• Gold Above $1,200: More Gains Ahead?
    Posted by on January 13th, 2017 at 10:22 am

  • Tech Turnaround on Tap?
    Posted by on January 13th, 2017 at 10:20 am

  • CWS Market Review – January 13, 2017
    Posted by on January 13th, 2017 at 7:08 am

    “There is a danger of expecting the results of the future to be predicted from the past.” – John Maynard Keynes

    Earnings season is finally upon us. Over the next four weeks, 20 of our 25 Buy List stocks are scheduled to report Q4 earnings results. This is a crucial time for disciplined investors because it’s when we get to see who among our stocks has been naughty and who’s been nice.

    It’s easy to think that stock movements are arbitrary—and it sometimes looks that way. But stocks do move for good reasons, and the most important reason is earnings. That’s why our Buy List is focused on high-quality companies. I’m happy to say that our Buy List already has a slight lead over the market this year.

    Frankly, the “Trump Rally” is beginning to look a bit tired. Considering that the Dow has risen 22 times in 26 days, who wouldn’t be? The Dow has tried to break 20,000 several times, but it can’t seem to do it. Last Friday, the index came within 0.37 points of busting through…but no such luck. I wouldn’t be surprised to see the market pull back over the next few weeks. Nothing major. But just enough to clear out the trend-followers.

    In this week’s CWS Market Review, we’ll look at what’s in store for earnings season. Next week, we’ll have our first Buy List earnings report. I also want to bring you up to speed on the latest news surrounding our Buy List stocks. Before we get to that, let’s look at some recent economic news. Small-business optimism just recorded its biggest increase in decades.

    Small-Business Optimism Soars

    Last Friday, the government reported that the U.S. economy created 156,000 net new jobs in December. That was below the expectations of 175,000 jobs, but it’s still largely within the previous trend. Unemployment ticked up to 4.7%. There’s still the issue of millions of Americans out of the labor force. Fortunately, though, the labor-force participation rate rose by a tad. There are, of course, major demographic trends at play in that figure. But on balance, we can say that the jobs market is improving.

    The best news in the jobs report had to do with average hourly earnings. For December, AHE rose by a healthy 0.4%. That’s a good number, and it’s good news for us investors as well. That’s future revenue for our companies. Over the last year, wages have increased by 2.9% (see below). That’s ahead of inflation, but not by much. Still, it’s good to see American workers finally get a real raise.

    One of the more interesting reports we got this week was that small-business optimism soared in December. Actually, that understates it. Small-business optimism skyrocketed. It had its best monthly increase since 1980. The index jumped 7.4 points to 105.8, which is the highest since 2004.

    Obviously, a good deal of that is political. Small-business people lean right, so there’s certainly comfort for them in a new administration. But I wouldn’t be quick to dismiss this as solely political. Optimism, especially newfound optimism, is an important ingredient for an expanding economy. These will be the people who will approve new construction plans or give the go-ahead to hire new employees.

    There’s an erroneous belief that economic expansions must die of old age. I’m not so sure about that. Australia hasn’t had a recession in 25 years. Even eight years into our expansion, I think there are many reasons to believe that growth will accelerate this year.

    Last Friday, the Dow reached an intra-day high of 19,999.63. The index came within a hair’s breadth of 20,000. Of course, it’s an arbitrary number, and an even more arbitrary index, but it’s an important milestone for people to see. It’s the kind of thing that people who don’t follow the markets will notice. To add some perspective, the Dow first closed above 200 on December 18, 1927, and Dow 2,000 fell on January 8, 1987. (Is there something about years ending in 7?)

    Quietly, the market has slipped into a narrow trading range over the past month. In fact, for the Dow, this has been one of the narrowest ranges on record. Since December 9, the index has finished every trading day somewhere between 19,756 and 19,974. That’s 22 days locked in a range that’s a little over 1%.

