CWS Market Review – November 15, 2019
Posted by Eddy Elfenbein on November 15th, 2019 at 7:08 am

“The best stock to buy may be the one you already own.” – Peter Lynch

On Tuesday, I sent you a special update telling you about the deal to buy out Continental Building Products for $37 per share. This is great news for us, and it’s another nice winner for the Crossing Wall Street Buy List.

In this week’s issue of CWS Market Review, I’ll fill you in on the details. Or at least, the details that we have. The deal will probably take some time to commence. Alas, lawyers and regulators need to get involved.

That wasn’t the only good news for us. Disney said that its Disney+ service is off to a big start. They’ve already signed up 10 million subscribers. Shares of Disney popped 7.3% on Wednesday to reach a new 52-week high. I’ll have more on the Mouse in a bit.

The overall market continues to push through to new highs. The S&P 500 has now rallied 13 times in a seventeen-day stretch. Our Buy List is now up more than 26% on the year. We have three +50% winners, plus two more up over 40%. I’ll also have an update on Eagle Bancorp. But first, let’s look at our big win this week with Continental Building Products.

Continental Building Gets Bought Out for $37 per Share

After the closing bell on Tuesday, Continental Building Products (CBPX) said it’s going to be bought out for $37 per share.

The acquirer is Compagnie de Saint-Gobain S.A., a French multinational. The deal values Continental at $1.4 billion. I’m curious if someone released the news too early, because the shares shot up moments before the closing bell. The final trade was $35.75. That’s a gain of 11.65% for the day. Since early August, CBPX is up 62%.

Don’t expect CBPX to trade at $37 just yet. The companies need to jump over some regulatory hurdles before the deal is complete. Also, shareholders need to sign off on the deal. That shouldn’t be a problem. It’s already been unanimously approved by the company’s Board of Directors.

Unfortunately, the companies haven’t provided much in the way of details. This is from the press release:

Edward Bosowski, Chairman of Continental Building Products and Mr. Bachmann, stated, “Building on our successful accomplishments since 2013, we are pleased to reach this agreement with Saint-Gobain and to provide liquidity, certainty and compelling value to our stockholders. We believe our combined business will be better positioned to enhance our product offerings, customer relationships and operating platform. With our mutual focus on dedicated service to customers and operational excellence, we believe this transaction provides an opportunity to benefit all of our stakeholders.”

Under the terms of the agreement, the Company will be merged with and into a newly-formed subsidiary of Saint-Gobain and each issued and outstanding share of the Company’s common stock will be converted into the right to receive $37.00 per share in cash.

Here’s a cool factoid: Saint-Gobain was founded in 1665. Almost as an afterthought, Continental released its Q3 earnings. Sales fell 2.9% to $127.4 million. Wallboard volume rose by 4.6%, but lower prices caused the revenue decline. For Q3, CBPX earned 39 cents per share. That was two cents below estimates.

What to do now? Just sit tight with this stock. There’s no reason to sell. I’m raising our Buy Below to $37 per share. I want to hear more about a timetable for this transaction. I’m assuming it will be completed sometime in 2020.

Disney Gets 10 Million Subscribers for Disney+

Disney (DIS) did not start out well for us this year. In the March 22 issue of CWS Market Review, I even had a subheading titled “What’s Wrong with Disney?” My conclusion: nothing.

In March, I wrote, “I added Disney to the Buy List at the start of this year, and I’m not sorry I did. The stock, however, is down 1% for us. In fact, the stock is exactly where it was four years ago. I’m not concerned one bit.” The stock is up 36% since then.

Last Thursday, Disney reported very good results for Q3. The company made $1.07 per share, which was 12 cents better than expectations. Revenue also beat expectations.

Then on Tuesday of this week, Disney+ went live. On Wednesday, we learned that Disney has already added 10 million subscribers. As impressive as that is, remember that Disney+ only went live in the U.S., Canada and the Netherlands. The global rollout will last until 2021.

On Wednesday, shares of Disney jumped higher by 7.3% to reach a new 52-week high. That day, Disney accounted for 75% of the Dow’s gain. The company said its goal is to have 60 million to 90 million subscribers by 2024. I’m lifting our Buy Below on Disney to $152 per share.

Some Details on Eagle Bancorp’s Legal Issues

Shares of Eagle Bancorp (EGBN) plunged in July when the bank revealed its large legal bills surrounding unspecified actions. We assumed it had to do with local D.C. city council member, Jack Evans. Eagle couldn’t talk about it since it was an ongoing investigation.

