• Morning News: December 20, 2017
    Posted by on December 20th, 2017 at 7:04 am

    Uber Is a Taxi Service, the E.C.J. Says, in Major Setback to Firm

    IMF: Brexit Could Fundamentally Alter the Shape of the British Economy

    After 7,500% Rally, Cryptocurrency Founder Sells All His Coins

    The Real Tulip Mania Looked Nothing Like Bitcoin

    Coinbase to Offer Bitcoin Cash, Will Probe Early Price Move

    Senate Panel Rejects Trump’s Nominee to Lead Export-Import Bank

    Skepticism Greets Republican Plan to Restore Open-Internet Rules

    Electric Cars’ Race to Nowhere

    Wells Fargo Wants to Finance Metal Trade in Test of New Rule

    Microsoft Moves to End Secrecy in Sexual Harassment Claims

    KPMG Partners Face Court Contempt Over China Audit

    Michael Batnick: What Time Is It?

    Ben Carlson: The Pros & Cons of Momentum Investing

    Josh Brown: QOTD: When Valuation Attempts are Silly

    Howard Lindzon: December 2017…Borrowed Crypto Time

    Be sure to follow me on Twitter.

  • Down to the Wire…
    Posted by on December 19th, 2017 at 11:22 pm

    There are just seven trading left in 2017. While this has been another good one for the Buy List, we’re running very, very close to the S&P 500.

    I have a competitive streak in me that loves to beat the index, even if by a small amount. I suppose I should be happy with a big gain for the year.

    Let’s see where we stand. Through Tuesday’s trading, our Buy List is up 20.71% for the year while the S&P 500 is up 19.77%.

    But that doesn’t include dividends, and it’s the dividend-adjusted total that counts. Typically, our Buy List yields less than the S&P 500 (around 1% vs. 2%), but our dividends usually grow a little faster during the year.

    Through Tuesday, our Buy List’s dividend-adjusted gain is 21.92%. That works out to a dividend yield of 1.00%.

    Through Tuesday, the S&P 500’s dividend adjusted YTD gain is 22.13%. That’s a return to dividends of 1.97%.

    So we’re trailing by 21 basis points with seven days to go! (By my estimate, Axalta not taking the deal at $37 cost the Buy List about 80 basis points.)

  • Strong Housing Starts Report
    Posted by on December 19th, 2017 at 9:01 am

    A very good report on housing starts:

    U.S. homebuilding unexpectedly rose in November, with the construction of single-family housing units surging to a 10-year high, but revisions to the prior month’s data indicated the sector was continuing to struggle with supply constraints.

    Housing starts increased 3.3 percent to a seasonally adjusted annual rate of 1.297 million units, the Commerce Department said on Tuesday. That was the highest level since October 2016. But October’s sales pace was revised down to 1.256 million units from the previously reported 1.290 million units.

    Economists polled by Reuters had forecast housing starts decreasing to a pace of 1.250 million units last month.

    I call this my “Desert Isle” economic report. Meaning, if I only had access to one econ report, above all others, it would be housing starts.

  • Morning News: December 19, 2017
    Posted by on December 19th, 2017 at 7:05 am

    Bond Underwriting in Europe Is a Story of Capitulation

    China Unveils an Ambitious Plan to Curb Climate Change Emissions

    Google’s China Bid Won’t End Well

    The Fed Interest Rate Hike: How Hard Will It Hit Asia?

    Tax Cuts Benefit the Ultra Rich, but Not the Merely Rich

    3 Moves to Make by the End of 2017 If GOP Tax Bill Becomes Law

    The Latest Episode Of The Net Neutrality Saga Opens To Mixed Reviews

    A Feud Between Boeing and Bombardier is Casting a Spotlight on U.S.-Canadian Trade Deals

    Big Deals From Hershey and Campbell Show the Stakes Are Higher for Big Food

    Virgin Hyperloop One Rebuffs a Sale and Takes $50 Million Lifeline

    Ikea Is Focus of European Inquiry Over Possible Skirting of Tax Bills

    Facebook Makes German Market Push as Hate Speech Law Bites

    Michael Batnick: What Time Is It?

    Ben Carlson: Seeing Both Sides

    Jeff Carter: Create An Endowment Effect

    Be sure to follow me on Twitter.

