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  • Morning News: May 24, 2017
    Posted by Eddy Elfenbein on May 24th, 2017 at 6:51 am

    OPEC, Non-OPEC Hold Informal Talks To Nail New Oil Cuts

    Moody’s Downgrades China Credit Ratings For First Time in 30 Years As Debt Mounts

    Net Neutrality Ideals Are Already Dead

    Obama’s Fiduciary Rule, After a Delay, Will Go Into Effect

    The U.S. Wins the G7 Unemployment-Improvement Race

    Trump’s Path to a Balanced Budget Paved With Accounting Gimmicks

    Economists See Little Magic in Tax Cuts to Promote Growth

    Fiat Chrysler Stumbles Into U.S. Regulatory Crosshairs Again

    Biggest Threat to Ford? Not GM, but Silicon Valley

    Amazon Sets Up Shop in the Heart of the Publishing Industry

    Uber to Repay Millions to Drivers, Who Could Be Owed Far More

    Startup Carmaker Faraday Future Says It’s Unaffected By Job Cuts At Partner LeEco

    ‘Food Revolution’: Megabrands Turn To Small Start-Ups For Big Ideas

    Ben Carlson: Barriers to Entry in the Markets

    Jeff Carter: Risk and Startups

    Be sure to follow me on Twitter.

  • HEICO Earns 53 Cents per Share
    Posted by Eddy Elfenbein on May 23rd, 2017 at 5:34 pm

    After the bell, HEICO (HEI) reported fiscal Q2 earnings of 53 cents per share. That was three cents better than Wall Street’s estimate. The details look pretty good. Net sales rose 5% to $368.7 million. For the first half of the year, net sales are up 8%. I was pleased to see HEICO’s operating margin edge up from 19% a year ago to 20.8% for this year’s Q2.

    Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company’s second quarter results stating, “We are very pleased to report record quarterly results in consolidated net sales, operating income and net income driven by record net sales and operating income at both operating segments. Our outstanding performance principally reflects increased demand and operating efficiencies within both of our operating segments, as well as the excellent performance of our well managed and profitable fiscal 2016 acquisition.

    Best of all, HEICO raised their full-year guidance. This was the second increase this year. Unfortunately, the company doesn’t guide for EPS, but they do for a few other metrics.

    HEICO now sees net sales rising this year by 8% to 10%. The previous forecast was 6% to 8%. For net income, HEICO projects growth of 12% to 14%, up from 9% to 11%. HEICO also projects cash flow from operations of $270 million. That’s up $10 million from the previous forecast.

    Last year, HEICO earned $1.86 per share last year. If we assume no change in shares outstanding, that implies 2017 EPS of $2.08 to $2.12. Wall Street had been expecting $2.05 per share.

  • The Rebound in Cognizant
    Posted by Eddy Elfenbein on May 23rd, 2017 at 3:07 pm

    One of the lessons of investing is that periodically, the market freaks out. Sometime the reasons are good, many times, they’re not.

    Last September, shares of Cognizant Technology Solutions (CTSH) plunged after the company said that an internal investigation revealed that the company may have violated the U.S. Foreign Corrupt Practices Act. Cognizant notified the SEC and DOJ. The same day, the company’s president resigned.

    That day, the stock got crushed. At one point, CTSH dropped down to $45.44, which was a loss of 17.4% for the day. By the closing bell, the stock had shed 13.3%.

    We waited the mess out, and today CTSH is at a new 52-week high. Today’s high was $66.30 per share.

    To quote Warren Buffett, “the stock market is designed to transfer money from the active to the patient.”

  • Morning News: May 23, 2017
    Posted by Eddy Elfenbein on May 23rd, 2017 at 7:11 am

    OPEC on Verge of 9-Month Cuts Extension After Iraq Gives Backing

    Merkel’s Weak-Euro Complaint Has Two Goals

    Greek Deal on Debt Relief Founders as Talks Stretch to June

    Supreme Court Limits Locations of Patent Lawsuits

    The Case That Could Doom Elizabeth Warren’s Wall Street Watchdog

    CEOs Of Target, ADM To Square Off On U.S. Border Tax At Hearing

    The Looming Retail Bailout

    Ford Taps Former Office Furniture Executive To Be New CEO

    Here’s Why Tesla’s Elon Musk Just Called Himself an ‘Idiot’ on Twitter

    Puma Biotech Shares Are Roaring On An FDA Review. Here’s What Could Still Go Wrong

    The Future of Whole Foods Isn’t About Groceries

    Apple and Nokia Settle Patent Dispute And Sign New Deal

    Even Harley-Davidson Can’t Resist the Tug of Overseas Factories

    Cullen Roche: Why I Am An Optimist

    Roger Nusbaum: Political Volatility Catches Up To Markets (Kind Of)

    Be sure to follow me on Twitter.

  • The Quants Are Taking Over
    Posted by Eddy Elfenbein on May 22nd, 2017 at 3:43 pm

    The WSJ runs a story today on the emergence of quant funds:

    Up and down Wall Street, algorithmic-driven trading and the quants who use sophisticated statistical models to find attractive trades are taking over the investment world.