This week, we finally got more details. The Washington Post got a confidential report on the matter. It seems that Evans was involved in a lot of shady dealing, and some of that involved Eagle. However, there don’t appear to be any accusations against the bank. Ron Paul, Eagle’s former CEO, is mentioned in the report, but Paul declined to comment due to health issues.

The allegations appear to be pretty shady stuff, but nothing that should impact the performance of the bank, outside of legal fees. Paul is no longer with Eagle, and the bank has moved on.

Susan Riel is the new CEO, and this is all she had to say about the mess:

“What we are told is that it may never get resolved. It may just go away and we might not get closure to it. We’ve talked to many people. We are working with a number of attorneys on it, and they have all the experience in the world — and that’s where we are,” Riel said. “We don’t know the answer to that question. I don’t think the government agencies know the answer to that question.”

Eagle is a buy up to $47 per share.

Three More Buy List Earnings Reports This Month

The earnings report from Continental Building was our final Buy List earnings report of this earnings season. Now we’re ready for the earnings reports from our stocks that have quarters ending in October. There are three such stocks on our Buy List.

Ross Stores (ROST) is due to report on Thursday, November 21. Traditionally, Ross likes to give very conservative guidance, which they almost always beat. Sometimes, by a lot.

The October quarter is ROST’s fiscal Q3, and the biggie is Q4 (meaning, November, December and January). For Q3, Ross said it expects comparable-store sales growth of 1% to 2% for Q3 and Q4.

Because of the trade war with China, Ross now sees Q3 earnings of 92 to 96 cents per share. That’s lower than what the Street had been expecting. For Q4, the biggie, Ross sees earnings of $1.20 to $1.25 per share. That adds up to full-year guidance of $4.41 to $4.50 per share. Last year, Ross made $4.26 per share.

Here’s a fact that would surprise a lot of investors. Since the beginning of 2008, Ross has narrowly outperformed Amazon (AMZN), which is some sort of Internet bookseller.

The last earnings report from JM Smucker (SJM) was a dud. The company is due to report on November 22. For the August quarter, comparable net sales fell 4%, and earnings fell 11% to $1.58 per share. That was 16 cents below expectations. Ouch.

What went wrong? The company was hurt by poor sales of its pet-foods business. Smucker owns Milk Bone and Meow Mix. In recent years, the company has been working to build up this business. That’s why they bought Ainsworth, but the competition has been stronger than they thought. Management has conceded the difficulties in this sector. Smucker’s coffee business was weak last quarter as well.

Previously, the company was expecting sales to rise by 1% to 2%. Now they expect sales to be flat to -1%. Smucker had been expecting full-year earnings of $8.45 to $8.65 per share. Now they see earnings of $8.35 to $8.55 per share. Wall Street expects earnings next week of $2.14 per share.

Hormel Foods (HRL) is due to report on November 26. This will be for their fiscal Q4. Like Smucker, this has been a tough year for Hormel. In May, the Spam people lowered their full-year guidance due to African swine fever and other issues. I think that rattled investors.

The August earnings report was a relief, and Hormel stood by its full-year forecast for earnings of $1.71 to $1.85 per share. Since Hormel has already earned $1.33 through the first three quarters, the guidance implies a range for fiscal Q4 of 38 to 52 cents per share. Hormel also sees full-year sales of $9.5 billion to $10 billion.

That’s all for now. There are a few key economic reports coming next week. On Tuesday, the housing-starts report is due out. On Wednesday, the Fed will release the minutes of its October meeting. The minutes could provide clues as to what the central bank currently thinks about the economy and interest rates. On Thursday, the existing-home sales 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

Morning News: November 15, 2019
Posted by Eddy Elfenbein on November 15th, 2019 at 7:04 am

U.S. Official Says First-Phase China Trade Talks in Final Stages

Powell Sees Few Risks Likely to Derail Record U.S. Expansion

Automakers Around World Await Trump Tariff Decision

It’s Not Just Farmers—U.S. Exports May Never Recover From the Trade War

The U.S. Natural Gas Boom Is Fueling A Global Plastics Boom

Raise Billions From Billionaires? Tax Experts Say It’s Not That Simple

Amazon Will Challenge Pentagon’s Award of $10 Billion JEDI Contract to Microsoft

Can a Company Be Virtuous and Profitable? Nestlé Says Yes

After Its Merger, Gannett Will Be the Largest Newspaper Publisher in the U.S.

Restaurants Remove Dining Rooms to Speed Off-Site Food Frenzy

Goldman Stumbles on Path to Main Street With Apple Card Turmoil

Will Streaming Kill the Art of Cinema or Grant It New Life?

