Another All-Time High for the S&P 500
Posted by Eddy Elfenbein on July 1st, 2019 at 5:53 pm

The Dow had its best June in 81 years, and the S&P 500 had its best June in decades. The market had its best first half in over 20 years.

Everything seems to be going right for stocks. The market was up again today. Our Buy List is now up over 20% for the year.

This morning, the ISM report came in a bit weak. It was just 51.7. This was the lowest ISM since October 2016. I should add that the economy has had a period of doing just fine with low ISMs.

With the July 4 holiday, trading will be shortened this week. The exchanges close early on Wednesday and they’re closed all day on Thursday. After that, we’ll get the big June jobs report on Friday.

The market opened much higher this morning, but we slowly lost ground all day. It was still a good day but most of the hard work happened before the bell. We had news highs today from AFLAC, Cerner, Danaher, Fiserv and Stryker. Torchmark came within a penny of a new high.

Morning News: July 1, 2019
Posted by Eddy Elfenbein on July 1st, 2019 at 7:32 am

E.U. Signs Trade Deal With Vietnam

Swiss Stocks Trade Smoothly on Day One Without EU Recognition

Russians Do Without as Government Squirrels Away $100 Billion

Trump Restarts China Trade Talks, but the Two Sides Remain Far Apart.

What Trump’s Huawei Reversal Means for the Future of 5G

What Just Happened Also Occurred Before The Last 7 U.S. Recessions. Reason To Worry?

As U.S. Expansion Notches Record, Recovery May Have Only Just Begun

Factories Faltered in June, Trade Truce Fails to Brighten Outlook

Traders Seen Sticking to Fed Rate-Cut Bets as Tariffs Remain

Iran Warns ‘Unilateralism’ Between Saudi Arabia and Russia Could Lead to the Death of OPEC

U.S. Oil Companies Find Energy Independence Isn’t So Profitable

Deutsche Bank Plans to Cut as Many as 20,000 Jobs in Revamp

Jeff Miller: Chinese Fireworks?

Howard Lindzon: Catching Up On Bitcoin

Roger Nusbaum: That’s What I’m Talking About

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CWS Market Review – June 28, 2019
Posted by Eddy Elfenbein on June 28th, 2019 at 7:08 am

“A good decision is based on knowledge and not on numbers.” – Plato

Today is the last day of trading for the first half of 2019. This has been a pretty good start to the year. The S&P 500 is up 16.68%. Including dividends, the index is up 17.85%. It looks like the Dow is about to close out its best June in 81 years.

Our Buy List, I’m happy to report, is beating the market again this year. Through Thursday, we’re up 19.30% for the year. I’ll have more details on our performance in upcoming issues. Best of all, we haven’t made one single trade all year.

This week, our #1 performer proved why it got that title. FactSet beat Wall Street’s earnings estimate by 26 cents per share! The company also raised its full-year earnings guidance.

This week, we also learned the name of Danaher’s dental spinoff. The new company will be called Envista. (Yuck!) Anyway, DHR shareholders will get shares of it later this year.

I’ll get to all that, but first, let’s look at some recent economic news and what to expect when Q2 earnings season begins.

Earnings Growth Looks to Decline in Q2 and Q3

I was a bit surprised on Tuesday by the weak consumer-confidence report. This was the lowest report since September 2017. Some of that is clearly related to trade tensions, but it could have a wider impact.

As is often the case, this is a game of expectations. Relatively speaking, consumer confidence is quite high. It’s just lower than people had expected. This could wane soon if a trade deal is reached between the U.S. and China at the upcoming G-20 meeting.

That’s not all. Also this week, the Census Bureau reported that new-home sales fell in May to 626,000. That’s an annualized figure. The three previous months were revised down as well. We’ll probably see some improvement in these figures since mortgage rates have come down. In fact, Freddie Mac just reported that mortgage rates are at a 31-month low.

It’s been eleven years since the housing sector went kablooey. Adjusted for inflation, home prices are still below peak.