    On many trading floors, quants are gaining respect, clout and money as investment firms scramble to hire mathematicians and scientists. Traditional trading strategies, such as sifting through balance sheets and talking to companies’ customers, are falling down the pecking order.

    “A decade ago, the brightest graduates all wanted to be traders at Wall Street investment banks, but now they’re climbing over each other to get into quant funds,” says Anthony Lawler, who helps run quantitative investing at GAM Holding AG . The Swiss money manager last year bought British quant firm Cantab Capital Partners for at least $217 million to help it expand into computer-powered funds.

    Guggenheim Partners LLC built what it calls a “supercomputing cluster” for $1 million at the Lawrence Berkeley National Laboratory in California to help crunch numbers for Guggenheim’s quant investment funds, says Marcos Lopez de Prado, a Guggenheim senior managing director. Electricity for the computers costs another $1 million a year.

    Algorithmic trading has been around for a long time but was tiny. An article in The Wall Street Journal in 1974 featured quant pioneer Ed Thorp. In 1988, the Journal profiled a little-known Chicago options-trading firm that had a secret computer system. Journal reporter Scott Patterson wrote a best-selling book in 2010 about the rise of quants.

    Prognosticators imagined a time when data-driven traders who live by algorithms rather than instincts would become the kings of Wall Street.

    That day has arrived. In just one sign of their power, quantitative hedge funds are now responsible for 27% of all U.S. stock trades by investors, up from 14% in 2013, according to the Tabb Group, a research and consulting firm in New York.

    Quants have almost caught up to individual investors, which outnumber quants and collectively have 29% of all stock-trading volume.

    At the end of the first quarter, quant-focused hedge funds held $932 billion of investments, or more than 30% of all hedge-fund assets, estimates HFR Inc. In 2009, quant funds held $408 billion, or 25% of all hedge-fund assets.

    Quants got $4.6 billion of net new investments in the first quarter, while the overall hedge-fund business saw withdrawals of $5.5 billion.

    The computers are outperforming humans at picking investments. In the past five years, quant-focused hedge funds gained about 5.1% a year on average. The average hedge fund rose 4.3% a year in the same period.

    This is a good article and I recommend you give it a read. My only quibble, and it’s a small one, is that it seems late by about ten years. These trends have been building for a long time.

  • New High Today for Stryker
    Posted by Eddy Elfenbein on May 22nd, 2017 at 2:21 pm

    I noticed that Stryker (SYK) is at a new all-time high today. I added the stock to the Buy List in 2008. It promptly crashed with the bear market and underperformed for more than four years. We held on and have done quite well. Good investing takes patience.

  • Incentives Matter
    Posted by Eddy Elfenbein on May 22nd, 2017 at 12:01 pm

    Josh Brown noticed that Steven Russolillo is winding down the WSJ‘s stock-picking column. Why? Simply put, hunting for cheap stocks has become a dying art.

    Josh sees this as part of a long-term decline for active investing, and he highlights AllianceBernstein’s new incentive-based pay structure for active managers.

    Later on, Josh talks about my venture into exchange-traded funds:

    I gave some money to my old friend Eddy Elfenbein when his Crossing Wall Street ETF launched last fall. He did well and I will probably give him some more.

    He’s got the first actively-managed ETF with a variable management fee built into it (his product was launched through Noah Hamman’s AdvisorShares fund family). He’s doing between 20 and 30 of his favorite stocks, which will either be very good or very bad in different market environments. But overall, he’s not snuggling up to the Russell 3000 or the S&P 500. I have no way of knowing whether or not what he’s trying to do will work, I only know that it won’t look exactly like an index fund I can buy for approximately zero dollars.

    Here’s Voss and Howard again on concentration:

    Studies show that buy-side analysts are quite good at security selection: Take, for example, the high levels of accretive alpha of their highest conviction/largest positions, as measured by ex-ante relative portfolio weights. Moving down the relative weights, performance worsens, with holdings beyond the top 20 generating negative alpha. In other words, most portfolios are overdiversified and research shows that hurts performance.

    What’s interesting is that, because Eddy doesn’t focus on the benchmark in terms of how he talks about his approach, I have never even once looked at CWS’s performance against it, only absolutely. There’s a benefit to this sort of reframing that I should probably think more deeply about.

    There should be more attempts at innovation like what we’re seeing from Eddy and AB. Something will eventually click.

  • Mark Fields is Out at Ford
    Posted by Eddy Elfenbein on May 22nd, 2017 at 9:48 am

    Mark Fields has been fired as CEO of Ford. That’s a tough break for him and I feel bad. The company is making a decent profit but the stock has gone nowhere.

    Last year, I finally decided to ditch Ford from our Buy List after holding on for too long.

    During Mr. Fields’s three-year tenure — a period when Ford’s shares dropped 40 percent — he came under fire from investors and Ford’s board for failing to expand the company’s core auto business and for lagging in developing the high-tech cars of the future.

