Sagging Staples
Posted by Eddy Elfenbein on May 2nd, 2018 at 11:38 am

I’m usually a fan of Consumer Staples stocks. The reason is that they tend to have very stable financials. With sectors like homebuilders, even the best ones can see their profits and revenues soar from one year to the next. The Staples, by contrast, are far less hectic.

That’s why it’s such a surprise to me to see how weak Staples have been for the last two years. Check out this chart of the Staples divided by the S&P 500.

Notice how Staples led when the economy was falling apart. That’s the usual pattern. Staples lag when the economy is good, and they lead when things are bad. Apparently, things are good. Still, I’m surprised by how constant the trend has been.

Colgate, General Mills, Hershey, Kellogg, Kraft-Heinz, Pepsi and P&G are all at new 52-week lows today. These aren’t just ordinary stocks – these are some of the soundest names on Wall Street.

Morning News: May 2, 2018
Posted by Eddy Elfenbein on May 2nd, 2018 at 7:07 am

Fed Likely on Hold, But Rising Inflation to Be in Focus

Banks Expect Oil Prices to Remain High

Milk Is Risky Business. Got Futures?

Apple Allays iPhone Worries, Adds $100 Billion to Buyback Plans

Xerox CEO Quits in Win for Carl Icahn

Snap’s Slowdown Stirs Doubt on Redesign, Triggering Share Plunge

Sprint and T-Mobile C.E.O.s Are in Washington to Sell Their Merger. Here’s What They’ll Confront.

Under Armour Still Under Siege in the US

Federal Government Sends Warning To Vaping Companies

Warren Buffett’s Chinese Car Bet Has Plunged $9 Billion

3 Lessons All Leaders Should Learn From The Letter to Shareholders By Amazon CEO Jeff Bezos

Tesla Sued For More Than $2 Billion, Accused of Copying Design of Nikola Hydrogen Trucks

Nick Maggiulli: The Process Matters

Lawrence Hamtil: Industry Factors Matter More Than You Think

Roger Nusbaum: “A Compensation Scheme Masquerading As An Asset Class”

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Fiserv Earns 76 Cents per Share
Posted by Eddy Elfenbein on May 1st, 2018 at 4:07 pm

After the bell, Fiserv (FISV) reported Q1 earnings of 76 cents per share. That’s an increase of 23% over last year. Wall Street had been expecting 73 cents per share.

“Our first quarter performance is consistent with our expectations for the full year,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Results in the quarter were punctuated by a 23 percent increase in adjusted earnings per share and double-digit sales growth.”

Quarterly revenue rose 4% to $1.37 billion. Their operating margin was 32.5%. That’s very good. During the quarter, Fiserv bought back 5.7 million shares of stock for $398 million. They have another 15.8 million shares left in the current authorization.

Fiserv reiterated its full EPS forecast of $3.02 to $3.15 per share. That’s an increase of 22% to 27% over last year. The previous guidance was a pre-split level of $6.05 to $6.30 per share. Fiserv also expects internal revenue growth of at least 4.5% this year.

The stock closed today at $71.63 per share. The 52-week high came on March 16, when FISV hit $74.46 per share.

Morning News: May 1, 2018
Posted by Eddy Elfenbein on May 1st, 2018 at 7:04 am

Trump Delays Tariff Decisions for E.U., Canada and Mexico

This Summer Is Expected To Have Highest Gas Prices We’ve Seen In Years

BP Profit Beats Estimates Even as Oil-Spill Fines Boost Debt

Marathon to Become Top U.S. Refiner With $23 Billion Andeavor Buy

Tesla Doesn’t Burn Fuel, It Burns Cash

Murder On The Disoriented Express?

HNA Scuttles Deal for Scaramucci’s SkyBridge

Twitter Spikes Following New Live Content And Advertising Deal With Disney

Scotland Ends Cheap Booze as Minimum Price Starts

Letting Sprint and T-Mobile Merge Is a Terrible Idea

The Jeff Bezos Approach to Handling Criticism Is A Good Rule Everyone Should Follow

U.S. Jury Convicts Former Autonomy CFO of Fraud in H-P Deal

Cullen Roche: Three Things I Think I Think – Marx, Value Stocks & Bitcoin

Ben Carlson: Schrodinger’s Portfolio

Howard Lindzon: Momentum Monday…and Big Changes to My 8 to 80 List

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Is Value No Longer Value?
Posted by Eddy Elfenbein on April 30th, 2018 at 1:33 pm

This weekend’s Barron’s had an interesting article touting the turn for value. They may be right, but it’s been a rough time for value. The Russell 1000 Value Index peaked against the regular Russell 1000 in August 2006. In other words, Value has been lagging the market for nearly 12 years.

What’s interesting is that Value tends to lead when short-term rates are rising. But since the Fed started hiking rates, Value has continued to trail. Check out the last part of this chart:

What’s going on? Is Value about to catch up, or is the relationship broken. In finance, whenever I see a relationship diverge, I try to not blame the market. Instead, it’s likely that whatever drove the previous relationship has broken down.

Personal Income and Spending for March
Posted by Eddy Elfenbein on April 30th, 2018 at 10:12 am

This morning, we got reports on personal income and spending for March. Personal spending rose by 0.4% which matched estimates. Personal income rose by 0.4% which was 0.1% below estimates.