The second-quarter earnings season is set to begin in two weeks. Overall, the numbers will be so-so. Nothing terrible, but nothing great either. According to FactSet (not only a great stock, but a great source of data as well), earnings are expected to decline by 2.6% for Q2. Not only that, but estimates for Q3 have just turned negative as well, but only barely. At the start of the year, Wall Street had been expecting Q3 earnings growth of 3.4%. Now that’s down to -0.3%. Earnings in the tech sector are expected to fall by 9.3%.

There’s a direct relationship between short-term interest rates and stock valuations. So we’ve seen share prices rise as earnings have flatlined. But at the same time, short-term rates are expected to fall soon. In other words, the valuations can mask the weakness in the market.

There’s nothing wrong with a rise in valuations, but you have to keep in mind that it can be fleeting. I love seeing valuations rise for our stocks, but I’d much rather see stronger earnings growth.

As we’re entering a period of meager earnings growth, it’s important for us to focus on high-quality stocks. If investors know they can count on steady earnings growth from companies like AFLAC (AFL) or Hershey (HSY), they’ll migrate to them.

I also want to address an issue that’s gotten a lot of attention.

President Trump has continued to rip Fed Chairman Jay Powell. I’ll skip the politics, but it’s quite clear that the president can’t fire Powell based on policy differences. Moreover, the FOMC is a committee. The president even said he wanted ECB President Mario Draghi as Fed chairman. (The ECB is expected to cut rates soon to -0.5%.)

There’s a reason why the Fed members have 14-year terms, and Powell is hardly a rogue member. The recent policy statement to leave rates unchanged was supported by a margin of nine to one.

I don’t believe the Fed will be swayed by any empty threats from the White House. In fact, fights between the Fed and the White House are nothing new. Lyndon Johnson wanted to fire William McChesney Martin. in the 19th century, Andrew Jackson and Nicholas Biddle fought constantly. The period is even known as the “Bank War.” I actually think Powell could be an ally to Trump if negative effects of the trade war become evident.

If you had paid attention to the talking heads, you probably would have been scared out of this market by any of the following: Iran, Russia, Trump, China, the Democrats, the Fed or half a dozen other boogeymen (boogeypeople?). Yet here we are at the halfway mark and our strategy is doing just fine. Good investing is boring. Now let’s look at a solid earnings report from our biggest winner this year.

FactSet Beats Earnings by 26 Cents per Share

Before the opening bell on Tuesday, FactSet (FDS) reported fiscal Q3 earnings of $2.62 per share. That creamed estimates by 26 cents per share. Compared with last year, it’s an increase of 20.2%. Organic revenue grew 7.3% to $366.3 million. FactSet’s operating margin increased to 34%.

A key stat for FDS is Annual Subscription Value or ASV. Last quarter, that rose to $1.45 billion. The organic growth rate, which excludes the effects of acquisitions, dispositions, and foreign currency, was 5.6%.

Also, the Board of Directors approved a $210 million increase to the existing share-repurchase program.

“FactSet’s ability to perform well this year amid sector and industry headwinds serves as a proof point that our long-term strategy is working,” said Phil Snow, FactSet CEO. “We are encouraged that our smarter, connected data and technology solutions continue to resonate with clients as we help them drive efficiency and increase value in an ever-changing environment.”

FactSet also updated its guidance for 2019. The company expects revenue between $1.42 and $1.44 billion, and operating margin between 32.5% and 33.0%. FactSet sees their earnings-per-share ranging between $9.80 and $9.90. That’s an increase to the previous guidance of $9.50 to $9.65 per share.

The stock pulled back a little after the earnings report, but it was nothing too serious. This has still been a very big winner for us this year. Through Thursday, FDS is up 42.6%. This week, I’m raising my Buy Below on FactSet to $298 per share.

Buy List Updates

This week, Danaher (DHR) announced that its dental spinoff will be called Envista Holdings Corporation. Sometime in the second half of 2019, shareholders of Danaher will get shares of Envista.