    The change came less than two weeks after Mr. Fields was sharply criticized during the company’s annual shareholders meeting for Ford’s deteriorating financial results.

    (…)

    As recently as last week, Mr. Fields, 56, had been trying to strengthen Ford’s bottom line by cutting 1,400 salaried jobs. But, unable to reverse the stock decline, he ran out of time to carry out his strategy to slash costs and expand Ford’s lineup of trucks and sport utility vehicles, while also investing in autonomous and electrified vehicles.

    Despite spending heavily on self-driving research, Ford was struggling to keep pace with larger automakers such as General Motors and tech giants like Google, both of which have been testing self-driving vehicles. Ford is promising to have a fully autonomous vehicle on the road by 2021.

    I think this is a good example of a CEO getting blamed for things that weren’t entirely his fault. The new CEO is Jim Hackett. He was in charge of Ford’s efforts in autonomous vehicles.

    The shares are back up over $11. At last week’s low, Ford was yielding 5.6%.

  • Morning News: May 22, 2017
    Posted by Eddy Elfenbein on May 22nd, 2017 at 6:35 am

    Farming the World: China’s Epic Race to Avoid a Food Crisis

    Saudi Arabia’s $20 Billion Wager With Blackstone is Record-Sized Bet on U.S. Infrastructure

    Saudi Arabia and Russia Are at Odds on Almost Everything, Except Oil

    Swiss Voters Back Plan to Phase Out Nuclear Power

    Ford Fires CEO Mark Fields; Former Steelcase Chief Jim Hackett To Take Over

    Cathay Pacific Is Cutting 600 Jobs in Its Largest Restructuring in Decades

    Huntsman, Clariant Agree to Merge

    LafargeHolcim Poaches Sika’s Jan Jenisch For Chief Executive

    Move Over Tesla, Europe’s Building Its Own Battery Gigafactories

    At Warner Bros., Former Disney Exec Leads New Charge on Merchandise

    SoftBank’s Son Chases Boyhood Dreams With $100 Billion Fund

    `The Internet Is Broken’: @ev Is Trying to Salvage It

    Jeff Miller: Will The Fed Change Course?

    Howard Lindzon: How Many Bankers Did it Take to Grow Ethereum?

    Michael Batnick: These Are The Goods

    Be sure to follow me on Twitter.

  • Ingredion in Barron’s
    Posted by Eddy Elfenbein on May 20th, 2017 at 5:33 pm

    This weekend’s Barron’s discusses the attractiveness of defensive stocks in tough markets. Derek Anguilm of the Westcore Mid-Cap Value Dividend Fund mentions one of his favorites:

    One favorite is Ingredion (INGR), which makes sweeteners and nutrition ingredients, like ones that make crackers crisper, and pharmaceutical products like intravenous solutions. The stock has pulled back amid concerns about changes in foreign trade. Anguilm sees demand rising from a growing middle class in emerging markets and aging populations in the developed world.

    Ingredion “generates strong and consistent cash flows, has a healthy balance sheet, and has a history of returning cash to shareholders,” he says. Ingredion yields 1.7% but has grown its dividend by 170% over the past five years. Its payout ratio is 26% of earnings, “which we believe will allow for attractive dividend growth in the years ahead,” says Anguilm, who recently added to the fund’s position.

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  • Eddy ElfenbeinEddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His Buy List has beaten the S&P 500 by 72% over the last 19 years. (more)

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    Retweet on Twitter Eddy Elfenbein Retweeted
    charliebilello Charlie Bilello @charliebilello ·
    15h

    Costco 1st Quarter Revenues...
    2025: $63 Billion
    2020: $37 Billion
    2015: $26 Billion
    2010: $18 Billion
    2005: $12 Billion
    2000: $7 Billion
    1995: $4 Billion

    That's a 10% annualized growth rate over the last 30 years.

    $COST

    Reply on Twitter 1928214947755929978 Retweet on Twitter 1928214947755929978 47 Like on Twitter 1928214947755929978 399 X 1928214947755929978
    Retweet on Twitter Eddy Elfenbein Retweeted
    david_perell David Perell @david_perell ·
    29 May

    Bezos once said: "The thing I've noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it."

    Applies to so much more than business. Never let a statistic blind you from seeing the naked truth…

    Reply on Twitter 1927958351025164788 Retweet on Twitter 1927958351025164788 394 Like on Twitter 1927958351025164788 4261 X 1927958351025164788
    eddyelfenbein Eddy Elfenbein @eddyelfenbein ·
    17h

    I imagine it would.

    "New Stalin monument in Moscow subway stirs debate".

    Reply on Twitter 1928173740874985527 Retweet on Twitter 1928173740874985527 1 Like on Twitter 1928173740874985527 16 X 1928173740874985527
    eddyelfenbein Eddy Elfenbein @eddyelfenbein ·
    23h

    The US economy shrank in Q1

    Reply on Twitter 1928089443195384273 Retweet on Twitter 1928089443195384273 1 Like on Twitter 1928089443195384273 17 X 1928089443195384273
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