Morning News: February 28, 2019
Posted by Eddy Elfenbein on February 28th, 2019 at 7:09 am

U.S.-China Negotiations Risk Shutting Out the Rest of the World

U.S. Drops Threat of 25% Tariffs on Chinese Goods in Sign That Accord Is Near

How Debt Makes the Market Volatile

Consumers, Weak Exports Seen Curbing U.S. Fourth-Quarter Growth

The Perils Of Investing Idol Worship: The Kraft Heinz Lessons!

America’s Cities Are Running on Software From the ’80s

Let’s Tackle Real Antitrust Problems. AT&T Isn’t One.

Tesla: The Setup

Tesla’s Musk Calls SEC ‘Broken’ in New Twitter Spat

G.M. Backs Rule to Curb Carbon-Monoxide Risk in Keyless Cars

This Is What Peak Car Looks Like

Starbucks’ China Rival Luckin Coffee Taps Three Banks for U.S. IPO

Jeff Carter: Dynamic Pricing in The Future

Jeff Miller: Realty Income’s Near-Term Momentum, Long-Term Risks

Joshua Brown: How to Follow the Economy

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Quick Update
Posted by Eddy Elfenbein on February 27th, 2019 at 6:59 pm

I was on Bloomberg this afternoon. If I can find a video link, I’ll post it.

Not much news today but it was a good day for our Buy List. We outperformed the market by 61 basis points. Danaher is still climbing. It was up another 2.6% today. In the last week, DHR is up almost 13%.

Morning News: February 27, 2019
Posted by Eddy Elfenbein on February 27th, 2019 at 7:17 am

You Don’t Need a PhD Anymore to Read Fed’s Statements

Powell Delivers a Subtle Message to Markets

FTC Aims New Task Force at Big Tech

Buffett Criticizes Others For Using Non-Standard Accounting — But He Does Too

U.S. Justice Department Will Not Appeal AT&T, Time Warner Merger After Court Loss

Boeing Signs $15.7 Billion Vietnam Orders on Trump’s Visit

Musk Lays Into SEC With More Tweets After U.S. Contempt Claim

General Electric’s Power Guidance Won’t Be Pretty

General Electric Stock Is Soaring and Analysts Are Backing It Up

Warren Buffett Joins the Crowd Struggling to Understand Oracle

A Record 430 Billionaires Drop Off Hurun’s Global Rich List

There’s A Beer That Tastes Just Like Lucky Charms

Nick Maggiuli: The Easiest Retirement Choice

Ben Carlson: What’s the Return on Mortgage Prepayments?

Michael Batnick: Regret-Adjusted Returns

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Smucker Earned $2.26 per Share
Posted by Eddy Elfenbein on February 26th, 2019 at 11:39 am

On Friday, JM Smucker (SJM) dropped sharply after the terrible earnings report from Kraft Heinz. This morning we learned that despite the problems at KHC, Smucker is doing just fine.

For their fiscal Q3, the jelly people earned $2.26 per share, which beat Wall Street’s estimate of $2.02 per share. Sales rose 6% to just over $2 billion. The company also stood by its full-year forecast.

“We are pleased with the progress that we made in the third quarter to advance our consumer centric strategy for growth, including increasing contributions from new platforms such as 1850™ coffee and Jif® Power-Ups™ snacks,” said Mark Smucker, Chief Executive Officer. “Our results reflect strong sales across all of our key growth brands, including double-digit increases for Rachael Ray® Nutrish®, Smucker’s® Uncrustables®, Nature’s Recipe®, and Sahale Snacks®. We are also pleased with our cost management efforts, as we continue to deliver on our synergy and cost savings targets. Across all our businesses, we are executing on our strategic plan focused on meeting consumer and retail trends and delivering sustainable long-term growth.”

For the full year, which is just one more quarter, Smucker expects sales of $7.9 billion and earnings of $8.00 to $8.20 per share. They’ve already made $6.20 per share for the first three quarters, so that translates to a Q4 range of $1.80 to $2.00 per share.

Let’s look at SJM’s different divisions. Coffee sales were $561 million. That’s the most profitable division. Retail consumer foods had sales of $422 million. Retail pet food was $759 million. The international division had sales of $228 million.

The stock has been up as much as 8% this morning.

Update: Smucker closed up 5% today.

