• Becton, Dickinson Earns $2.48 per Share
    Posted by on February 6th, 2018 at 7:22 am

    This morning, Becton, Dickinson (BDX) reported Q4 earnings of $2.48 per share. That beat the Street by seven cents per share.

    “We are proud of our performance in our final stand-alone quarter, as we continued to deliver solid, consistent results,” said Vincent A. Forlenza, Chairman and CEO. “We look forward to the future with confidence as we welcome C.R. Bard to BD. Together, through our combined capabilities and the impact we can have on our customers and their patients, we have a tremendous opportunity to advance the world of health.”

    Revenues for the full fiscal year 2018, including the accretion from the acquisition of C.R. Bard, are expected to increase approximately 30.0 to 31.0 percent on a reported basis. On a comparable, currency-neutral basis that includes the revenues of C.R. Bard in the current and prior year, revenues are expected to grow 4.5 to 5.5 percent. This includes an estimated 50 basis point adverse impact from the change in the U.S. dispensing business model and the estimated sales impact from Hurricane Maria in Puerto Rico on Bard’s business during BD’s first fiscal quarter.

    The Company expects full fiscal year 2018 adjusted diluted earnings per share, including the accretion from the C.R. Bard acquisition, to be between $10.85 and $11.00, which represents growth of approximately 15.0 to 16.0 percent, or approximately 12.0 percent on a currency-neutral basis.

  • Morning News: February 6, 2018
    Posted by on February 6th, 2018 at 7:05 am

    Asian Stocks Took Their Cues From the U.S, Wiping Out 2018 Gains

    European Markets Continue Slide Following Asia and U.S. Sell-Offs

    Investors Suffer Heavy Losses on Bets Against Volatility

    Over $550 Billion Wiped Off Cryptocurrencies Since Record High Just Under a Month Ago

    Cryptocurrency Rules From Congress Sought by U.S. Market Cops

    Banks, Retailers, China Have All Turned On Bitcoin

    Democrats Lash Out at Consumer Watchdog Amid Reports the Agency is Dropping Equifax Investigation

    Broadcom Raises Its Qualcomm Offer to $121 Billion

    Arby’s, Buffalo Wild Wings Merge to Compete in Fast-Changing Industry

    Why Are Lady Doritos Such a Big Deal?

    Best Buy Is Pulling CDs From Its Stores – And People Are Freaking Out

    Cullen Roche: Why the Stock Market Falls (Sometimes)

    Joshua Brown: What Investors Should Be Thinking Right Now

    Howard Lindzon: I Was Struck by a Black Swan and of Course Markets in Turmoil

    Roger Nusbaum: The Ides of…February?

    Be sure to follow me on Twitter.

  • “The Buffett Effect”
    Posted by on February 6th, 2018 at 1:34 am

    From the WSJ:

    One underappreciated factor adding to the selling in global markets is the Federal Reserve’s action against Wells Fargo last week, which helped erase $29 billion from its market value.

    With Warren Buffett controlling 9.4% of the bank through Berkshire Hathaway, the fact that retail investors aren’t safe from a bear market is probably dawning, says Eddy Elfenbein, a Washington-based portfolio manager and editor of the blog Crossing Wall Street.

    “Look, if Grandpa Capitalist is not safe here then where are we?” he said retail investors seem to be asking themselves.

    Mr. Elfenbein had a doctor’s appointment on Monday afternoon, but skipped it and remained glued to his Twitter feed and laptop once the market started dropping. The only time he could pull himself away from his computer was later in the evening when he grabbed a sandwich, he said.

  • CWS Market Review – February 5, 2018
    Posted by on February 5th, 2018 at 10:47 pm

    Well, today was certainly an eventful day on Wall Street. That’s why I wanted to send you an update to fill you in on today’s action.

    Let’s start with the important news—there’s no reason to make any change to our strategy. There’s no reason to get scared and sell. Our Buy List is just fine. In fact, we outperformed the market by a good margin today (meaning, we were down less than everybody else).

    One of our Buy List stocks, Church & Dwight (CHD), had a good earnings report this morning, plus they raised their dividend. CHD was one of only two stocks in the entire S&P 500 that closed higher today. Seventeen of our 25 stocks beat the S&P 500 today. When folks get scared, they seek out quality and that’s what we have.

    Now let’s look at some of today’s damage. It ain’t pretty. The Dow Jones Industrial Average plunged 1,175 points—its greatest single-day point loss in history.

    It was a slow build. By 2 pm, the Dow had lost about 330 points, which was making for a bad day, but it was nothing too serious. After that, things got very rough. Over the next hour, the Dow shed an additional 470 points, but that was only the beginning. In the next 10 minutes, the Dow dropped another 700 points.

    At its lowest, the Dow was down 1,597.08 points. The previous record point loss was 777 points, so we were more than twice that (I’m talking about points, not percent). The NYSE employs a “circuit breaker” where trading shuts down for 15 minutes if the Dow loses 7%. That would have been about 1,800 points today, so we didn’t hit it.

