CWS Market Review – July 5, 2019
Posted by Eddy Elfenbein on July 5th, 2019 at 7:08 am

“The laws of probability, so true in general, so fallacious in particular.”
– Edward Gibbon

The trading week was shortened by the July 4th holiday. As a result, there wasn’t much news. Sensing this, many Wall Street big shots took off for the Hamptons, causing the usual financial frenzy to be cut short.

I want to take advantage of this lull in market news to summarize our Buy List at the midpoint of the year. I’m happy to report that our Buy List is doing quite well this year.

We also had a somewhat poor ISM report on Monday. This could be further evidence that the Fed will cut rates at its meeting later this month. I’ll review the latest numbers. But first, let’s look at how well our Buy List is doing in 2019.

Our Buy List Is Up 23.21% This Year

I’ll be honest: at the start of the year, I would not have guessed that stocks would do so well in 2019. Fortunately, we always stay in the market and so don’t miss out on any unexpected surges.

The stock market closed early on Wednesday and was closed all day on Thursday. At the closing bell on Wednesday, the S&P 500 reached 2,995.82. That’s another all-time high.

For some context, the index first broke 300 in 1987. The old version of the index broke 30 in 1929. We may break 3,000 any day.

Now let’s look at some numbers. Through Wednesday, our Buy List is up 22.48% on the year compared with 19.51% for the S&P 500. Including dividends (and I always include dividends in our final calculation), we’re up 23.21% while the S&P 500 is up 20.75%.

Our “beta” is running at 0.800 which is bit low compared with previous years (in reality, I don’t pay much attention to it). There’s been a 90.1% correlation between the daily changes of our Buy List and those of the S&P 500.

Our Buy List generally yields about 1%, which is about half the yield of the S&P 500. I don’t plan it this way, but that’s usually how it works out. We’re running a little higher this year.

Twenty of our 25 stocks are up this year. The biggest winner by price percentage is FactSet (FDS). FDS is currently up 47.93% for us this year. Moody’s (MCO) isn’t far behind at 44.68%.

We have four positions up more than 40%, and seven are up more than 30%. Fourteen of our stocks are up, beating the market this year. Sherwin-Williams (SHW) is just a tiny bit behind. Our worst stock this year is Hormel Foods (HRL). The Spam stock is down just over 2%. On Thursday, eight of our Buy List stocks touched new 52-week highs.

Our sells from last year aren’t doing that well. Alliance Data Systems is down 2% this year. Ingredion is off by 8%. Snap-on is up 12%. Wabtec is up by 5%. Carriage Services is the big winner with a 22% gain.

Our most dramatic stock this year has been Cognizant Technology (CTSH) which dropped 18% over the course of two trading sessions. It’s still up a bit for us this year. Due to broad diversification, the drop didn’t shake our portfolio much.

I nearly forgot the most important part—we didn’t make a single trade all year. Yet we still beat the market, and we did it with lower volatility.

Here’s a look at how each stock has done, along with its dividend-adjusted gain.

The 10-Year Yield Drops Below 2%

On Monday, the ISM report for June came in at 51.7. That’s the lowest since October 2016. Then on Wednesday, the ADP payroll report came in light. That helped send the 10-year Treasury down to 1.96%. That’s the lowest yield since late 2016.

We’ll learn more about the state of the economy in the jobs report, which is coming out later today. Wall Street seems convinced that the Fed will cut rates at the end of this month. I can’t say I share their certitude.

I need to make a correction to last week’s issue. Danaher (DHR) shareholders will not get shares of Envista, the dental spinoff. Instead, it will IPO and Danaher will retain a position. In effect, we’ll still own it, but only via DHR.

That’s all for now. The June jobs report is due out later today. Next Tuesday, Jerome Powell will be speaking at a Fed conference on stress testing. We might get clues as to what the Fed is thinking on the economy. Folks pay careful attention to every remark he makes. Then on Thursday, the CPI report for June is released. We’ll also get an update on the budget for this year. 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: July 5, 2019
Posted by Eddy Elfenbein on July 5th, 2019 at 7:04 am

Europe Tamed a Populist and Now He’s Paying the Price

China Reiterates Demand That U.S. Must Lift All Tariffs

What Economists Are Saying Ahead of the June U.S. Jobs Report

Consumers Are Spending. Businesses Aren’t. Who’s Right About the Future?

‘Safe Like China’: In Argentina, ZTE Finds Eager Buyer for Surveillance Tech

Telemundo, Presidential Debate Under Its Belt, Moves Into 2020 Spotlight

Univision Owners Seek Exit After Tumultuous Run

Beverage Companies Embrace Recycling, Until It Costs Them

UK Competition Regulator Puts Brake on Amazon’s Deliveroo Investment

Interest Rates Just Keep Falling. Economic Orthodoxy Is Falling With Them.