    The Nasdaq, by contrast, had its first down day of 2017 on Thursday. The S&P 500 Tech Index got to its highest point since September 2000. The index is still below its high from nearly 17 years ago. The coming earnings season will be important because we’ll be able to see if companies have witnessed any real improvements in their sales and earnings. I think we’ll have impressive results from companies like Microsoft (MSFT) and CR Bard (BCR). Now let’s take a look at our first Buy List earnings report, which comes next Thursday.

    Earnings Preview for Signature Bank

    Now that we have 25 stocks on our Buy List, let me explain the earnings-reporting cycle. Companies are required to report their earnings each quarter. Most companies follow the March/June/September/December reporting period. On our Buy List, 20 of our stocks do just that. (Please note that that doesn’t necessarily mean their fiscal year ends in December. Microsoft, for example, has a fiscal year that ends in June.)

    Four of our Buy List stocks; JM Smucker (SJM), Ross Stores (ROST), Hormel Foods (HRL) and HEICO (HEI), follow the January/April/July/October cycle. One of our stocks, RPM International (RPM), follows the cycle of February/May/August/November. RPM reported its November earnings recently.

    Banks tend to report their earnings early in the reporting cycle. When it was on our Buy List, Wells Fargo traditionally kicked off earnings season for us. Now with Wells off the Buy List, that honor falls to Signature Bank (SBNY). The New-York based bank will report its Q4 earnings on Thursday, January 19, before the opening bell.

    Signature had a decent Q3 report in October. They made $2.11 per share, which beat the Street by seven cents. The key stat for any bank is net interest margin. For SBNY’s Q3, that came in at 3.14%, which is pretty good.

    Obviously, the bum-medallion loans are still a problem for SBNY. The ride-sharing boom has decimated that business. Fortunately, Signature has taken steps to resolve the issue.

    Signature is a good example of something you see a lot. It was a cheap stock, and the shares were doing absolutely nothing. Nada. The numbers were clear—the bank was a bargain. But all through the late summer and fall, the shares snoozed away. In October, SBNY was going for around $115 per share. Then came the election, and suddenly people realized, “hey, this banking stock is really cheap.” Within a few days, the stock shot to $150 per share.

    The lesson is that many of our investments go against the tide. That means that it may take a while for the world to catch up to us. A great investment can have it all, but if it doesn’t have a catalyst, it won’t move. As prudent investors, we follow the sage words of Sir Mick: “time is on our side.”

    Buy List Updates

    When looking for superior companies, you want to search out firms that have strong pricing power. You probably regularly buy some product that you’re afraid to admit you’d keep on buying, even if they doubled the price. I certainly know I do.

    This doesn’t mean the company should or will raise its price, but they know they have the ability to do so if they want to. As investors, that’s what we want to find. This tells us they have a locked-in market and few competitors.

    On our Buy List, Moody’s (MCO) is a good example. In fact, Warren Buffett said that it’s actually difficult to judge Moody’s management, because its pricing power is so strong.

    This week, JM Smucker (SJM) said they’re raising the cost of their packaged coffees, like Folgers and Dunkin’ Donuts, by an average of 6% in the U.S. The company said (what else?) that they’re just passing on costs. But we’ll soon see how devoted those coffee drinkers are. I suspect SJM will do just fine.

    A few of our stocks had ratings changes. Axalta Coating Systems (AXTA) was cut to neutral by Citigroup. Piper Jaffray started Hormel Foods (HRL) with an “overweight” rating. It takes a mature adult not to make a Spam joke here. I am not that man. Moody’s (MCO) was downgraded by UBS and Barclays.

    Stryker (SYK) won’t report their earnings until later this month, but this week, they gave us a sneak preview. Stryker said that Q4 revenue rose by 16.3%. That’s 16.8% in constant currency. For the year, sales rose 13.9% to $11.3 billion. That’s a growth of 14.3% in constant currency.

