Morning News: June 29, 2018
Posted by Eddy Elfenbein on June 29th, 2018 at 7:05 am

China Has Refused To Recycle The West’s Plastics. What Now?

China’s Penetration of Silicon Valley Creates Risks for Startups

US-China Trade War Will Spill Into Other Asian Economies

California Lawmakers Just Adopted Tough New Privacy Rules Targeting Facebook, Google and Other Tech Giants

China’s ZTE Still in Limbo Over U.S. Commerce Ban

Buying PillPack Would Have Cost Walmart About $700 Million. Not Buying It Wiped $3 Billion Off The Stock

Nike Posts Growth in Home Market

Adidas Reports Data Breach

Bird CEO Explains Why His Scooter Startup Needed $300 Million

Crypto Coin Graveyard Fills Up Fast as ICOs Meet Their Demise

Friday Could Be The Busiest Day in U.S. Airline History — Hopefully, A Fragile System Is Ready

Howard Lindzon: Nike Just Did It…Fashology 101

Joshua Brown: The Best Answer

Roger Nusbaum: A Black Swan ETF?

Ben Carlson: Rocket Men Precision

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RPM Jumps on Agreement with Elliot Management
Posted by Eddy Elfenbein on June 28th, 2018 at 9:52 am

RPM International (RPM) is in the news today. RPM is never in the news so the idea that they’re in the news is itself newsworthy.

The company has announced an agreement with Elliott Management, an activist investor, to enhance shareholder value.

First off, RPM will get two new members on the board. The board will also form an Operating Improvement Committee. This committee will “focus on operational and financial initiatives to create and enhance shareholder value. Certain of these initiatives will center around setting and achieving new company margin targets based on top-performing industry standards and optimization of RPM’s balance sheet, including streamlining working capital and implementing new capital allocation guidelines and capital return plans.”

RPM will now be more transparent regarding their financial goals. They’ll provide an update by November 30.

“Over the past year, RPM’s Board and management have begun working on initiatives to drive greater efficiency across our operations while maintaining our growth momentum,” said Mr. Sullivan. “We have made some progress in reducing SG&A and identified key opportunities to improve manufacturing efficiencies, lower operating costs, and improve working capital. The initiatives announced today position us to progress significantly on these plans. Both Kirk and John add new perspectives and proven operational track records to our Board, and we look forward to benefitting from their expertise and experience as we take action to drive operational efficiencies, long-term performance, and value creation.”

Jeff Rosenbaum, Portfolio Manager at Elliott Management, said, “We are pleased to have worked constructively with RPM’s Board and management team on the initiatives announced today. RPM has an outstanding collection of leading brands, and we believe the company has significant potential for further operating, financial, and balance sheet improvements. Kirk Andrews brings strong portfolio and operational review and execution experience with his leadership in NRG’s recent $855 million cost and margin enhancement program. And John Ballbach brings strong industry know-how and leadership skills from his work as a Valspar senior executive. They will both add immediate value to RPM’s Board and newly formed Operating Improvement Committee. We are confident that this ‘no stone unturned’ review will lead to several hundred basis points of margin improvement, capital returned to shareholders, and superior overall results for the Company.”

Q1 GDP Growth Revised to 2.0%
Posted by Eddy Elfenbein on June 28th, 2018 at 8:53 am

This morning, the government revised the economic growth numbers for the first quarter of this year. According to the new data, the US economy grew, in real terms, at a 2% annualized rate for Q1.

That’s been about the average for the recovery. What’s interesting is that the recovery has been less than the average of the last several decades.

There’s been talk of the economy ramping up to a faster growth rate. So far, the numbers say that hasn’t happened. Of course, this is for Q1 which began six months ago and ended three months ago, so Q2 could be a different story. The Atlanta Fed thinks Q2 came in at 4.5%.

I hope so. That’s a very good number, and it could signal that things are ramping up. We’ll get our first look at the Q2 numbers in late July.

Here’s a look at the year-over-year growth rate in real GDP.

