.

    The selloff has thrown several of our Buy Below prices off. I don’t think it’s worthwhile to do a mass adjustment in one issue, but I’ll gradually readjust several Buy Belows over the next few weeks.

    Ross Stores Beats Earnings and Raises Dividend

    On Tuesday, Ross Stores (ROST) reported fiscal Q4 earnings of $1.28 per share. This was for the months of November, December and January. That’s the key holiday-shopping season for Ross. Previously, Ross had given us a range of $1.20 to $1.25 per share.

    They key stat to watch for any retailer is same-store sales. For Ross, that rose by 4% last quarter. Ross has been expecting same-store sales growth of 1% to 2%. For the year, Ross made $4.60 per share. That’s up from $4.26 in 2018. Annual sales rose 7% to $16.0 billion.

    Barbara Rentler, Chief Executive Officer, commented, “We delivered strong sales and earnings growth for both the fourth quarter and fiscal year. Our ongoing ability to offer compelling bargains to our customers enabled us to achieve these results despite our own challenging multi-year comparisons and a fiercely competitive holiday season.”

    Ms. Rentler continued, “Fourth quarter operating margin of 13.3% was slightly better than expected, driven by higher merchandise margin.”

    During Q4, Ross bought back 2.7 million shares for $309 million. For the year, they bought back 12.3 million shares for $1.275 billion. There’s still $1.275 billion left in the current authorization.

    Ross also raised its quarterly dividend by 12%. The quarterly payout will rise from 25.5 cents to 28.5 cents per share. The new dividend is payable on March 31 to stockholders of record as of March 17. Ross has raised its dividend every year since 1994.

    Now for guidance:

    For the 52 weeks ending January 30, 2021, the Company is planning same-store sales to grow 1% to 2% and earnings per share of $4.67 to $4.88. We also plan to open about 100 stores this year, consisting of approximately 75 Ross Dress for Less and 25 dd’s DISCOUNTS locations.

    For the first quarter ending May 2, 2020, comparable-store sales are forecast to be up 1% to 2% with earnings per share projected to be $1.16 to $1.21 versus $1.15 for the first quarter ended May 4, 2019.

    That’s not so hot, but I think Ross is playing it safe. Wall Street had been expecting $1.25 per share for Q1 and $5.01 per share for the year. The stock just fell to a six-month low. I still like Ross, but I’m lowering my Buy Below price to $110 per share.

    That’s all for now. The jobs report is due out later today. Next week, there’s not much in the way of economic reports. The CPI comes out on Wednesday. I expect it will show more low inflation. Also on Wednesday, we’ll get an update on the Federal budget. The deficit is looking quite large this year. Then on Thursday, we’ll get the weekly jobless-claims report. 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: March 6, 2020
    Posted by on March 6th, 2020 at 7:01 am

    Coronavirus Wreaks Financial Havoc as Infections Near 100,000

    Bonds Extend Rally as Investors Retreat From Stocks

    Sovereign Bond Yield Collapse Shows the World Is in Crisis Mode

    It’s Time to Really Fret, Says Manager Who Beat 98% of Peers

    Why the Coronavirus Could Threaten the U.S. Economy Even More Than China’s

    The Fed is Already Behind the Curve as Goldman Says Firepower Could Be Half as Much as Usual

    Mortgage Rates Dip To Lowest Point On Record

    Tencent-Backed WeDoctor Invites Banks to Lead $1 Billion Hong Kong IPO

    Costco Crushed February Same-Store Sales. It Was the Coronavirus.

    Jamie Dimon’s Emergency Heart Surgery Puts Spotlight on JPMorgan’s Bench

    Tito’s Vodka: Please Don’t Use Our Booze as Coronavirus Hand Sanitizer

    U.A.W. Corruption Case Widens as Former Chief Is Charged

    Cullen Roche: Three Things I Think I Think – Corona Edition

    Michael Batnick: Don’t Catch a Falling Knife

    Ben Carlson: Advice Doesn’t Have to Be Complicated to Be Effective

    Be sure to follow me on Twitter.