    “I am pleased with our performance in both the fourth quarter and the full year 2016,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “Fourth-quarter organic growth of 6.7% versus a strong prior year is impressive, and was balanced across Orthopaedics, MedSurg and Neurotechnology and Spine. In addition, we executed well on acquisitions and delivered leveraged adjusted earnings gains. We enter 2017 with good momentum across our businesses and look forward to building on this success.”

    Stryker said that based on these numbers, they expect final 2016 EPS to be at the high end of their $5.75 to $5.80 range. That range translates to Q4 results of $1.73 to $1.78 per share. In October, Stryker raised the low end of their forecast by five cents per share. Forex costs are expected to knock 10 to 12 cents per share off their full-year bottom line. The company will report earnings on January 24.

    That’s all for now. The stock market will be closed on Monday in honor of Dr. Martin Luther King, Jr.’s birthday. On Wednesday, we’ll get the CPI report for December. It will be interesting to see if there have been any signs of incipient inflation. I doubt it, but I will reserve judgment until we see the data. Also on Wednesday, the Fed will release its “beige book” which offers a detailed overview of the economy. 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

  • Morning News: January 13, 2017
    Posted by on January 13th, 2017 at 6:33 am

    Davos Wonders If It’s Part of the Problem

    China December Exports Tumble More Sharply Than Expected

    Janet Yellen Gives an Economic Short Course, Beyond Interest Rates

    Trump’s Drug-Price Stance Puts Pharma on Notice

    Trump’s Pick on Trade Could Put China in a Difficult Spot

    Scaramucci Gets Respect He’s Craved by Scoring White House Post

    Billionaire George Soros Lost Nearly $1 Billion in Weeks After Trump Election

    Amazon Touts Job-Creation Plans, Patching Up Rift With Trump

    India’s Low-Cost Airline to Buy Up to 205 New Boeing Planes

    Tesla Unveils Pricing Structure for Supercharging Stations

    Drone Startup Abruptly Shuts Down Despite $34 Million in Pre-Orders

    How Takata’s Shares Reacted After Reports of a $1 Billion Faulty Airbag Settlement

    E.P.A. Accuses Fiat Chrysler of Secretly Violating Emissions Standards

    Howard Lindzon: What Could Go Wrong?

    Jeff Carter: When Stuff is Fake

    Be sure to follow me on Twitter.

  • Tech Sector Nears Its High
    Posted by on January 12th, 2017 at 12:04 pm

    The S&P 500 Tech Sector is closing in on its all-time highs set in March 2000. It only took 17 years, and we’re still not quite there yet.

    This isn’t unprecedented. The Dow didn’t take out its 1929 high for 25 years.

  • Healthcare Drops On Trump’s Remarks
    Posted by on January 12th, 2017 at 10:51 am

    Yesterday, stocks in the healthcare sector dropped lower after President-Elect Trump’s comments on healthcare reform.

    Check out the chart:

    I’m not trying to criticize Mr. Trump. Twice in less than a year, remarks by Hillary Clinton crushed biotech stocks.

    My only point is that in the soundbite/Twitter age, there are new risks to stocks.

  • Morning News: January 12, 2017
    Posted by on January 12th, 2017 at 6:24 am

    German Economic Growth at End of 2016 Probably Beat Forecasts

    Oil Holds Biggest Gain in 6 Weeks on Record U.S. Refinery Runs

    Drug Stocks Plunge as Trump Threatens to Force Price Bidding

    Dollar Slumps, Bonds Rally as Trump Bets Unwind

    Treasury Nominee Steven Mnuchin Discloses Holdings and Pledges Divestments If Confirmed

    Amazon Announces a Card That’s Almost too Good to Be True

    Facebook, Nodding to Its Role in Media, Starts a Journalism Project

    China’s Anti-Teslas: Cheap Models Drive Electric Car Boom

    VW Shareholders Call For Reforms in Wake of $4.3 Billion U.S. Deal

    India’s SpiceJet To Seal $10 Billion Deal With Boeing For 737 Jets

    JPMorgan Ordered to Pay Damages for Firing Whistle-Blower

    A Scandal at Korea’s Retirement Giant

    How Netflix Is Deepening Our Cultural Echo Chambers

    Josh Brown: The Riskalyze Report: Advisors Betting on Stronger Dollar, Rising Rates

    Cullen Roche: Passive Investors – Dumb Money or Smart Money?