Morning News: June 28, 2018
Posted by Eddy Elfenbein on June 28th, 2018 at 7:10 am

Surging Oil Prices Are Doing Nothing for Stocks in 2018

Gold Marks Third Straight Decline and Another 6-Month Low

BOE Warns of Growing Risks in Global Debt Markets

Ford Fiestas Aren’t Tools of War, Automakers Say in Trump Retort

Vanguard Group Goes Greener With Two ESG ETFs

Elon Musk Races to Exit Tesla’s ‘Production Hell’

T-Mobile, Sprint Bosses Defend Wireless Merger

The New GE Could Use Some Berkshire Spirit

Why Canopy Growth Corp’s Shares Plunged 12% Today

Google Exec Says Microsoft Beat Search Giant to Buy GitHub

MoviePass Owner Dips Below 25 Cents as AMC Debuts Rival Service

Amazon Plans Start-Up Delivery Services for Its Own Packages

Nick Maggiulli: You See What You Want To See

Cullen Roche: How Blogging Changed Wall Street

Michael Batnick: Animal Spirits: Individual Alpha

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Ross Stores Hits New High
Posted by Eddy Elfenbein on June 27th, 2018 at 11:55 am

On May 25, shares of Ross Stores (ROST) fell 7% after the deep-discount retailer reported earnings. I thought the earnings were just fine, but traders apparently disagreed.

This is from the CWS Market Review of June 1:

Ross Stores (ROST) reported fiscal Q1 adjusted earnings of $1.11 per share. Earlier, the company had projected earnings of $1.03 to $1.07 per share. They made 82 cents per share for last year’s Q1.

There were a few accounting items to adjust for. Ross said they were helped in Q1 by 17 cents per share due to tax reform plus two cents per share thanks to “the favorable timing of packaway-related expenses that we expect to reverse in subsequent quarters.”

Q1 sales rose 9% to $3.6 billion, and comparable-stores sales were up 3%. Ross had been expecting 1% to 2%. I knew that forecast was too low. The company said it was hurt by poor weather during the quarter. I’m usually pretty skeptical of weather as an excuse. Ross’s operating margin fell to 15.1%. That’s still pretty good.

For fiscal Q2, Ross expects earnings of 95 to 99 cents per share. They see same-store sales growth of 1% to 2%. That’s pretty low. The good news is that Ross raised its full-year guidance. The old range was $3.86 to $4.03 per share, and the new range is $3.92 to $4.05 per share.

Pretty good, but still, shares of Ross dropped in one day from $82.96 to $77.34. Here we are one month later and ROST touched $87.22 this morning.

This is why we focus on high-quality names. They may get knocked around, but quality shines through.

Morning News: June 27, 2018
Posted by Eddy Elfenbein on June 27th, 2018 at 6:43 am

Hedge Fund Managers See Echo of Past Crashes in Markets

China’s ‘Big Mama’ Steps In as Yuan Tumbles Further

Trump’s Trade War Revives Fears China Will Devalue Yuan

The Trade War Finally Got Real

Trump Threatens Harley-Davidson With Taxes ‘Like Never Before’ and Predicts Its Eventual Collapse

The Culture Clash Behind GE’s Quick Exit From Baker Hughes Stake

Complete And Total Nonsense

Facebook Loosens Ban on Cryptocurrency Ads for Approved Vendors

Facebook Abandons its Plans to Build Giant Drones and Lays Off 16 Employees

Uber Regains Temporary License to Operate in London After Promising to Stop Being Terrible

We Have Reached Peak Screen. Now Revolution Is In The Air.

Google Retires DoubleClick, AdWords Brand Names

Roger Nusbaum: What You Need Might Cost More Than Three Basis Points

Ben Carlson: My Evolution on Asset Allocation

Joshua Brown: How to Chop Up Your Portfolio

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High Beta vs. Low Vol
Posted by Eddy Elfenbein on June 26th, 2018 at 8:04 am

Here’s an intra-day look at High Beta vs. Low Vol ETFs over the past two weeks. Low Vol hasn’t moved much while High Beta has been knocked about.

In financial markets, it’s interesting how often a big move like yesterday’s is quietly hinted at in the prior few days. The gap between the two gradually got bigger, until it completely blew apart yesterday.

