• HEICO Earns 65 Cents per Share for Q4
    Posted by on December 13th, 2016 at 4:32 pm

    HEICO (HEI) just reported fiscal Q4 earnings of 65 cents per share. That’s up from 56 cents per share for last year’s Q4. Wall Street had been expecting 62 cents per share. This was a very good quarter and fiscal year.

    For the year, HEICO earned $2.29 per share. In their Q3 report, HEICO said they forecast net income to rise by 13% to 15%. Since they made $1.97 per share last year, that works out to a range of $2.23 to $2.27 per share. As it turns out, their net income increased 17% this year to a record $156.2 million, or $2.29 per share.

    For the year, net sales rose 16% to $1.3763 billion. Impressively, their operating margin was 19.3% both this year and last year.

    Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company’s full fiscal year and fourth quarter results stating, “Our record full year and fourth quarter of fiscal 2016 results in consolidated net sales, operating income and net income reflect the impact of our profitable fiscal 2016 and 2015 acquisitions, as well as continued increased demand for the majority of HEICO’s products.

    Cash flow provided by operating activities was very strong, increasing 44% to a record $249.2 million in the fiscal year ended October 31, 2016, representing 160% of net income, as compared to $172.9 million in the fiscal year ended October 31, 2015.

    Our net debt to shareholders’ equity ratio was 39.6% as of October 31, 2016, with net debt (total debt less cash and cash equivalents) of $415.3 million principally incurred to fund acquisitions in fiscal 2016 and 2015. We have no significant debt maturities until fiscal 2019 and plan to utilize our financial flexibility to aggressively pursue high quality acquisition opportunities to accelerate growth and maximize shareholder returns.

    As I mentioned earlier, HEICO announced a 13% dividend increase. The company also said they’re looking forward to a stock split next year.

    Considering the impact of cash dividends, prior stock splits and stock dividends, one share of HEI worth $8.38 in 1990 has become worth on a combined basis approximately $1,417, representing an increase of approximately 169 times the 1990 value and a compound annual growth rate of approximately 22%.

    Not bad.

    For 2017, HEICO sees net sales growth of 5% to 7%, and net income growth of 7% to 10%. That works out to an EPS range of $2.45 to $2.52. Wall Street had been expecting $2.53 per share.

  • The S&P 100 Breaks 1,000
    Posted by on December 13th, 2016 at 11:25 am

    While most eyes are on the Dow approaching 20,000, there’s another milestone we just had. For the first time ever, the S&P 100 broke 1,000 today.

    The S&P 100 is the top 100 stocks in the S&P 500. Despite its small sample size, the S&P 100 is a pretty decent index. The market cap of the S&P 100 is about 62% of the S&P 500.

    sc12132016d

    One of the least understood points about the public markets is how disproportionate it is. The largest stocks are vastly larger than most other stocks. You can buy hundreds of small-cap stocks and their combined value would still be smaller than only a few mega-caps.

  • HEICO Raises Dividend
    Posted by on December 13th, 2016 at 10:17 am

    HEICO is due to report its earnings later today, but this morning, the company went ahead and announced a dividend increase. HEI is raising its semi-annual dividend from eight to nine cents per share.

    The company also said they’re considering a stock split early next year.

  • Predicting Dow 20,000
    Posted by on December 13th, 2016 at 8:48 am

    I’m not one for making big market calls, but I got this one pretty close. This is from my CNBC appearance on July 12. Yesterday, the Dow got as high as 19,824.59. On July 12, it was at 18,372.12.

    Brian: With the Dow hitting an all-time high on Tuesday, could Dow 20,000 be far ahead? And if so, what stocks might lead us there? Welcome to Trading Nation. I’m Brian Sullivan. Eddy Elfenbein of the “Crossing Wall Street” blog and Jonathan Krinsky of MKM Partners are with us.

    Brian: You know, Eddy, ok…listen…we’re hitting a new high but 20,000 is still a long way away. I’m sure at some point in our lifetimes, hopefully, we will hit it. When do you think that might be?

    Eddy: I think there is a very good chance it could happen before the end of this year.

    Brian: This year?!

    Eddy: Yeah, I think it’s very possible. You know, investing at the all-time high. Believe it or not, that’s a good trade. Historically, if you take the day after an all-time high and just squeeze all those together, it’s an 18% annualized gain. On top of that, the volatility is much, much lower. Plus, if you look at the Dow right now, 13 of the Dow stocks yield more than 3%. That’s two years’ work out of the 10-year bond right now.

    Brian: You’re asking for…your new name, by the way, is Eddy Elfenbull…but another 18%? You’re asking for a lot, Eddy.