  • Morning News: March 5, 2020
    Posted by on March 5th, 2020 at 7:27 am

    Global Economy Is Gripped by Rare Twin Supply-Demand Shock

    A Global Outbreak Is Fueling the Backlash to Globalization

    Larry Kudlow Says ‘We’re Not Going to Panic’ Over the Economy

    Dow Futures Tumble as U.S. Coronavirus Cases Increase, California Declares State of Emergency

    Fed ‘Beige Book’ Shows Business Worried About Coronavirus and the Election

    DealBook: Lloyd Blankfein Says He Knows Why the Market Is Moving

    OPEC Backs Extra 1.5 Million BPD Output Cut if Russia Joins In

    Airlines May Lose Up to $113B in Revenue – IATA

    British Airline Flybe Collapses as Coronavirus Deals Final Blow

    HP Rejects Xerox’s Hostile Takeover Offer, Calling Bid Too Low

    Nick Maggiulli: How Stocks Perform After the Fed Cuts Rates

    Ben Carlson: How Do We Get People to Save More For Retirement?

    Michael Batnick: Animal Spirits: The Emergency Rate Cut & Today Was Weird

    Joshua Brown: What You Should Buy In A Recession

    Jeff Carter: Rearranging Distribution

    Be sure to follow me on Twitter.

  • Morning News: March 4, 2020
    Posted by on March 4th, 2020 at 7:05 am

    Global Health Crisis 1, Economic Policymakers 0

    The Fed Has No Tools for an Outbreak. Here’s Why It Acted Anyway.

    Fed Makes Emergency Rate Cut, but Markets Continue Tumbling

    Bonds Hold Gains After Fed’s Surprise Rate Cut

    Treasury 10-Year Yield Sets Record Below 1% on Virus Fears

    Trump Balks at Stimulus, Saying Economy Is Immune to Coronavirus

    A Hedge Fund Pioneer Bets on Higher Rates, Recovery In Stocks

    A U.S. Steel Mill Found a Savior in China. Rivals See a Trojan Horse

    What Happens in Vegas if No One Stays in Vegas?

    How An Ill-Timed Bet On A U.S. Oil Refinery Cost ICBCS Millions

    SoftBank-Backed CloudMinds Blocked From Exporting U.S. Tech to China

    U.S. Surges Ahead as World’s Top Hotspot for the Fabulously Rich

    Ben Carlson: Questions Every Investor Needs To Ask Themselves Right Now

    Nick Maggiulli: 3 Reasons Why You Should Invest in Bonds

    Joshua Brown: They Did It: The First Emergency Interest Rate Cut Since 2008, Why the Rate Cut “Didn’t Work” & We Might Need a Retest

    Be sure to follow me on Twitter.

  • Ross Stores Beats Earnings and Hikes Dividend
    Posted by on March 3rd, 2020 at 5:41 pm

    Ross Stores (ROST) reported fiscal Q4 earnings of $1.28 per share. This is for the months of November, December and January. Previously, Ross had given us a range of $1.20 to $1.25 per share.

    Same-store sales rose by 4%. Ross has been expecting growth of 1% to 2%. For the year, Ross made $4.60 per share. That’s up from $4.26 in 2018. Annual sales rose 7% to $16.0 billion

    Barbara Rentler, Chief Executive Officer, commented, “We delivered strong sales and earnings growth for both the fourth quarter and fiscal year. Our ongoing ability to offer compelling bargains to our customers enabled us to achieve these results despite our own challenging multi-year comparisons and a fiercely competitive holiday season.”

    Ms. Rentler continued, “Fourth quarter operating margin of 13.3% was slightly better than expected, driven by higher merchandise margin.”

    During Q4, Ross bought back 2.7 million shares for $309 million. For the year, they bought back 12.3 million shares for $1.275 billion. There’s $1.275 billion left in the current authorization

    Ross is also raising its quarterly dividend 12%, from 25.5 cents to 28.5 cents per share. The new dividend is payable on March 31 to stockholders of record as of March 17. Ross has raised its dividend every year since 1994.

    Now for guidance:

    For the 52 weeks ending January 30, 2021, the Company is planning same store sales to grow 1% to 2% and earnings per share of $4.67 to $4.88. We also plan to open about 100 stores this year, consisting of approximately 75 Ross Dress for Less and 25 dd’s DISCOUNTS locations.

    For the first quarter ending May 2, 2020, comparable store sales are forecast to be up 1% to 2% with earnings per share projected to be $1.16 to $1.21 versus $1.15 for the first quarter ended May 4, 2019.

    Wall Street had been expecting $1.25 per share for Q1 and $5.01 per share for the year. The shares are down about 3% after hours.

  • The Fed Cuts by 0.50%
    Posted by on March 3rd, 2020 at 11:06 am

    Me a few days ago.

    And today.

    Federal Reserve issues FOMC statement

    The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.

    The market rallied. For a bit.

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

    G-7 to Hold Emergency Call on How to Lift Economy From Virus Threat

    Saudis Renew Push for Output Cuts as Coronavirus Weakens Oil Business

    Hottest Bond Market in History Is Starting to Make Some Nervous

    Could the Coronavirus Cause a Recession (and How)?