Morning News: February 26, 2019
Posted by Eddy Elfenbein on February 26th, 2019 at 7:21 am

Burned by Russia, Poland Turns to U.S. for Natural Gas and Energy Security

Do Two Troubled Banks Make One Good One? Germany May Find Out

Too Much Cash, Too Little Time: The Latest U.S. Debt Cap Dilemma

This Stock Market Rally Has Everything, Except Investors

How to Really Tax the Rich

Yellen Rips Trump’s Grasp of the Federal Reserve and What It Does

U.S. Business Lobby Says Most Firms Favor Tariffs While China Trade Talks Underway

General Electric’s Monumental Move

Tesla Shares Fall After SEC Asks Judge to Hold Elon Musk in Contempt for Violating Deal

Home Depot Plans $15 Billion Buyback as Profit Falls Short

Newmont Mining Stock Slips on Barrick Gold’s Below-Market Buyout Offer

BofA Drops Merrill Lynch Name From Investment Bank Brand

Joshua Brown: All The Warren Buffett CNBC Clips From Today

Roger Nusbaum: Is Buying A Home A Sucker’s Bet?

Howard Lindzon: Momentum Monday – March Madness in February?

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The Continental Building Rally Continues
Posted by Eddy Elfenbein on February 25th, 2019 at 10:55 am

I have to admit that the big surge from Continental Building Supplies (CBPX) on Friday caught me off guard.

I thought the earnings report was just fine but I probably underestimated how pessimistic the market was. Anything fine looked great. The stock jumped significantly, and the rally has continued into this morning.

Danaher Buys GE’s BioPharma Unit
Posted by Eddy Elfenbein on February 25th, 2019 at 10:30 am

This morning, Danaher (DHR) announced that it’s buying General Electric’s biopharmaceutical business for $21.4 billion. The deal is all cash. If you recall, GE’s new CEO is Larry Culp who used to be CEO of Danaher (and a person who helped make a lot of money for us.)

Nor is this the first GE garage sale that we’ve been a part of. GE sold its transportation unit to Wabtec, a former Buy List stock. That deal completed today. In April, Danaher approached GE for a deal, but GE wasn’t interested. This time, they were. Initially, GE had wanted to sell off their entire healthcare business of which the biopharma business is just a part.

Danaher’s President and CEO, Thomas P. Joyce, Jr., said, “GE Biopharma is renowned for providing best-in-class bioprocessing technologies and solutions. This acquisition will bring a talented and passionate team as well as a highly innovative, industry-leading product suite to our Life Sciences portfolio, providing an excellent complement to our current biologics workflow solutions.”

Joyce continued, “We expect GE Biopharma to advance our growth and innovation strategy in an important and highly attractive life science market. We see meaningful opportunities to harness the power of the Danaher Business System to further provide GE Biopharma’s customers with end-to-end bioprocessing solutions that help enable breakthrough development and production capabilities. We look forward to welcoming this talented team to Danaher.”

Danaher said the deal should be completed by the fourth quarter. Breaking down the numbers, Danaher said they’re paying 17 times expected earnings. To fund the deal, Danaher will issue a mix of debt and equity. Danaher still has plans to spinoff its dental business later this year. The proceeds from that will help fund the GE deal. Danaher also spunoff Fortive a few years ago.

GE has been in a great deal of trouble and the company needs to raise cash. As a result, it has sold off assets in an attempt to save the business.

Update: Danaher rose 8.5% today.

Morning News: February 25, 2019
Posted by Eddy Elfenbein on February 25th, 2019 at 7:07 am

Trump Extends China Tariff Deadline After ‘Substantial’ Progress

This Is What a Bull Run Looks Like in China’s Stock Market

Get Used to Oil Tankers Hauling Seawater to America

Fed Embarks on a Rethink of Its Inflation Target

Roche to Buy US Biotech Spark Therapeutics in $4.8 Billion Deal

Newmont Says Rival Miner Barrick Gold Has Bought a Small Stake

Huawei’s Plight Hangs Over Wireless Industry Showcase

Peloton Picks Goldman Sachs, JPMorgan to Lead IPO

Qualcomm Rolls Out 5G Chips for Cars, PCs and Home Broadband

Sony Revitalizes Smartphone Franchise with Movie-Style Screens

China’s Tech Firms Are Mapping Pig Faces

Court Ruling Could Help J&J Defeat St. Louis Talc Lawsuits

Cullen Roche: Three Things I Think I Think – Buffett Letter Edition

Michael Batnick: The Future of Real Estate

Ben Carlson: Cherish Your Exceptions

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“The American Tailwind”
Posted by Eddy Elfenbein on February 23rd, 2019 at 4:22 pm

From Warren Buffett’s latest shareholder letter:

The American Tailwind

On March 11th, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75 I had begun accumulating at age six. What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good.