    Eddy: I think it can be done. Particularly with the Dow, of course it’s price-weighting…a lot of those high-priced names, particularly in the financial sector, like Goldman, like JP Morgan — they look pretty good here. (Note: Since then, Goldman is up 51%. JPM is up 34%.) Also, in the tech sector, a lot of those names like IBM and Microsoft? The valuation — I think it’s pretty favorable.

    Brian: Yeah, it’s actually about 10.5% so we’re being a little hyperbolistic there, but 10.5% is doable. There have been many years when we’ve done better than that, although we are halfway through the year. Jonathan Krinsky…

  • Morning News: December 13, 2016
    Posted by on December 13th, 2016 at 7:08 am

    OPEC Deal to Create Oil-Supply Deficit Next Half, IEA Says

    Oil Prices Near One-Year High

    U.K. Inflation Accelerates to Highest in More Than Two Years

    Rex Tillerson, Exxon C.E.O., Chosen as Secretary of State

    Trump Says No Deals While in Office; Sons Will Run Company

    Tweeter-in-Chief Trump Faces Test After Yellen’s Rate Decision

    When Trump Meets Tech Leaders, Jobs Will Be on the Agenda

    Trump Attack on Lockheed Martin Foreshadows War on Defense Industry

    Asahi to Pay $7.8 Billion for AB InBev Beer Brands in Eastern Europe

    Viacom’s New CEO Pursues Turnaround With CBS Out of the Picture

    Silicon Valley VCs Are Growing Wary of On-Demand Delivery

    UniCredit to Cut 14,000 Jobs and Raise Nearly $14 Billion in Overhaul

    Accusations of Fraud at Wells Fargo Spread to Sham Insurance Policies

    Roger Nusbaum: 2016: Not Going Out Quietly

    Josh Brown: ESG Links: Allocating with Purpose

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  • Stocks Divided by Bonds
    Posted by on December 12th, 2016 at 12:06 pm

    The big story hasn’t been rising stocks; it’s been rising stocks along with cratering bonds.

    Here’s a simple chart to see it — stocks divided by bonds (SPY/TLT). If you look really hard, you can almost make out a major shift starting about a month ago.

    sc12122016b

  • The 10-Year Breaks 2.5%
    Posted by on December 12th, 2016 at 11:50 am

    Today is shaping up to be an interesting day of trading. The 10-year bond topped 2.5% for the first time in more than two years. Bear in mind that in July, the 10-year yield dipped to a low of 1.34%. The yield has nearly doubled in just a few months.

    big12122016

    The Dow now has a real shot of hitting 20,000 before the end of the year. The index has been as high as 19,824 today. Of course, the equally weighted Dow is a rather poor index, but it still gets a lot of attention.

    On our Buy List, HEICO (HEI) is due to report earnings tomorrow. The stock is down a bit today.

    Oil is doing very well today. Crude touched its highest level in 17 months thanks to the Saudis saying they’ll cut production more than originally announced.

    Of course we have the Fed meeting this week. The futures market thinks there’s a 100% chance of a rate hike. That’s pretty high. I think traders are already looking past 2016 and into 2017 when the next hike will come. For now, June seems to be the consensus.

  • Morning News: December 12, 2016
    Posted by on December 12th, 2016 at 7:04 am

    China Stocks Drop as Insurers Face Crackdown

    Deepest Oil Cuts in World’s Top Market Didn’t Need OPEC Deal

    Venezuela Pulls Highest-Value Banknote ‘To Strike Against Mafia’

    Pre-FOMC Recap

    Top Tech Leaders To Meet With Trump

    Boeing Seals Nearly $17 Billion Iran Deal

    UniCredit Seals $4 Billion Sale of Asset Manager Pioneer to Amundi

    Lonza Says in Talks To Buy Capsugel; Deal Could Top $5 Billion

    Japan’s Honda Ties Up With Ride-Hailing Service Grab

    How the Twinkie Made the Superrich Even Richer

    Google Effect Rubs Off on Schools in One Rural Oklahoma Town

    Plunging Cocoa Prices Mean You Can Splurge on Christmas Chocolate

    ‘3, 2, 1, Boom’ — Silver-Fixing Allegations in a Dozen Chats

    Jeff Miller: Weighing the Week Ahead: Dow 20K?

    Jeff Carter: Should You Pay to Incentivize Innovation?

    Be sure to follow me on Twitter.