    Is Fiscal Stimulus the Answer to Preventing a Coronavirus Recession?

    DealBook: Capitalists Make Their Case Against Sanders

    Thermo to Buy Qiagen for $10 Billion in 2020’s Top Health Deal

    SoftBank CEO Tells U.S. Investors He’ll Be More Careful

    Amazon Adds Warehouse Network Closer to Cities to Speed Up Same-Day Delivery

    Xerox, HP Blame Each Other As Takeover Battle Heats Up

    Waymo Brings In $2.25 Billion from Outside Investors, Alphabet

    Michael Batnick: Volatility Will Continue

    Jeff Carter: The Future of Work Is Automated

    Roger Nusbaum: This Past Week As A Micro Example Of Sequence Of Return Risk

    Ben Carlson: Talk Your Book: Investing in Commodities, What Happens to Stocks After a Big Down Month?

    Be sure to follow me on Twitter.

  • Morning News: March 2, 2020
    Posted by on March 2nd, 2020 at 7:12 am

    China Inc Thinks Outside the Box as Coronavirus Keeps Consumers at Home

    Virus Pushes Global Economy Toward First Contraction Since 2009

    Coronavirus Expected to Hurt U.S. Earnings Harder and Longer

    Wall Street Has Lost Its Nerve. What Will It Take to Get It Back?

    How to Fight That Sinking Feeling

    JPMorgan Sees a $1.2 Trillion Reason to Nix a U.S. Yield Rebound

    Think-Tank Report on Uighur Labor in China Lists Global Brands

    Where Is Jack Dorsey? Not in the Room as His Twitter Future Debated

    Intel’s Culture Needed Fixing. Its C.E.O. Is Shaking Things Up.

    Nokia Replaces CEO with Fortum Boss Lundmark to Revive 5G Business

    Beyond Meat Shares Plummet Despite Revenue Tripling Year Over Year

    Boeing’s Other Headache Is Its Joint Venture With Embraer

    Joshua Brown: Reasons to Sell, Updated

    Howard Lindzon: Pizza Over Panic

    Jeff Miller: Should Investors Heed the Message of the Markets?

    Be sure to follow me on Twitter.

  • Buffett’s Shareholder Letter
    Posted by on February 29th, 2020 at 4:42 pm

    Here’s Warren Buffett’s latest letter to his shareholders. Here’s a sample:

    In 1924, Edgar Lawrence Smith, an obscure economist and financial advisor, wrote Common Stocks as Long Term Investments, a slim book that changed the investment world. Indeed, writing the book changed Smith himself, forcing him to reassess his own investment beliefs.

    Going in, he planned to argue that stocks would perform better than bonds during inflationary periods and that bonds would deliver superior returns during deflationary times. That seemed sensible enough. But Smith was in for a shock.

    His book began, therefore, with a confession: “These studies are the record of a failure – the failure of facts to sustain a preconceived theory.” Luckily for investors, that failure led Smith to think more deeply about how stocks should be evaluated.

    For the crux of Smith’s insight, I will quote an early reviewer of his book, none other than John Maynard Keynes: “I have kept until last what is perhaps Mr. Smith’s most important, and is certainly his most novel, point. Well-managed industrial companies do not, as a rule, distribute to the shareholders the whole of their earned profits. In good years, if not in all years, they retain a part of their profits and put them back into the business. Thus there is an element of compound interest (Keynes’ italics) operating in favour of a sound industrial investment. Over a period of years, the real value of the property of a sound industrial is increasing at compound interest, quite apart from the dividends paid out to the shareholders.”

    And with that sprinkling of holy water, Smith was no longer obscure.

    It’s difficult to understand why retained earnings were unappreciated by investors before Smith’s book was published. After all, it was no secret that mind-boggling wealth had earlier been amassed by such titans as Carnegie, Rockefeller and Ford, all of whom had retained a huge portion of their business earnings to fund growth and produce ever-greater profits. Throughout America, also, there had long been small-time capitalists who became rich following the same playbook.

    Nevertheless, when business ownership was sliced into small pieces – “stocks” – buyers in the pre-Smith years usually thought of their shares as a short-term gamble on market movements. Even at their best, stocks were considered speculations. Gentlemen preferred bonds.

    Though investors were slow to wise up, the math of retaining and reinvesting earnings is now well understood. Today, school children learn what Keynes termed “novel”: combining savings with compound interest works wonders.