    Be sure to follow me on Twitter.

  • Morning News: January 11, 2017
    Posted by on January 11th, 2017 at 7:00 am

    Venezeula’s Awful Economy Got Even Worse in 2016

    China’s Xi to Promote Globalization at Davos, Not `War and Poverty’

    Saudis Curb Oil to China, Southern Asia as Others Spared

    Supreme Court Considers Role of Free Speech in Explaining Credit Card Fees

    Trump Tax Cuts Could Jump-Start Global Economy, World Bank Says

    IRS Chief Talks Tax Season Open, Refund Delays & Trump Transition Team

    What Trump Doesn’t Know About Alibaba’s Jobs Pledge

    Walmart Cutting Hundreds of Jobs In Latest Round of Layoffs

    Valeant Sells $2.1 Billion in Assets to Ease Debt Burden

    Airbus Retains Order Lead Over Boeing With Late Sales Surge

    A Trump Tax Cut Could Add $8.2 Billion to Reynolds Price Tag

    SoftBank’s $100 Billion Investment Fund Starts to Take Shape

    Volkswagen Set to Plead Guilty and to Pay U.S. $4.3 Billion in Deal

    Roger Nusbaum: Dow 20,000! Not Yet!

    Jeff Miller: Silver Bullet Awards Part Two

    Be sure to follow me on Twitter.

  • “5 Important Economic Metrics to Know”
    Posted by on January 10th, 2017 at 2:31 pm

    At US News, Simon Constable writes on five economic metrics you should know. Here’s a sample:

    The yield curve. A good predictor of whether economy is about to enter a recession is the difference between the yields of the 2- and 10-year U.S. Treasurys.

    “When it’s gone negative – the 2-year is higher than the 10-year – that’s often been an early warning sign of a recession,” says Eddy Elfenbein, author of the Crossing Wall Street blog. “It’s been a much better forecaster than a lot of highly paid Wall Street economists.”

    The 10-year T-note is yielding 2.42 percent and the 2-year is yielding 1.21 percent. That means the current difference between the yields of the two bonds is a positive 1.21 percent. “Which means we are in the safe zone, for now,” Elfenbein says.

    I agree with myself. Note how the spread has gone negative before recessions (the gray areas).

  • Small Business Optimism Surges
    Posted by on January 10th, 2017 at 12:28 pm

    I normally don’t write about the Small Business Optimism Index, but today’s release was noteworthy because it soared. Actually, “soared” might be understanding it; it skyrocketed. Small business optimism had its biggest rise since 1980.

    Optimism among America’s small businesses soared in December by the most since 1980 as expectations about the economy’s prospects improved dramatically in the aftermath of the presidential election.

    The National Federation of Independent Business’s index jumped 7.4 points last month to 105.8, the highest since the end of 2004, from 98.4. While seven of the 10 components increased in December, 73 percent of the monthly advance was due to more upbeat views about the outlook for sales and the economy, the Washington-based group said.

    Obviously, this is a group that skews Republican. But still, that optimism is real and can translate into more spending and more jobs.

    Fifty percent of respondents, the biggest share since March 2002, said they expect better business conditions in the next six months. That was 38 percentage points higher than in November. The net share of firms projecting higher sales jumped by 20 points to 31 percent. Some 29 percent say they will boost capital outlays within six months.

    “We haven’t seen numbers like this in a long time,” Juanita Duggan, president and chief executive of the NFIB, said in a statement. “Small business is ready for a breakout, and that can only mean very good things for the U.S. economy. Business owners are feeling better about taking risks and making investments.”