  • CWS Market Review – December 9, 2016
    Posted by on December 9th, 2016 at 7:08 am

    “Investment success does not require glamour stocks or bull markets.” – John Neff

    The Trump Rally keeps on trumping. Since Election Day, the Dow has set 13 new highs. Remarkably, just one stock—Goldman Sachs—is responsible for 31.2% of the Dow’s entire advance.

    Remember how the start of 2016 was one of the worst market starts in Wall Street history? Howard Silverblatt noted this stat: At the market’s February low, the S&P 500 was down 10.5% YTD, yet the Financials were down 17.7%. Since then, the S&P 500 has rallied 21.5%, while the Financials are up 45.6%. It’s as if the entire market were the dog being wagged by the banking sector’s tail.

    big12092016

    I’ve been pleased to see the Trump Rally broaden out recently. On Wednesday, one-quarter of the stocks in the S&P 500 closed at a new 52-week high. That’s the most in two years.

    In this week’s CWS Market Review, we’ll take a look at the recent jobs report, plus we’ll preview next week’s Federal Reserve meeting. For the second time in a decade, the Fed looks set to raise interest rates. I’ll also preview the upcoming earnings report from HEICO. This quiet stock is now a 50% winner for us this year. We also got a nice 12% dividend increase from Stryker. The stock has increased its dividend every year for more than 20 years. But first, let’s see if the Fed has plans to kill the Trump Rally.

    The Federal Reserve Will Finally Raise Interest Rates

    Last Friday, the government reported that the U.S. economy created 178,000 net new jobs for the month of November. I try to take the government stats with a very big grain of salt. Instead, I prefer to zero in on the overall trend, which, as it turns out, has been very close to 178,000 new jobs each month.

    The unemployment rate dropped down to 4.6%, which is the lowest in nine years. The workforce participation rate is still too low, and I’d like to see that come up some. Still, the overall trend has been slow improvement in the labor market.

    fredgraph12092016c

    All this sets us up for next week’s two-day meeting of the Federal Open Market Committee. I’m afraid I’m going to ruin the suspense for you—the Fed’s going to raise rates. This will be the second December in a row in which the Fed has hiked interest rates.

    So will the Fed’s move be a rally killer? Not at all. For one, interest rates are still very low. As low as they are, they’re actually positive, which we can’t say for much of the world. Even after the rate increase, the Fed funds rate will be below the rate of inflation. To be blunt, this is less a rate increase than it is fine tuning from the Fed.

    To be sure, the Fed usually kills rallies in their sleep, but that would require a lot more action than what we’re seeing. Interest rates would have to be 2% or 3% more than inflation. That’s hardly a fear at the moment.

    It also appears that the economy is gaining a little momentum. Q3 was pretty good for the economy, and the earnings recession ended for Corporate America. This week, we learned that the ISM Non-Manufacturing Index rose to 57.2 for November. That’s very good.

    The market this year has been very difficult for a lot of Wall Street bigwigs. The Financial Times notes that more hedge funds will shut down this year than in any year since 2008. This market has thrown us a couple false starts, quiet reversals and head fakes.

    For example, stocks are becoming much more correlated with each other. In previous years, when the S&P 500 rose, say, 1%, you could pretty much guess that most stocks would be near 1%. Now that’s not so true. In fact, even the Dow and S&P 500 have parted ways. Since the Dow is loaded with more heavy-industry industrial stocks, it’s enjoyed the Trump Rally far more than the broader S&P 500.

    This has been a great time for U.S. stocks. Since Donald Trump got elected, about $2 trillion has rotated out of bonds and into stocks. On Thursday, the S&P 500 set another record closing high of 2,246.19. At some point, this surge will come to a halt, but don’t try to guess when. For now, we should enjoy the ride. Our Buy List stocks are doing very well. Now let’s take a look at the smallest stock on our Buy List, which just so happened to close Thursday at a fresh 52-week high.

    Earnings Preview for HEICO

    Who would have guess that little HEICO (HEI) would turn out to be our top-performing stock this year? Through Thursday’s close, shares of HEI have gained more than 50% this year.

    If you’re not familiar with HEICO, the company makes replacement parts for the aircraft industry. They’ve raised their earnings guidance three times this year.

    big12092016a

    HEICO is due to report their Q4 earnings next Tuesday, December 13, after the closing bell. Earnings for the first three quarters of this year are up 18%, while sales are up 19%. The company only provides guidance for net income, instead of EPS. In the Q3 earnings report, they said they forecast net income to rise by 13% to 15%.

    Let’s bust out some math. Last year, HEICO earned $1.97 per share. That means an increase of 13% to 15% works out to a range of $2.23 to $2.27 per share. However, HEICO’s shares outstanding are 0.4% higher this year, so that will dilute that range by about one penny per share. Since the company has already made $1.64 per share so far this year, we can expect 58 to 62 cents per share for Q4. Wall Street’s consensus is for 62 cents per share.