  • CWS Market Review – February 28, 2020
    Posted by on February 28th, 2020 at 7:08 am

    “Markets trend only about 15 percent of the time; the rest of the time they move sideways.” – Paul Tudor Jones

    In last week’s issue, I wrote about the market’s rally, “I want to urge caution. We’ve had some nice gains, but don’t get too complacent. The bear loves to knock you over the moment you get too comfortable.”

    Clairvoyance? Nope. I was just being prudent, but my timing was spot on. What a raucous week on Wall Street! The fears of the coronavirus have finally landed on Wall Street and the S&P 500 has fallen for six days in a row. If you’re keeping score, this is the 26th pullback of more than 5% since the bull market began 11 years ago.

    Let’s review the damage. On Monday, the S&P 500 lost -3.35% for its worst loss in more than two years. Then on Tuesday, it fell by -3.03%. On Thursday, the S&P 500 plunged for a loss of -4.42%. That was its biggest fall in 8½ years.

    From its closing high on the Wednesday before last, the S&P 500 has lost just over 12%. That’s in six trading sessions. This is the fastest correction (over 10% loss) in history. There’s an old saying on Wall Street, “a bull walks up the steps and a bear jumps out the window.” Boy is that true.

    Here’s an example of how irrational markets have been. Shares of ZOOM Technologies (ZOOM) jumped more than 50% on the belief that its video-conferencing technology would benefit from the coronavirus.

    One small problem. That’s the wrong company!

    The company that makes Zoom is Zoom Video Communications. Their ticker is ZM.

    ZOOM Technologies is not longer in business. In fact, it hasn’t been in business for years!

    Traders didn’t care. At its high, ZOOM was up more than 56% on Thursday. Let me reiterate, this is a company that’s no longer in business.

    In this week’s CWS Market Review, I’ll try to bring some sanity back to Wall Street. Fortunately, our Buy List has been outperforming lately (meaning down less). Since February 20, the S&P 500 has lost 11.69% while our Buy List has fallen 9.75%. I realize talking about falling less may sound odd, but it’s an important aspect of long-term investing success.

    I’ll go over our three Buy List earnings reports from this week. They were all quite good. At one point, Middleby jumped for a 20% gain. I’ll have the details in a bit. I’ll also preview next week’s earnings report from our favorite deep-discounter, Ross Stores. But first, let’s try to make sense of this week’s mayhem.

    The Fastest Correction in History

    I certainly won’t say that I have any expertise in public health, so I can’t say much about what will eventually happen with coronavirus. But I do know something about financial markets, and they’ve been very anxious this week. The yield on the 10-year Treasury fell below 1.25%. That’s an all-time low.

    This week has seen some of the most severe few days since the Financial Crisis. Still, we’ve seen many weeks worse than this. We should also bear in mind how well the market had done before now. The S&P 500 is still up over 18% since the start of 2019. As far as one-day losses go, in percentage terms, Thursday doesn’t crack the top 100.

    What’s struck me is the big divide among the kinds of stocks feeling the most pain. Stocks that tend to bounce around a lot have been down the most whereas stocks that are more stable have suffered the least. Some of this is to be expected simply due to the nature of these stocks. But the gap between these groups has been especially wide this week even in regard to the overall market.

    Here’s a chart of the S&P 500 High Beta Index (red) along with the S&P 500 Low Vol index (blue):

    In plainer terms, investors have been dumping risky stocks at a mad pace. In return, they’re running toward anything that looks safe. One beneficiary has been bonds. The yield on U.S. Treasuries has plunged. I think there’s a good chance the Fed will cut rates before the next meeting. In fact, it could be a 0.5% cut. Of course, that’s not exactly a vaccine for coronavirus, but it would calm Wall Street’s nerves.

    What to do now? First, whatever you do, do not panic and sell. That would be a huge mistake. As Peter Lynch said, “The real key to making money in stocks is not to get scared out of them.” Make sure you have a well-diversified portfolio of high-quality stocks. The downturn has given us some bargains. AFLAC (AFL), for example, is going for 10 times earnings. Disney (DIS) is another stock going for a discount.

    Now let’s take a look at our Buy List earnings from this week.

    Trex Is a Buy up to $107 per Share

    This week, we had our final three Buy List earnings reports for this earnings season. After the close on Monday, Trex (TREX) reported Q4 earnings of 61 cents per share. That was 10 cents more than estimates. Sales rose 18% to $165 million. The company had been expecting sales of $160 million. For the year, Trex earned $2.47 per share on sales of $745 million.