  • HEICO Earns 62 Cents per Share
    Posted by on December 18th, 2017 at 8:25 pm

    After the close today, HEICO (HEI) reported Q4 earnings of 62 cents per share. That’s up from 52 cents per share in last year’s Q4. HEICO doesn’t give per-share guidance but I ballparked their guidance at 55 to 59 cents per share. The consensus on Wall Street was for 57 cents per share, so this was a very good quarter for HEICO.

    For the fiscal year, HEICO made $2.14 per share, which is up from $1.83 per share last year.

    Quarterly sales rose 18% to $421.2 million. Operating margin increased to 21.2%. Laurans A. Mendelson, HEICO’s Chairman and CEO, said:

    HEICO’s record fiscal 2017 fourth quarter and full year results were principally driven by continued organic growth, exemplary execution by our subsidiaries and the acquisition of profitable, well-managed businesses within both our Electronic Technologies Group and Flight Support Group.

    (…)

    As we look ahead to fiscal 2018, we anticipate net sales growth within the Flight Support Group’s commercial aviation and defense product lines. We also expect growth within the Electronic Technologies Group, principally driven by demand for the majority of our products. During fiscal 2018, we will continue our commitments to developing new products and services, further market penetration, and an aggressive acquisition strategy while maintaining our financial strength and flexibility.

    Based on our current economic visibility, we are estimating 10% – 12% growth in full year net sales and in full year net income over fiscal 2017 levels. We anticipate our fiscal year 2018 consolidated operating margin to approximate 20%, depreciation and amortization expense of approximately $75 million, capital expenditures to approximate $50 million and cash flow from operations to approximate $290 million. These estimates exclude the impact of any pending tax reforms that are currently being legislated in Congress. Furthermore, these estimates exclude additional acquired businesses, if any.

    Through Monday, HEICO is up 55.48% YTD for us. Moody’s is #1 with a 59.62% gain. If we get a nice bump in tomorrow’s trading, HEICO can slide into first.

  • The Nasdaq Breaks 7,000
    Posted by on December 18th, 2017 at 3:24 pm

    This is shaping up to be a good day for the market. The S&P 500 has been as high as 2,685.92 today, which is another all-time high. The Nasdaq Composite broke 7,000 for the first time ever.

    Today’s movement is heavily skewed toward high beta stocks. As I look at the numbers, the S&P 500 High Beta Index is currently up 1.51% while the S&P 500 Low Vol Index is up just 0.01%. The Russell 2000 is up 1.14% today.

    Our Buy List is now up over 20% on the year. AFLAC, Danaher, Fiserv, Ingredion and Microsoft are all at new highs today.

  • Morning News: December 18, 2017
    Posted by on December 18th, 2017 at 7:03 am

    U.K.’s Next Brexit Agony: What Sort of Trade Deal?

    Futures On Bitcoin – Let The Games Begin

    Coal’s Two-Year Rally to End in Europe as China Addiction Fades

    The Fast and the Financed: China’s Well-Funded Auto Startups Race to Overtake Tesla

    Toyota Plays Catch-Up With Plans for More Than 10 EV Models

    How Republicans Learned to Sell Tax Cuts for the Rich

    Have You Ever Felt Sorry for the I.R.S.? Now Might Be the Time

    Thales’ 4.8 Billion-Euro Bid for Gemalto Gets Thumbs Up from Investors

    Thai Beer Magnate Extends SE Asia Push With $4.8 Billion Sabeco Deal

    Hershey Nears $1.6 Billion Deal to Buy Amplify Brands

    Oracle Clinches A$1.56 Billion Deal to Buy Australia’s Aconex

    Farewell to the 747, the Plane That Shrank the World

    Roger Nusbaum: Good News, Bad News, News We Don’t Understand? Market Up!

    Jeff Miller: Weighing the Week Ahead: Fresh Legs for the Stock Rally in 2018?

    Michael Batnick: These Are The Goods

    Be sure to follow me on Twitter.

  • New All-Time High
    Posted by on December 15th, 2017 at 4:39 pm

    The S&P 500 closed today at another new all-time high. The S&P 500 is now up 19.52% YTD (not including dividends).