    By the closing bell, the Dow had lost 1,175.21 for a loss of 4.60%. That was more than the entire Dow was worth in 1984. The S&P 500 lost 113.19, also its greatest point loss ever, for a drop of 4.10%. (Note the unusually wide spread between the two indexes. That was due to a bad day for Boeing. Personally, I prefer the S&P 500.) The S&P 500 also easily dropped below its 50-day moving average. The index hasn’t traded below its 50-DMA since August.

    I’ve been talking about points, but was this the worst day in percentage terms? Please—not even close! In the last decade, this was the S&P 500’s 25th worst day. To be precise, today wasn’t the weird thing. The truly weird thing was the ultra-low-volatility rally that preceded today. Today isn’t unprecedented. The couple of months leading up to today were.

    In the last several newsletters, I’ve passed along several stats of us going so many days without a 1% drop or consecutive days closing within 3% or 5% of an all-time high. All those stats reflected one thing: our low-vol rally. Now, normal market behavior is returning. The VIX rose 115% today. That’s something you don’t see every day!

    Let’s add some context. Even with today’s loss, the S&P 500 is still up 7% since Labor Day. For the year, the S&P 500 is down a little less than 1%.

    The natural reaction is to ask, “what happened today?” It’s frustrating to say this, but this is what markets do. Every so often, things just freak the hell out. We think, X happened, therefore, what caused X? Sometimes, X just is.

    There are a few items I can point to, but who knows how large a role they played. For example, this was Jay Powell’s first day as Fed chair. Greenspan started on the job a few weeks before the 1987 crash. It’s not rational but markets aren’t wild about change.

    I was particularly struck by some activity in the Fed funds futures market. The futures started to signal that a fourth rate hike could be possible this year. That’s surprising. I believe the odds got up to about 26%, so possible but not probable. Either way, that’s unexpected and that could have helped freak the market out. The very strong ISM Non-Manufacturing report this morning may have given the rate hawks more confidence.

    Our Buy List was down today but by a lot less than the S&P 500. For the day, our Buy List fell 3.44% which means we outperformed by 66 basis points. Church & Dwight (CHD) had a very good earnings report, plus they raised their dividend. CHD was one of only two stocks in the S&P 500 that closed higher today.

    There’s not much more to say right now. Expect more volatility. We have a bunch more earnings reports coming this week. Cerner (CERN) and Becton, Dickinson (BDX) report tomorrow. I’ll have more in this week’s newsletter. I usually open with a quote, but this time I’ll close with one of my favorites from Peter Lynch: “The real key to making money in stocks is not to get scared out of them.”

    – Eddy

  • Earnings Does Not Equal the Market
    Posted by on February 5th, 2018 at 2:17 pm

    Some interesting stats via Bloomberg:

    “Based on the past 90 years, the S&P 500 is actually slightly more likely to have a down year when EPS grows by over 10 percent than when it grows by less than 10 percent,” write a team led by senior equity and quantitative strategist Dan Suzuki. “In fact, of the 29 down years for the S&P 500, EPS growth was positive almost 70 percent of the time and up double-digits close to 50 percent of the time.”

    This really isn’t much of a paradox. The market moves ahead of time. By the time the thing happens, it’s usually too late.

  • “Objects in the Rear View Mirror May Appear Closer Than They Are”
    Posted by on February 5th, 2018 at 1:35 pm

    Here’s a minute-by-minute chart of the S&P 500 for the last two weeks.

    The vertical axis makes this move seem larger than it truly is. While the market is down, it’s not down by very much. The difference is that volatility has been so low that any break seems like a big deal.

    The S&P 500 barely dipped below its 50-day moving average. We haven’t closed below the 50-DMA since August.

    We lost a lot at the open, then rallied, then plunged even lower. The Dow is currently down 437 points and it could dip below 25,000. The index is currently at 25,037.88.

    Bitcoin has been as low as 6,930.13 today, and I’m pretty sure it fell below the Nasdaq Composite.

    Within the market, Energy and Financials stocks are down the most. Utilities and Consumer Discretionaries are down the least. Interestingly, Tech isn’t doing that poorly.

    The S&P 500 Value Index is down 1.99% while the S&P 500 Growth is down 1.24%. I’m guessing the Financials are a large part of that story.

  • Church & Dwight Earned 52 Cents per Share
    Posted by on February 5th, 2018 at 8:47 am

    Church & Dwight (CHD) reported Q4 earnings today of 52 cents per share. The company had been expecting 50 cents per share. Organic sales rose 3.4% which was above CHD’s outlook of 2.5%. For the whole year, EPS rose 10% to $1.94 per share which also exceeded their outlook.