    The stock is currently well above our $76 Buy Below price, but I want to hold off increasing that price until we see the Q4 earnings report. I like HEICO a lot.

    Stryker Raises Dividend by 12%

    We got very good news this week from Stryker (SYK). The orthopedic company announced a 12% dividend increase. Stryker’s quarterly payout will rise from 38 cents to 42.5 cents per share. The company has increased its dividend every year since 1993.

    “Our 12% increase in the dividend for 2017 reflects the strength of our balance sheet and our consistent capital-allocation approach, which uses acquisitions, dividends and share repurchases to drive shareholder value,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “Our continued strong performance should enable us to continue to drive future dividend increases roughly at or above our earnings growth.”

    The annualized dividend is $1.70 per share, which comes to 1.5% based on Thursday’s closing price. The dividend is payable on January 31, 2017 to shareholders of record at the close of business on December 30, 2016. Stryker remains a buy up to $119 per share.

    Express Scripts Drops on Short-Seller’s Tweet

    I’ve been getting more impressed with Express Scripts (ESRX), although the stock hasn’t done particularly well this year. ESRX was starting to recover until Thursday, when a prominent short-seller dinged the stock with a pair of tweets.

    On Thursday afternoon, Andrew Left of Citron Research had two tweets:

    I’m not sure if the president-elect read Left’s tweets, but enough traders did. The stock reacted immediately. Within minutes, shares of ESRX fell from $74 to about $68. The stock recovered a bit later in the day and closed at $70.75.

    I’m always a bit reluctant to comment on other people’s research. I still like Express a lot and see no reason to worry. The problem is that drug companies are pushing back against the flap about high drug prices by shifting the blame to companies like Express Scripts. It might be good PR, but it’s bad economics.

    From the last earnings report, Express said they expect full-year earnings of $6.36 to $6.42 per share. That means the stock is currently going for about 11 times earnings. That’s quite cheap.

    Three New Buy Below Prices

    Thanks to the post-election rally, a few of our stocks have jumped well above their Buy Below prices. I suppose that’s a good problem to have. I wanted to adjust a few of our Buy Belows before the end of the year. In this week’s issue, I’m raising our Buy Below on Alliance Data Systems (ADS) to $250 per share. The stock has rallied impressively over the last month.

    Another big winner recently has been Snap-on (SNA). SNA had a great earnings report in October. The stock has rallied more than 18% in the last two months. This week, I’m raising our Buy Below on Snap-on to $181 per share.

    But Signature Bank (SBNY) has been our biggest winner lately. The stock is up close to 40% from its September low. After the October earnings report, I lowered our Buy Below on SBNY to $125 per share. The stock quickly blew past that, so three weeks ago, I raised the Buy Below to $150. SBNY is still climbing, so now I’m raising our Buy Below to $165 per share.

    That’s all for now. A reminder that I’ll unveil the 2017 Buy List in the CWS Market Review two weeks from today. Next year’s Buy List will be expanded to 25 names. The big news next week will be the Federal Reserve’s meeting on Tuesday and Wednesday. The Fed will almost certainly raise interest rates for just the second time in the last decade. I suspect that the Fed will lean towards doing very little over the first six months of 2017. 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: December 9, 2016
    Posted by on December 9th, 2016 at 6:55 am

    OPEC Oil Deal Faces Test as Cartel Tries to Pin Down Russia on Details of Cuts

    ECB Extends But Scales Back Stimulus, Whipsawing Markets

    Macau Denies ATM Limit Cut After Report Roils Casino Stocks

    Japan Nearly Doubles Fukushima Disaster-Related Cost to $188 Billion

    Transportation Department Weighs Allowing Phone Calls During Flights

    Trump And His Commerce Secretary Wilbur Ross: A Look At 25 Years Of Connections

    Donald Trump Chooses Fast-Food CEO To Be His Labor Secretary

    S.E.C.’s Top Enforcer to Depart at Year-End

    Congress Moves to Curb Ticket Scalping, Banning Bots Used Online

    With LinkedIn, Microsoft Looks to Avoid Past Acquisition Busts

    Glencore Rosneft Deal Reopens Battle for Russian Commodities

    Aixtron Considers Partial Sell-Off After Chinese Deal Blocked

    Sears Death Watch Update: Is It Time To Prepare An Obit For Our Least-Essential Department Store?

    Roger Nusbaum: Active and Passive

    Jeff Miller: Stock Exchange: How to Maximize Gains

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