I’m not a fan of most modern corporate names. This one requires some explanation:

Mr. Aghdaei stated, “Envista’s name is a combination of two Latin root words: ‘en’, a prefix meaning to be within, and ‘vista’, meaning a view. Our logo of concentric circles represents our ability to collaboratively achieve endless possibilities ahead. The Envista brand reflects the forward-looking energy that embodies our company culture.”

As far as the Buy List goes, the spinoff shares will join the Buy List as our 26th member. That’s what we’ve done with previous spinoffs. I’ll decide whether we’ll keep it or not at the end of the year.

Danaher will report earnings again on July 18. For Q2, Danaher expects earnings to range between $1.13 and $1.16 per share. For all of 2019, Danaher sees earnings coming in between $4.72 and $4.80 per share. Danaher is a buy up to $150 per share.

Becton, Dickinson (BDX) got clobbered in April, and the earnings report wasn’t that good. In May I decided to lower our Buy Below price. Strong companies tend to manage their way through weak stretches. Sure enough, shares of BDX have rallied 12% since mid-April. I’m raising my Buy Below to $255 per share. Becton sees full-year earnings ranging from $11.65 to $11.75.

Shares of Ross Stores (ROST) got pinged this week. The deep-discounter was downgraded by Goldman Sachs. I’m not too worried. The analyst downgraded Nordstrom as well. At one point, ROST was down 3.5% on Thursday. The last earnings report was quite good. As usual, the outlook was cautious. Ross Stores is a buy up to $106 per share.

That’s all for now. The stock market will close at 1 p.m. on Wednesday, July 3. The market will be closed all day on Thursday, July 4 in honor of Independence Day. We’re open for business again on July 5. The ISM Manufacturing Index will come out on Monday. The ADP payroll report is on Wednesday. Then on Friday, we’ll get the big June jobs report. The jobless rate for April and May was 3.6%. 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: June 28, 2019
Posted by Eddy Elfenbein on June 28th, 2019 at 7:01 am

The World’s Top Stock Market? Right Now, It’s Russia

Trade Uncertainty Stops World Stocks in Tracks

Saudi Arabia’s Hometown Ambitions Could Clip Wealth Fund’s Wings

U.S. and China Angle for Trade Truce, but Both Insist the Other Will Back Down

Trump Wants Fed to Weaken Dollar. Powell Says That’s Not His Job

First-Quarter GDP Left at 3.1% as Stronger Business Investment Offsets Weaker Consumer Spending

Fed Stress Tests Find Top Banks Are Strong, Setting Stage for Wave of Payouts

A Major Police Body Cam Company Just Banned Facial Recognition Software

Inside Apple’s Long Goodbye to Design Chief Jony Ivet

A Unicorn Lost in the Valley, Evernote Blows Up the ‘Fail Fast’ Gospel

Merlin to Go Private in $7.5 Billion Deal with Lego Family and Blackstone

The Hotel Hackers Are Hiding in the Remote Control Curtains

Lawrence Hamtil: The Compelling Case for Mid Cap Stocks

Ben Carlson: Will Trend-Following Continue to Disappoint?

Michael Batnick: Regret and Relief

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Danaher Announces New Dental Company To Be Named Envista Holdings Corporation
Posted by Eddy Elfenbein on June 27th, 2019 at 10:50 am

Press release:

Danaher Corporation today announced that Envista Holdings Corporation will be the name of the separate company Danaher intends to create and take public via an initial public offering in the second half of 2019. Envista will be comprised of three operating companies within Danaher’s Dental segment: Nobel Biocare Systems, KaVo Kerr, and Ormco. These businesses have significant positions in dental implants, orthodontics, dental equipment and consumables, and include brands such as Nobel Biocare, KaVo, Kerr, i-CAT, Dexis, Metrex, Pelton & Crane, Ormco, Implant Direct, and Orascoptic. Envista will be led by Amir Aghdaei, who will become President and Chief Executive Officer. Mr. Aghdaei currently serves as Danaher Group Executive with responsibility for the Dental segment.