    Matthew Farrell, Chief Executive Officer, commented, “Q4 organic sales growth exceeded our outlook in all three segments. Our Q4 category growth improved sequentially and year over year. The Consumer Domestic business had strong volume growth in Q4 while the promotional environment improved. In the domestic business, 7 out of 11 power brands exceeded category growth in 2017. The investments in our international business, particularly export, are paying off as evidenced by consistent organic growth which we expect to continue. In 2017, we made a great acquisition with Waterpik. Finally, we concluded the year with strong growth in our animal productivity business. We are hitting on all cylinders.”

    Church & Dwight also raised their quarterly dividend by 14% from 19 cents to 21.75 cents per share. That makes the annual dividend 87 cents per share. Church & Dwight has paid a regular consecutive quarterly dividend for 117 years.

    For 2018, CHD expects EPS to range between $2.24 and $2.28. That’s growth of 16 to 18%. Wall Street had been expecting $2.14 per share.

    Mr. Farrell continued, “We expect sales growth of approximately 8% and organic sales growth of approximately 3%. We expect gross margin to be flat as productivity programs will offset rising commodity costs and product enhancements. While recent acquisitions require lower levels of marketing, we expect to increase our spending to sustain marketing at approximately 12% of sales. SG&A will increase as a percentage of sales largely due to recent acquisitions which have intangible amortization expenses, integration costs and higher levels of SG&A. The new tax law is expected to reduce our tax burden by lowering our effective tax rate to approximately 24-25% compared to 32% (excluding tax reform) for 2017. Our estimate is based on our current understanding of the new Tax Act which may change as regulations are finalized.

    For Q1, Church & Dwight expects earnings of 61 cents per share, on organic sales growth of 2%. Wall Street had been expecting 56 cents per share for Q1.

    Update: Church & Dwight closed higher by 2.35% today. It only one of two stocks in the entire S&P 500 that rose today.

  • Morning News: February 5, 2018
    Posted by on February 5th, 2018 at 7:04 am

    Why the Cryptocurrency World Is Watching South Korea

    China Enlists Its ‘Great Firewall’ to Block Bitcoin Websites

    Bitcoin Drops Below $8,000 After Another Bank Ban on Credit-Card Buying Hits

    Big U.S. Trade Gap Expected, and European Stimulus Plan at Issue

    Dear Jay: High-Powered Advice for the Incoming Fed Chairman

    Broadcom Plans to Boost Qualcomm Bid to $120 Billion

    Tesla Is Turning 50,000 Homes in South Australia Into a Giant Battery

    Nissan to Invest $9 Billion in China in Race for EV Dominance

    Wells Fargo Shares Plunge After Fed’s ‘Consent Order’ That Caps Growth

    DC Comics Joins Forces With Young Adult Authors

    Early Facebook and Google Employees Form Coalition to Fight What They Built

    Jury to Hear Opening Statements in Waymo-Uber Trial Over Autonomous Car Secrets

    Get-Out-of-Jail Victory for Samsung’s Lee Hits Reform Campaign

    Jeff Carter: The Hard Thing About Small Funds

    Michael Batnick: These Are the Goods

    Be sure to follow me on Twitter.

  • “The Easy Money Has Already Been Made”
    Posted by on February 4th, 2018 at 3:24 pm

    Check out this chart. Does it look like a good time to buy?

    It’s the S&P 500 from 1932 to the middle of 1956. By looking at the chart, a lot of investors would be scared of the pattern. What would you have thought?

    “It’s already gone up so much. How much higher can it go?”

    “The easy money has already been made.”

    “I’ll wait until things get clearer.”

    “I’l wait for a pullback.”

    Now here’s an S&P 500 chart through the next 25 years. The first chart is the blue rectangle.

    I’m really understating the effect because the chart ends near where the bull market takes off.

  • The Stock Market’s Size Distribution
    Posted by on February 4th, 2018 at 1:37 pm

    One of the key aspects to investing that I stress to investors is how skewed things are on Wall Street. By this, I mean there’s a very small group of very, very large stocks. Outside that, there are tons and tons of tiny stocks.

    I’m not saying it’s right or wrong, I’m merely pointing out this fact. It’s not hard to mimic the S&P 500 closely by using just a few stocks. Conversely, you can also own a large group that shows little connection to the index.

    Check out this chart. The x-axis is companies in the S&P 500. The y-axis is the cumulative market cap of the S&P 500’s market value.

    The 10 largest companies in the S&P 500 make up nearly 22% of its value. The top 50 stocks make up nearly half while the other 450 stocks make up the other half. The smallest 210 stocks comprise just 10% of the index which is smaller than the weight of the four largest stocks.

    Bear in mind that this is just the S&P 500, so these are already large companies. Yet even within that universe, the big boys dominate.

    Below is the chart again but on a log scale for both sides. I believe the line needs to be straight to qualify as a Paretio Distribution. (Please correct me if I’m wrong on that!)