FactSet Earns $2.18 per Share
Posted by Eddy Elfenbein on June 26th, 2018 at 7:10 am

This morning FactSet (FDS) reported fiscal Q3 earnings of $2.18 per share. That beat Wall Street’s estimate by five cents per share. Revenues increased 8.9% to $339.9 million compared.

Thanks to the good earnings, FactSet bumped up its full-year earnings forecast. The old range was $8.35 to $8.55 per share. The new range is $8.37 to $8.62 per share.

The CEO said, “We are making progress integrating and cross selling our acquisitions resulting in important wins this quarter, particularly within Analytics. We continue to innovate with the launch of the Open:FactSet marketplace and enhancing our risk offering. We believe we have a solid pipeline for the fourth quarter and expect to finish fiscal 2018 in our guidance range.”

A key metric for FactSet is Annual Subscription Value or ASV. For Q3, ASV rose 5.3% to $1.36 billion. At the end of the quarter, FactSet had 4,975 clients. That’s an increase of 80 clients. User count rose by 860 to 89,506.

FactSet’s operating margin fell to 31.0% last quarter compared with 31.9% a year ago. The drop reflects restructuring actions and certain one-time administrative expenses.

The CEO said, “We made good progress on our annual and medium term goals this quarter. The restructuring actions we initiated this quarter help us to optimize costs and benefit margins in the future. With our balanced capital allocation framework including our robust share buyback program and an increase in dividends, we continued to return value to shareholders.”

For the first nine months of the year, FDS has earned $6.34 per share. The new outlook implies Q4 earnings of $2.03 to $2.28 per share. Wall Street had been expecting $2.19 per share.

Morning News: June 26, 2018
Posted by Eddy Elfenbein on June 26th, 2018 at 7:04 am

Dow Jones Cuts Losses; Is Donald Trump About To Blink In China Trade War?

The Supreme Court Just Issued a Ruling Affecting the Credit Card Industry — and Silicon Valley, Too

Judge Dismisses Climate Suits Targeting Big Oil Companies

GE’s Exit From the Dow Will Change the Index’s Calculation In An Important Way

GE Is To Spin Off Health Care Division In Bid to Streamline

Harley-Davidson To Shift Some Production Overseas Due To Trade War

With Cryptocurrencies in Freefall, One Big Firm Doubles Down

BMW Warns of U.K. Pullback If There’s No Brexit Deal

Apple’s Tim Cook Weighs In On Social Issues

How to Solve the Plastic Crisis

Kinder Morgan, EagleClaw, Apache to Develop Permian Highway Pipeline

McDonald’s Wants to Win Breakfast by Selling the Best Part of the Muffin

Joshua Brown: Three Uncelebrated Edges

Ben Carlson: The Best Free Investing Tools on the Web

Howard Lindzon: Momentum Monday – I Wish It Was Friday

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Strong Relative Performance for our Buy List
Posted by Eddy Elfenbein on June 25th, 2018 at 10:53 pm

Today was a remarkable day for the stock market. A large group of stocks fell sharply while the rest were barely scratched. Fortunately, our Buy List was tilted toward the latter.

The S&P 500 fell 1.37%. The Dow lost 328 points. In fact, the Dow closed below its 200-day moving average for the first time in 501 trading days.

The S&P 500 briefly dipped below 2,700 but rallied some late in the day. The big divergence can be seen by looking at the value and growth indexes. The S&P 500 Value Index fell -0.89% while the growth part fell -1.78%. That’s exactly double.

The effect is even more pronounced by looking at the High Beta and Low Vol indexes. The S&P 500 High Beta index fell 2.28% today. Low Vol actually gained 0.16%. Nineteen of our 25 stocks outpaced the S&P 500 today.

Our Buy List lost -0.63% today. That was much better than the overall market.

Here’s the sector breakdown, worst to first.

Tech -2.28%
Energy -2.20%
Discrete -2.18%
Materials -1.46%
Industrials -1.24%
Financials-1.03%
Health Care -0.90%
REITs -0.18%
Telecom -0.08%
Staples +0.44%
Utes +1.65%