Mr. Aghdaei stated, “Envista’s name is a combination of two Latin root words: ‘en’, a prefix meaning to be within, and ‘vista’, meaning a view. Our logo of concentric circles represents our ability to collaboratively achieve endless possibilities ahead. The Envista brand reflects the forward-looking energy that embodies our company culture.”

Aghdaei continued, “Envista’s culture will be built on four core values: ‘Better Choices, Better Outcomes,’ ‘Relationships Built on Trust,’ ‘Innovation in Action,’ and ‘Continuous Improvement as a Competitive Advantage.’ Our Danaher heritage helped us shape these values and serves as a strong foundation for our business. The Envista Business System, which will be based on the Danaher Business System, will be our common operating model.”

Envista intends to apply to list its common stock on the New York Stock Exchange. The stock symbol will be NVST.

Envista will employ 12,000 people worldwide. The company’s website is www.envistaco.com.

Morning News: June 27, 2019
Posted by Eddy Elfenbein on June 27th, 2019 at 7:38 am

U.S., China Agree Tentative Trade Truce Ahead of G20 Summit

Happy Talk of Trump-Xi Truce Masks Twisting Path to a Trade Deal

Trump Redoubles Attack on Fed Chair, Saying `I Made Him’

What Micron Said

Amazon Prime Day for July 15-16 Sparks Deal Frenzy from Ebay and Target & Walmart Joins the Amazon Prime Day Sale Fray

Weaning U.S. Power Sector Off Fossil Fuels Would Cost $4.7 Trillion

A $1,800 Drop in Minutes: Bitcoin Volatility Is on Full Display

Boeing’s 737 Max Suffers Setback in Flight Simulator Test

Drugmaker Deals Are Near Record Pace in 2019, but Investors Don’t Love Them All

The Cars Are Newer, The Buyers Are Younger As Auto Collecting Moves Forward

The Charmed Life of a Young Tiger Cub With a $4.6 Billion Fortune

King of the Snitches: The Fashion Photographer Who Duped Drug Lords and the DEA

Ben Carlson: Gathering Investment Lessons From the Headlines & How to Win Any Argument About the Stock Market

Michael Batnick: Unlimited Upside & The Great Depression of 2073

Joshua Brown: My Take on the Bernie Sanders Plan to Wipe Out Student Loan Debt & How We Roll

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Morning News: June 26, 2019
Posted by Eddy Elfenbein on June 26th, 2019 at 7:12 am

China Hacked Eight Major Computer Services Firms in Years-Long Attack

Why ‘Maximum Pressure’ on Iran Could Backfire

Mnuchin: ‘We Were About 90% of the Way’ on China Trade Deal and There’s A ‘Path to Complete This’

Powell Says Economy Facing Growing Uncertainties

U.S. Prosecutors Join Multinational Crackdown on Insider Trading

A Drug Megamerger That’s Patently Interesting

FedEx Sues Trump Administration as Huawei and China Trade War Intensifies

U.S. Companies Find Legal Ways Around Trump’s Huawei Blacklist

Mitsubishi to Acquire Bombardier’s Regional Jet Unit for $550 Million

Regulators Have Doubts About Facebook Cryptocurrency. So Do Its Partners.

Justice Department Investigates Chicken Industry

Buy Low-Tops, Sell High-Tops: A Sneaker Exchange Is Worth $1 Billion

Nick Maggiulli: Are Smarter People Better Investors?

Jeff Carter: Value, Public vs Private

My View On: Student Debt Forgiveness

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FactSet Earned $2.62 per Share
Posted by Eddy Elfenbein on June 25th, 2019 at 7:19 am

FactSet (FDS) released a very good earnings report today. For its fiscal Q3, the company made $2.62 per share. That beat estimates by 26 cents. Quarterly revenues rose 7.2% to $364.5 million. Organic revenue grew 7.3% to $366.3 million. Operating margin increased to 34%.