Deutsche Bank’s Fleeting U.S. Dreams to Be Unraveled in Revamp

Ferraris Seized by Danish Police in Crackdown on Tax Evasion

Roger Nusbaum: What Have You Learned?

Jeff Miller: Payroll Employment Data: You Can’t Believe Your Eyes

Joshua Brown: The Broker Who Saved America

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Morning News: July 4, 2019
Posted by Eddy Elfenbein on July 4th, 2019 at 7:34 am

South Korea Says May Retaliate Against Japan High-Tech Export Curbs

Draghi Should Replace Lagarde at the IMF

Trump’s Decision to Tap Shelton Creates Political Risk for the Fed

Gold Bull Mobius Says Every Portfolio Needs at Least 10%

Coca-Cola Gets Good News, Monster Beverage Gets Bad News

Tesla Delivers a Win for Bulls, but Investors Should Hold Off on Shifting to Ludicrous Mode

Samsung in Hot Water Over Splashy Australian Phone Ads

Boeing Pledges $100 Million to Those Affected by 737 Max Crashes

The Horrible Place Between the Apps

BMW and Daimler Team Up On Automated Driving

Cullen Roche: When “Bonds” Aren’t Bonds

Howard Lindzon: Is It Safe?

Jeff Carter: When You Get to The Top Of The Mountain, It’s Easy to Give Advice

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Quiet Day of Trading
Posted by Eddy Elfenbein on July 3rd, 2019 at 10:21 am

The stock market closes at 1 p.m. today and it’s pretty quiet out there. The market is up this morning and the Buy List just made a new high. We’re now up 22% on the year.

The market is closed tomorrow but it will be open on Friday. That’s also when we’ll get the official jobs report. This morning, ADP said that by there numbers, 102,000 jobs were created last month. The market seems to think there’s a good chance the Friday report will be bad and the Fed will have to step in and cut rates.

Morning News: July 3, 2019
Posted by Eddy Elfenbein on July 3rd, 2019 at 7:09 am

The Industries Propelling the S&P to Records Aren’t the Ones Driving the Economic Expansion

Say Hello to the E.C.B.’s New Chief, Christine Lagarde

The Politicians Are Taking Charge at the ECB

Trump Picks Two Fed Nominees Likely to Support Easier Policy

U.S. Jobs Report Holds Make-or-Break Sway Over Fed Rate Strategy

U.S. Government Staff Told to Treat Huawei as Blacklisted

Samsung Electronics’ Second-Quarter Profit Likely Halved as Huawei Woes Worsen Chip Glut

Coal-Fired Power Plants Just Had Their Worst Month in Decades

Citing ‘Massive Risks,’ House Democrats Ask Facebook to Halt its Cryptocurrency Plans

Tesla Delivers Record Number of Electric Cars in Quarter, Shares Up 7%

U.S. Judge to Slash $80 Million Roundup Jury Verdict

Lee Iacocca, Visionary Automaker Who Led Both Ford and Chrysler, Is Dead at 94

Nick Maggiulli: Should You Take the Annuity or the Lump Sum?

Ben Carlson: On The Benefits of Being Average & The Upside of a Recession

Michael Batnick: Animal Spirits, Talk Your Book: Factor Investing With Invesco & Animal Spirits: A Single Pushup

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Morning News: July 2, 2019
Posted by Eddy Elfenbein on July 2nd, 2019 at 7:04 am

USTR Proposes $4 Billion in Potential Additional Tariffs Over EU Aircraft Subsidies

Li Keqiang, Chinese Premier, Makes a Modest Peace Offering on Trade

Trump Talk of Easing Huawei Ban Lifts Suppliers’ Shares Despite Doubts

OPEC Extends Oil Cut to Prop Up Prices as Economy Weakens

To Evade Sanctions on Iran, Ships Vanish in Plain Sight

Saudi Aramco to Restart Preparations for Mega IPO

Roubini Lives Up to ‘Dr. Doom’ Alias With Global Recession Call

Rich Get Richer, Everyone Else Not So Much in Record U.S. Expansion

Japan Resumes Commercial Whaling. But Is There an Appetite for It?

Chobani Turns to Fair-Trade Program to Help Struggling Dairy Industry

Nike Pulls ‘Betsy Ross Flag’ Shoes at Kaepernick’s Urging

Empty Desks and Early Beers: Life at Deutsche Bank in New York

Cullen Roche: The Longest Recovery Ever – Does it Matter?

Joshua Brown: Fama vs. Shiller: Are Markets Efficient or Not?

Jeff Carter: Tipping Points

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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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