Let’s now travel back through the two 77-year periods that preceded my purchase. That leaves us starting in 1788, a year prior to George Washington’s installation as our first president. Could anyone then have imagined what their new country would accomplish in only three 77-year lifetimes?

During the two 77-year periods prior to 1942, the United States had grown from four million people – about 1⁄2 of 1% of the world’s population – into the most powerful country on earth. In that spring of 1942, though, it faced a crisis: The U.S. and its allies were suffering heavy losses in a war that we had entered only three months earlier. Bad news arrived daily.

Despite the alarming headlines, almost all Americans believed on that March 11th that the war would be won. Nor was their optimism limited to that victory. Leaving aside congenital pessimists, Americans believed that their children and generations beyond would live far better lives than they themselves had led.

The nation’s citizens understood, of course, that the road ahead would not be a smooth ride. It never had been. Early in its history our country was tested by a Civil War that killed 4% of all American males and led President Lincoln to openly ponder whether “a nation so conceived and so dedicated could long endure.” In the 1930s, America suffered through the Great Depression, a punishing period of massive unemployment.

Nevertheless, in 1942, when I made my purchase, the nation expected post-war growth, a belief that proved to be well-founded. In fact, the nation’s achievements can best be described as breathtaking.

Let’s put numbers to that claim: If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1. Meanwhile, a $1 million investment by a tax-free institution of that time – say, a pension fund or college endowment – would have grown to about $5.3 billion.

Let me add one additional calculation that I believe will shock you: If that hypothetical institution had paid only 1% of assets annually to various “helpers,” such as investment managers and consultants, its gain would have been cut in half, to $2.65 billion. That’s what happens over 77 years when the 11.8% annual return actually achieved by the S&P 500 is recalculated at a 10.8% rate.

Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 31⁄4 ounces of gold with your $114.75.

And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business. The magical metal was no match for the American mettle.

Our country’s almost unbelievable prosperity has been gained in a bipartisan manner. Since 1942, we have had seven Republican presidents and seven Democrats. In the years they served, the country contended at various times with a long period of viral inflation, a 21% prime rate, several controversial and costly wars, the resignation of a president, a pervasive collapse in home values, a paralyzing financial panic and a host of other problems. All engendered scary headlines; all are now history.

Christopher Wren, architect of St. Paul’s Cathedral, lies buried within that London church. Near his tomb are posted these words of description (translated from Latin): “If you would seek my monument, look around you.” Those skeptical of America’s economic playbook should heed his message.

In 1788 – to go back to our starting point – there really wasn’t much here except for a small band of ambitious people and an embryonic governing framework aimed at turning their dreams into reality. Today, the Federal Reserve estimates our household wealth at $108 trillion, an amount almost impossible to comprehend.

Remember, earlier in this letter, how I described retained earnings as having been the key to Berkshire’s prosperity? So it has been with America. In the nation’s accounting, the comparable item is labeled “savings.” And save we have. If our forefathers had instead consumed all they produced, there would have been no investment, no productivity gains and no leap in living standards.

Continental Building Products Jumps 8.2%
Posted by Eddy Elfenbein on February 23rd, 2019 at 11:01 am

I wanted to quickly mention yesterday’s market action. Our Buy List gained 0.72% which beat the S&P 500’s gain of 0.64%, but there were two extremes in yesterday’s action.

The first is that Continental Building Products (CBPX) rose 8.2% yesterday. I liked the earnings report, but I had no idea it would rally so much. I suppose expectations were so low that yesterday’s report soothed a lot of nerves. Still, it’s nice to see.

At the other end, JM Smucker (SJM) dropped 5% yesterday. It wasn’t anything they did. Instead, it was a reaction to the horrible report from Kraft Heinz (KHC), which caused it to plunge 27%. This is all the more puzzling because it comes right after SJM said that its 2020 earnings will be above Wall Street’s expectations. The company will report Q3 earnings on Tuesday morning.