    CEO James E. Cline said, “Fourth-quarter results were in line with our expectations for strong double-digit sales growth and sequential gross margin expansion.” This was a very good quarter for Trex.

    For 2020, Trex expects “strong double-digit sales growth.” For Q1, they expect sales of $200 million which is an 11% increase over last year. During 2019, Trex bought back 500,000 shares of stock at an average price of $77 per share.

    The stock rose on Tuesday while most everything else was down. On Wednesday, Trex pulled back 5% as a number of analysts trimmed their Q1 EPS forecasts. The shares rallied again on Thursday. This week, I’m raising my Buy Below on Trex to $107 per share.

    One other note. James E. Cline will be retiring as CEO later this year. The board has chosen Bryan Fairbanks to be the new CEO.

    Our final two reports came on Wednesday. On Wednesday morning Middleby (MIDD) released a fantastic earnings report. At one point on Wednesday morning, the shares were up over 20%.

    For Q4, the company made $2.00 per share. That crushed estimates of $1.71 per share. Quarterly sales rose 4.1% to $787.6 million. For the year, Middleby made $7.02 per share. Business is going very well.

    CEO Timothy FitzGerald said, “Over the past year we made significant investments in new product innovations addressing these categories and are pleased to see growing interest as we enter 2020. We are well-positioned with a much-improved backlog as we closed out 2019 and are confident it will translate into sales and profitability growth for the upcoming year.”

    The shares gained 8% on Wednesday. I’m keeping my Buy Below on Middleby at $120 per share.

    After the closing bell, Ansys (ANSS) reported Q4 earnings of $2.24 per share. That was a great number. Wall Street had been expecting $1.98 per share. For the year, Ansys made $6.58 per share.

    Ajei Gopal, Ansys President & CEO, said, “Q4 was an outstanding quarter concluding a stellar 2019. We grew double digits across revenue and ACV for the quarter and the year, and I am confident we are tracking towards our 2022 objective of $2 billion in ACV.”

    Now for the bad news. Ansys gave poor guidance for Q1 and the whole year. Bear in mind, they could be playing it safe. For Q1, Ansys sees revenues ranging between $300 million and $320 million and earnings between 75 and 88 cents per share. Wall Street had been expecting $360 million and earnings of $1.36 per share.

    For the year, Ansys sees revenues between $1.64 billion and $1.70 billion and EPS between $6.19 and $6.71. Wall Street had been expecting $1.68 billion and earnings of $6.76 per share. This implies that much of the Q1 weakness will be made up later in the year,

    In early trading on Thursday, Ansys was down as much as 12.8%. It later rallied some to close down by 9.6%. I’m keeping my Buy Below at $270 per share. Stick with Ansys-it’s a great company.

    Ross Stores Earnings Preview

    Ross Stores (ROST) will report its Q4 earnings on Monday, March 3. This is for their fiscal year which ends at the end of January. I’m a big fan of this deep discounter.

    Three months ago, Ross earned $1.03 per share. That was well above their own forecast of 92 to 96 cents per share. Quarterly sales were up 8%, but the really impressive stat was comparable-store sales. For Q3, that was up 5%. The company had been expecting a gain of 1% to 2%.

    Q4 is the biggie for Ross. That covers the holiday shopping season: November, December and January. Ross expects Q4 earnings of $1.20 to $1.25 per share which includes a tax benefit of two cents per share. Again, Ross expects same-store sales of 1% to 2%. (They always say that.) The Q4 range implies a full-year 2019 range of $4.52 to $4.57 per share. Ross Stores is a very good stock.

    Buy List Updates

    I wanted to add a quick note on Disney (DIS). This week, Robert Iger said he’ll be retiring. He’s been a remarkable leader for the entertainment powerhouse. Shares of Disney took a hit on the news. I should add that he’s not disappearing. Instead, Iger will serve as executive chairman. The stock has also lagged due travel concerns. DIS is lower now than where it was in mid-2015. Disney is a very good buy here. I’m lowering my Buy Below on Disney to $130 per share.

    On Thursday, Silgan (SLGN) raised its quarterly dividend by 9% to 12 cents per share. This is their 16th consecutive annual dividend increase. The dividend is payable on March 31 to shareholders of record on March 17. Based on Thursday’s close, that works out to a yield of 1.63%. That’s more than a 20-year Treasury.

    That’s all for now. Next week, we’ll get all the key turn-of-the-month econ reports. The ISM Manufacturing report comes out on Monday. The ADP jobs report is on Wednesday. Weekly jobless claims are due out on Thursday. That leads up to Friday when the February jobs report 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