Here are both series for the last 15 years:

Does Sell in May Really Work?
Posted by Eddy Elfenbein on April 30th, 2018 at 10:03 am

There’s an old saying on Wall Street to “sell in May and go away.” And to be very formal, one can add, “don’t come back till St. Leger day.”

So…is this true? The answer is “historically, yes.”

I took all the numbers of the Dow Jones Industrial Average from its first day of trading in 1896 until the end of 2017. Here’s how it works out. From May 6 through October 29, the DJIA has had an average gain of 0.49%. The rest of the year, the index has averaged 7.11%. (Note that these numbers don’t include dividends.)

In other words, for half the year, the Dow has been flat, and the entire historic gain has come during the other half of the year.

But what does this mean for investors? The answer is nothing. It’s interesting how market returns have worked out over a very long period, but it tells us nothing about a coherent investing strategy. To go in and out of the market will bring up fees and taxes, among other headaches.

Ryan Detrick noted that if you sold in May during the past six years, you lost out on five up Mays. The average gain was 4.8%. The one down year was just 0.3%.

Morning News: April 30, 2018
Posted by Eddy Elfenbein on April 30th, 2018 at 7:07 am

U.S. Allies Brace for Trade War as Tariff Negotiations Stall

China Prepares a Hard-Line Stance on Trump’s Trade Demands

SoftBank’s Prodigal Son Makes a Costly Flip-Flop

T-Mobile Agrees to Buy Sprint in $26 Billion Deal

Marathon to Buy Andeavor in $23.3 Billion Oil-Refining Deal

In Age of Amazon, a Warehouse Powerhouse Is Getting Even Bigger

Netflix And Amazon Join The Battle Against Kodi Pirates

Walmart Sheds Grow-Everywhere Plan in Refining Global Strategy

Apple Results to Show iPhone Growth Problem and Cook’s Plan to Fix It

AT&T Court Fight With U.S. Justice Department Heads Into Closing Arguments

Top Performing Global Junk Bond Fund Is Moving Out of Junk

4 Mistakes That’ll Slash Your Social Security Benefits

Jeff Miller: Will Strong Economic Data Send Interest Rates Higher?

Joshua Brown: World’s First AI-Driven Finance Columnist Proves Its Mettle

Howard Lindzon: Buy in May Go Away

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Moody’s Earned $2.02 per Share
Posted by Eddy Elfenbein on April 27th, 2018 at 12:00 pm

This morning, Moody’s (MCO) reported Q1 earnings of $2.02 per share. Revenue rose 16% to $1.1 billion. The company also reaffirmed full-year earnings of $7.65 to $7.85 per share.

Moody’s record first quarter revenue reflects a strong contribution from Bureau van Dijk and solid organic growth from Moody’s Analytics, as well as strength in rated structured finance volumes in Moody’s Investors Service,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “Our business remains well-positioned to benefit from continued global economic expansion in 2018, and as such we are affirming our full year 2018 guidance of $7.20 to $7.40 for diluted EPS and $7.65 to $7.85 for adjusted diluted EPS.

(…)

Operating expenses totaled $635.9 million, up 20% from the prior-year period, including 12 percentage points attributable to Bureau van Dijk operating expenses, amortization of acquired intangible assets, as well as non-recurring acquisition and integration expenses associated with the Bureau van Dijk acquisition (“Acquisition-Related Expenses”).

Operating income was $490.8 million, up 10% from the first quarter of 2017. Adjusted operating income, which excludes depreciation and amortization, as well as Acquisition-Related Expenses, was $540.7 million, up 13% from the prior-year period. Operating margin for the first quarter was 43.6% and the adjusted operating margin was 48.0%.

Diluted EPS of $1.92 was up 8% from the first quarter of 2017. Adjusted diluted EPS of $2.02 was up 35%. First quarter 2018 adjusted diluted EPS excludes $0.10 per share related to amortization of acquired intangible assets and Acquisition-Related Expenses. First quarter 2017 adjusted diluted EPS primarily excludes a $0.31 per share non-cash, non-taxable gain from a strategic realignment and expansion involving Moody’s China affiliate China Cheng Xin International Credit Rating Co. Ltd. (“CCXI Gain”). Both first quarter 2018 diluted EPS and adjusted diluted EPS include a $0.15 per share tax benefit related to the adoption of accounting standard update ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” compared to a $0.10 per share tax benefit in the first quarter of 2017.

Q1 GDP Grew by 2.3%
Posted by Eddy Elfenbein on April 27th, 2018 at 11:51 am

This morning, the government said the economy grew by 2.3% in Q1. Economists has been expecting growth of 1.8%. Spending by consumers rose by just 1.1%.

The economy grew at a 2.9 percent pace in the fourth quarter. Economists polled by Reuters had forecast output rising at a 2.0 percent rate in the January-March period.

The first-quarter growth pace is, however, probably not a true reflection of the economy, despite the weakness in consumer spending. First-quarter GDP tends to be sluggish because of a seasonal quirk. The labor market is near full employment and both business and consumer confidence are strong.

Economists expect growth will accelerate in the second quarter as households start to feel the impact of the Trump administration’s $1.5 trillion income tax package on their paychecks. The tax cuts came into effect in January.

Lower corporate and individual tax rates as well as increased government spending will likely lift annual economic growth to the administration’s 3 percent target, despite the weak start to the year.

Here’s quarterly growth in real GDP:

Here’s a look at rolling NGDP growth. It’s been close to 4% for several years.