Ben Carlson: U.S. Household Debt Isn’t As Bad As You Think

Howard Lindzon: Why Should We Play By The Rules?

Roger Nusbaum: Guessing Is Not An Investment Strategy

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Morning News: November 14, 2019
Posted by Eddy Elfenbein on November 14th, 2019 at 7:19 am

Japan’s Economic Growth Falls Sharply as Exports Slow

China’s Investment Growth Slows to a Record Low

China Says Holding ‘In-Depth’ Talks with U.S. on Interim Trade Deal

How Trump’s Trade War Went From Method to Madness

‘Suffering’ German Economy Narrowly Escapes Recession in Third Quarter

German Automation Talent Powers Musk’s Battery Move to Europe

Fidelity to Baby Boomers: Lay Off the Stocks

Google Makes a Bid for Banking, Where Tech Firms Go to Stumble

Alibaba’s Hong Kong Listing Offers Valuable Beijing Goodwill

Cisco Confirms Fears of a ‘Broad-Based’ Slowdown in Tech Spending

A Milk Giant Goes Broke as Americans Reject Old Staples

WeWork Lost $1.25 Billion in Third Quarter

Michael Batnick: Animal Spirits: I’ve Never Used an Emoji

Cullen Roche: Three Things I Think I Think – I’d Like to Report a Mass Murder

Joshua Brown: Are Stock Buybacks Driving Wealth Inequality?

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Disney Rallies on Strong Disney+ Results
Posted by Eddy Elfenbein on November 13th, 2019 at 10:23 pm

It’s only been one day but Disney+ looks like it’s a big hit. So far, 10 million people have ordered the streaming service. Bear in mind that it’s only available in the U.S., Canada and the Netherlands.

The shares gained $10.14 today, or +7.32%.

Disney+, with its trove of Disney classics, princess pictures, preteen treasures and of course successful franchises such as Star Wars and Marvel movies, has attracted 10 million subscribers one day after its debut, Disney said Wednesday.

That was “eye popping” and “considerably higher” than many on Wall Street expected, Dan Ives at Wedbush said in a note.

“This speaks to the 1-2 punch of success that (Disney Chief Executive Bob) Iger and Disney have coming out of the gate with unmatched content and a massive brand/distribution that makes the House of Mouse a legitimate streaming competitor on Day One” to Netflix Inc.

Netflix NFLX, -3.05% shares closed 3% lower. Netflix last month announced a net addition of 6.77 million subscribers in its third-quarter earnings, but projected 7.6 million additions in the fourth quarter, fewer subscriber additions than Wall Street had expected. Netflix has about 60 million subscribers.

Disney’s goal of having 60 million to 90 million Disney+ subscribers in five years could be fast-forwarded by two years at this pace, Ives said.

Morning News: November 13, 2019
Posted by Eddy Elfenbein on November 13th, 2019 at 7:36 am

IEA Sees U.S. Shale Squeezing OPEC Influence

IRS Decision Is Bad Omen for RenTech Tax Dispute Worth Billions

Subzero Interest Rates Are Luring Insurers to Risk

As Push for Higher Minimum Wages Grows, New York Offers a Test Case

Google’s ‘Project Nightingale’ Triggers Federal Inquiry

U.S. Manufacturing Group Hacked By China as Trade Talks Intensified

Alibaba Poised to Launch Record-Breaking $13.4 Billion Hong Kong Share Sale

The SoftBank Effect: How $100 Billion Left Workers in a Hole

Open Source Code Will Survive the Apocalypse in an Arctic Cave

A German Dynasty Sells Assets to Survive

Elon Musk’s Solar Deal Has Become the Top Threat to Tesla’s Future

Burgers, Not Sex, Will Be the Focus of New Carl’s Jr. Ads

Nick Maggiulli: N = 1

Roger Nusbaum: Index Innovation

Ben Carlson: What Happens Next After Stocks Are Up Big?

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CWS Market Review – November 12, 2019
Posted by Eddy Elfenbein on November 12th, 2019 at 5:41 pm

Great news! After the close, Continental Building Products (CBPX) said it’s going to be bought out for $37 per share.

Here’s the press release.

The acquirer is Compagnie de Saint-Gobain S.A., a French multinational. The deal values Continental at $1.4 billion. I’m curious if someone released the news too early, but the shares shot up moments before the closing bell. The final trade was $35.75. That’s a gain of 11.65% for the day. Since early August, CBPX is up 62%.