A key stat for FDS is Annual Subscription Value or ASV. Last quarter, that rose to $1.45 billion. The organic growth rate, which excludes the effects of acquisitions, dispositions, and foreign currency, was 5.6%.

Adjusted diluted EPS rose 20.2% to $2.62 compared with $2.18 in the prior period driven primarily by stronger operating results. Also, the Board of Directors approved a $210 million increase to the existing share repurchase program.

“FactSet’s ability to perform well this year amid sector and industry headwinds serves as a proof point that our long-term strategy is working,” said Phil Snow, FactSet CEO. “We are encouraged that our smarter, connected data and technology solutions continue to resonate with clients as we help them drive efficiency and increase value in an ever-changing environment.”

Here are their expectations for 2019:

Organic ASV plus professional services is now expected to increase in the range of $70 million and $75 million over fiscal 2018.

GAAP revenue is now expected to be in the range of $1.42 billion – $1.44 billion.

GAAP operating margin is now expected to be in the range of 30.0% – 30.5%.

Adjusted operating margin is now expected to be in the range of 32.5% – 33.0%.

FactSet’s annual effective tax rate is now expected to be in the range of 16% – 16.5%.

GAAP diluted EPS is now expected to be in the range of $8.90 – $9.00. Adjusted diluted EPS is now expected to be in the range of $9.80 – $9.90. The mid-point of this guidance represents a 15% growth over the prior year.

FDS is up 1.7% in pre-market trading. As of yesterday’s close, it’s up 46.57% for us this year.

Morning News: June 25, 2019
Posted by Eddy Elfenbein on June 25th, 2019 at 7:08 am

The Economy Is About to Hit a Record. Trump Says the Fed ‘Blew It.’

Pain From Trump’s China Tariffs Spreads, Reshaping Global Trade

Robots Can Now Decode the Cryptic Language of Central Bankers

‘Storm Approaching’: Firms Fear for Deliveries in Shipping Shakeup

FedEx Sues US Commerce Department Over Export Restrictions that Affect Huawei

Huawei’s U.S. Research Arm Builds Separate Identity

Natixis’s H2O Lost $3.4 Billion in Three Days of Carnage

AbbVie to Buy Allergan in $63 Billion Deal

Lyft and Uber Were Duds, but the I.P.O. Market Is Having a Great Year

Forget Tanning Beds. College Students Today Want Uber Parking.

WarnerMedia Names Ann Sarnoff as CEO of Warner Bros

Carlos Ghosn’s Lawyers Push for Reason Why Nissan’s Hiroto Saikawa Wasn’t Charged

Howard Lindzon: The Trend Is Your Friend…and Kerplunk!

Michael Batnick: Unlimited Upside

Roger Nusbaum: Solving Life’s Problems & Bitcoin Is Back Baby!

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Morning News: June 24, 2019
Posted by Eddy Elfenbein on June 24th, 2019 at 7:18 am

Lira Rally Eases as U.S. Sanctions Risk Tempers Turkey Bulls

Bitcoin: Could 100K Be New 10K?

Facebook Won’t Launch Its Cryptocurrency Wallet in Its Biggest Market

A Message From the Billionaires’ Club: Tax Us

Daimler’s New Leaders Confront Old Issues as Diesel Bites Again

Glare Falls on Nissan’s C.E.O. as Ghosn Fallout Spreads

FedEx Slashes Prices to Fill Its Planes

What Happens After Amazon’s Domination Is Complete? Its Bookstore Offers Clues

5 Lessons From Microsoft’s Antitrust Woes, by People Who Lived It

Eldorado Resorts to Merge with Caesars Entertainment in $17.3 Billion Deal

FedEx Confirms Huawei Mail Ban as New ‘Mistake’ Reignites Chinese Ire

Here’s Some Money Advice: Just Buy the Coffee

Jeff Miller: Weighing the Week Ahead: Can US/China Trade Talks Save the Global Economy?

Joshua Brown: Yes, Of Course Trump Could Fire the Fed Chairman

Ben Carlson: Gathering Investment Lessons From the Headlines

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