    Our Buy List is up 19.80% YTD (again, without divs). Four of our Buy List stocks are at new highs: AFLAC (AFL), Hormel Foods (HRL), Ingredion (INGR) and Microsoft (MSFT).

    Express Scripts (ESRX) was up 3.67% today thanks to an upgrade from Baird.

    HEICO (HEI) was up 4.72% today after they announced their stock split and dividend increase.

  • Stock Split and Dividend Hike for HEICO
    Posted by on December 15th, 2017 at 11:05 am

    Heico announced that it will be splitting its stock 5-for-4. In other words, you’ll get one extra share for every four you currently own.

    Also, the company’s semi-annual dividend will rise from 8 cents to 8.75 cents. After the split, the new dividend will be 7 cents per share.

    Remember that HEICO split 5-for-4 in April.

  • CWS Market Review – December 15, 2017
    Posted by on December 15th, 2017 at 7:08 am

    “They say you never go broke taking profits. No, you don’t. But neither do
    you grow rich taking a four-point profit in a bull market.” – Jesse Livermore

    This week, the Federal Reserve decided once again to raise interest rates. True, interest rates are still quite low, but a lot of folks thought these hikes were a long way off (including me). Now they’ve really happened.

    The Fed also released its economic projections for the next few years. They see more rates coming next year (call me a cautious doubter on that). Remember, the environment for stocks will remain favorable as long as rates don’t get too high. We’re not there yet, so stocks are still good.

    Speaking of which, the S&P 500 touched another all-time high this week. This continues to be a very good environment for stocks. Strangely, a lot of investors have left the stock market and tried their hands at crypto-currencies. I’ll give you my thoughts on bitconmania.

    Reminder: Next week, I’ll unveil the 2018 Buy List. Millions of investors all over the world are eagerly awaiting our new list. I can barely contain my excitement. Stayed tuned! But first, let’s look at what the Federal Reserve decided to do this week.

    The Federal Reserve Raises Rates

    On Wednesday, the Federal Reserve again raised interest rates. The new range for the Fed funds rate is 1.25% to 1.50%. This was the third increase this year and the fifth for this cycle. As I’ve said before, I think it was a mistake to raise rates, but I can’t say it’s a terrible, horrible, no good, very bad mistake. Two FOMC members agreed with me and dissented from this decision.

    In the Fed’s statement, they noted the good economic news. They said “job gains have been solid” and “economic activity has been rising at a solid rate.” (I think “solid” was the word of the month.)

    The Fed also noted that inflation has trended lower in recent months, but they think it will rise to 2%, which is their target rate. I’m not so sure about that. This week, we got the inflation report for November and inflation is still well behaved. For November, headline inflation rose by 0.39%, and the “core rate,” which excludes food and energy, rose by just 0.12%. In the last 12 months, headline inflation is running at 2.20% while the core rate is at 1.71%. In fact, the year-over-year core rate has barely moved in the last six months. Maybe the Fed is right and low inflation will pass, but I see no signs of it yet.

    The Fed also released its economic projections for the next few years. The Fed members are more optimistic on economic growth for next year. In September, they saw GDP rising by 2.1% next year. Now they see it rising by 2.5%. I hope that’s right.

    The members project three more rate increases for next year. After that, they see two more hikes in 2019 and another one or two in 2020. I should caution that the range of estimates is very diffuse for 2019 and 2020. I don’t put much faith in forecasts that far out.

    If the Fed’s near-term forecasts are right, that will mean that real short-term rates will finally be positive sometime next year. It will probably happen sometime in June. That will end 10 years of negative real rates.

    The Fed is right to be optimistic for the economy. This week, we got a very good report on retail sales for November. Hopefully, that’s an omen for strong holiday sales. Thursday’s initial claims report came very close to being the lowest in more than 44 years.

    To sum up: Things are looking very good right now. I’m not worried about stocks, especially our Buy List. The Fed will eventually screw this up, but not for a while.

    My Thoughts on Bitcoin

    A number of investors have asked me for my opinion on bitcoin. It seems to be the topic of the season. This week, bitcoin futures were unveiled on Wall Street.

    I haven’t commented much on bitcoin for the simple reason that I don’t know much about it. Unlike too many people in finance, I prefer to limit my comments on topics I’m familiar with.