Don’t expect CBPX to trade at $37 just yet. The companies need to jump over some regulatory hurdles before the deal is complete. Also, shareholders need to sign off on the deal. That shouldn’t be a problem. It’s already been unanimously approved by the company’s Board of Directors.

I wanted to let you know the great news! I’ll have more in the next issue of CWS Market Review.

-Eddy

Morning News: November 12, 2019
Posted by Eddy Elfenbein on November 12th, 2019 at 7:20 am

Giant Aramco Listing a Critical Test for Young Saudi Exchange

World’s Rich Readying for Major Stock Sell-Off, UBS Wealth Says

‘Fear of Missing Out’ Triggers Huge Fund Manager Shift From Cash to Stocks, Bank of America Merrill Lynch Says

Chinese Tech Will Face Tough U.S. Restrictions Regardless of Any Trade Deal

Fed Likely to Defy History With Rates Steady Through Elections

Trump May Punt on Auto Tariffs as European Carmakers Propose Plan

Tesla’s Model 3 Success Hits BMW the Hardest

Nissan Cuts Profit Forecast After 70% Quarterly Plunge

Continental, Osram Cut Costs As Autos Downturn Hits Suppliers

Netflix Was Only the Start: Disney Streaming Service Shakes an Industry

Alibaba Sold a Record Amount of Stuff on Singles Day. Apple and Lots of Other Brands Scored Too.

A.I. Systems Echo Biases They’re Fed, Putting Scientists on Guard

Joshua Brown: Mindy Diamond and Me on Breaking Away, Building a Firm

Michael Batnick: Animal Spirits: Coaching the Yankees

Howard Lindzon: Social Leverage Invests in Alpaca (Alpaca.Markets)

Be sure to follow me on Twitter.

Some News on Eagle and Jack Evans
Posted by Eddy Elfenbein on November 11th, 2019 at 4:22 pm

When shares of Eagle Bank (EGBN) got slammed a few months ago, there was a lot of speculation and there were very few facts. It was assumed that this was all tied to the political scandal of Jack Evans, a local DC city council member.

Now, a confidential report has come out detailing the shady business dealings of Evans. The Washington Post said that Ron Paul, Eagle’s former CEO, is mentioned in the report. Paul declined to comment due to health issues.

The allegations appear to be pretty shady stuff but nothing that should impact the performance of the bank, outside of legal fees. Paul is no longer with Eagle and the bank has moved on.

Susan Riel is the new CEO and this is all she had to say about the mess:

“What we are told is that it may never get resolved. It may just go away and we might not get closure to it. We’ve talked to many people. We are working with a number of attorneys on it, and they have all the experience in the world — and that’s where we are,” Riel said. “We don’t know the answer to that question. I don’t think the government agencies know the answer to that question.”

Our November Buy List Earnings Dates
Posted by Eddy Elfenbein on November 11th, 2019 at 11:46 am

Tomorrow, Continental Building Products (CBPX) will be our final Buy List earnings report of this cycle. We have three Buy List stocks that ended their quarter in October which means they’ll report later this month.

Ross Stores (ROST) is due to report on November 21. JM Smucker (SJM) follows on November 22. After that, Hormel Foods (HRL) is due to report on November 26.

Morning News: November 11, 2019
Posted by Eddy Elfenbein on November 11th, 2019 at 7:25 am

Alibaba’s Singles’ Day Sales Hit $30 Billion, on Track for Record

How Bad Is China’s Debt? A City Hospital Is Asking Nurses for Loans

Aramco’s Profit Slide Shows Scale of Risk for Investors

A $100 Billion Fund Manager Is Debunking Stock-Bubble Theories

Goldman Sachs Plans Shift From Revenue Goal at First Investor Day

Apple Co-Founder Says Goldman’s Apple Card Algorithm Discriminates

Netflix Was Only the Start: Disney Streaming Service Shakes an Industry

Boeing Aims to Move Victim Lawsuits Abroad, but C.E.O. Says He Is Unaware

Credit Suisse Picks New Head of Struggling Investment Bank

This Week in Business: Spies at Twitter

Softbank Is Getting Exactly What It Deserves, and It’s Thanks to Something Way Bigger Than WeWork

What Can Investors Do With a Truly Worthless Stock?

Howard Lindzon: Stocks Continue To Break Out Celebrating a Mike Bloomberg Presidency

Cullen Roche: Let’s Talk About Sectoral Balances

Ben Carlson: Trends That Matter in Asset Management

Be sure to follow me on Twitter.