    With that caveat, let me offer some thoughts on investing in bitcoin. I would summarize my position as ranging between agnostic to intrigued on the future for bitcoin as an instrument, yet I’m very negative on the idea of bitcoin’s place in a sound portfolio.

    I want to make it clear that I’m not anti-bitcoin in any sense. I welcome the idea of a stateless cyber currency. We need disruption. Bitcoin, and its many competitors, have made truly impressive gains.

    I do have a few concerns. At the top is the currency’s dramatic volatility. Bitcoin routinely gaps up or down by 10% or more in a trading session. Until that slows down, I think it will limit bitcoin’s acceptance in regular daily use.

    A currency needs to be two things: a store of value and a medium of exchange. Bitcoin is really good at the former but not so hot at the latter. This needs to change. I’m also concerned about the amount of fraud and theft. Of course, this can happen with any currency, but the problem seems especially acute with bitcoin. Also, a lot of these shady initial coin offerings won’t end well. Make no mistake—a lot of crypto-heads understand the challenges and they’re working to solve them. We’re still early in this game.

    I think there’s a very good chance that bitcoin will eventually fall by the wayside as rivals, like Etherium, prove to be more durable. Emergent technologies tend to invite intense competition followed by extreme consolidation. Bitcoin is no different.

    Now I want to turn to the idea of investing in bitcoin. I have no issue if someone wants to buy a few BTC to be part of the phenomenon. Sure, why not? What I mean to address is the idea of bitcoin’s place in a serious investment portfolio. That’s nuts.

    We have to be up front with the fact that bitcoin is in a very big bubble. Like all bubbles, it feeds on itself and you never know where it will end. I often tell investors that true bubbles are rare. A rising stock market probably isn’t a bubble. A bubble is when an asset soars for many times what it could possibly be worth. Bitcoin will pop. I just don’t know when.

    To show you how bananas things are, a biotech company recently changed its name to Riot Blockchain. The shares went from $7 last to month to as high as $33 this week. Now that’s a mania. A bubble is when something is soaring for no other reason than that it’s been soaring. The mania feeds upon itself as investors are afraid of being left behind. That’s what’s going on now.

    I’m staying far away from bitcoin. It’s a new game, and I admit I don’t know the rules (nor does anyone else). Around here, we approach investing like it’s a business because that’s what it is. When we look at a company, we analyze real things like sales and earnings, but with bitcoin, there’s nothing. It’s guessing at the breeze. I don’t see how anyone can estimate where the price should be right now.

    I wish bitcoin well, but it has no part of a long-term investment portfolio.

    Buy List Updates

    We have a Buy List earnings report next week. After the close on Monday, December 18, HEICO (HEI) is due to report its fiscal Q4 earnings. That’s for the quarter ending on October 31. A conference call will come on Tuesday morning.

    In August, HEICO raised its guidance for full-year earnings. They previously expected full-year net income growth of 12% to 14%. They now expect net income growth of 14% to 16%.

    HEICO doesn’t provide per-share guidance, so we need a little math. By my numberifying, the new guidance implies Q4 earnings of 55 to 59 cents per share and full-year earnings of $2.08 to $2.12 per share. The stock is a 48% winner for us this year.

    This week, Express Scripts (ESRX) gave an upbeat forecast for Q4 and for 2018. The pharmacy benefits manager said they see EPS for next year ranging between $7.67 and $7.87. Wall Street had been expecting $7.65 per share. That’s good to see.

    Express also raised its 2017 forecast to $7.00 to $7.08 per share. That’s a three-cent increase at both ends. Through the first three quarters of this year, Express has earned $4.94 per share. That means the new range implies Q4 earnings of $2.06 to $2.14 per share.

    Before I go, I want to raise my Buy Below prices on two of our Buy List stocks. I’m raising our Buy Below on Ingredion (INGR) to $146 per share. I’m also raising AFLAC (AFL) to $93 per share. The duck stock hit a new all-time high this week.

    That’s all for now. There are a few economic reports to look out for next week. On Wednesday, we’ll get the existing home sales report. The last one was quite good. Then on Thursday, we’ll get the second update on Q3 GDP growth. The initial estimate was for 3.0% growth which was later revised up to 3.3%. Let’s see if it goes any higher. 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