• Dividends Are Hot
    Posted by on April 25th, 2016 at 12:58 pm

    big04252016

    Bloomberg notes an interesting development in the market—there’s been a rush towards safety. Since September, the Low Vol ETF (SPLV) is up more than 50%. In fact, over the last month, the SPLV has been more volatile than the rest of the market. As a result, dividend-paying stocks are going for some pretty pricey valuations.

    Whatever’s happening, it’s pushed dividend paying stocks to a record price-earnings ratio, 9.4 percent above the four-year average. The 20.4 P/E of these otherwise slow-growing companies make them look more like technology stocks, which at 19.1 times earnings are now trading at a lower valuation.

    The demand for yield stocks has been enhanced by a dovish Federal Reserve. The S&P 500 Dividends Aristocrats index has gained 7.1 percent this year and reached a record on Tuesday. The S&P 500 has posted a 2.3 percent gain over the same period. The iShares High Dividend ETF also reached its highest net asset value on Tuesday.

  • Aramco to IPO
    Posted by on April 25th, 2016 at 11:20 am

    Saudi Arabia is trying to change itself. The kingdom wants to diversify away from oil. Old habits are hard to break.

    One big step will be an IPO for Aramco. This would be, by far, the largest company in the world. One of the Saudi princes thinks the value of the company could exceed $2 trillion.

    Saudi Aramco’s sale is a key part of the “Saudi 2030 Vision” announced Monday to overhaul the economy and reduce the kingdom’s reliance on oil, he said. It will help increase transparency, he said.

    “If Saudi Aramco is listed then it must announce its statements and it will do that every quarter,” he said. “It will be under the supervision of all Saudi banks, all analysts, all Saudi thinkers. Even more all international banks and research and planning centers in the world will monitor it intensively.”

    Aramco’s crude reserves of about 260 billion barrels are almost 10 times those of Exxon Mobil Corp. Its daily production of more than 10 million barrels is more than the domestic output of every U.S. oil company combined.

    “In 2020, I think we will be able to live without oil,” Prince Mohammed said. “We will need it but we can live without it.”

  • Don’t Expect a Rate Hike this Week
    Posted by on April 25th, 2016 at 11:07 am

    This looks to be an interesting week with a Fed meeting, the first GDP report for Q1 and many more earnings reports. Express Scripts (ESRX) is due after the close.

    The futures market currently thinks there’s a 1 in 43 chance that the Fed will raise rates this week. I’d put it close to 1 in 300, but that’s me. The futures market sees the odds rising to 1 in 2 at the Fed meeting five months from now. I suspect that the futures market may need to turn a bit more hawkish.

    The next Fed meeting after this week will be just eight days before the big Brexit vote across the pond. The outlook is grim for much of Europe. Six months ago, analysts saw profits for the STOXX Europe 600 rising by 8.2% this year. That’s now down to -2.2%, and Morgan Stanley just said it will be -5%.

    The Fed has projected that it will raise rates twice this year. Interestingly, the five-year “breakeven,” meaning the difference between the five-year Treasury and the five-year TIPs, has risen to 1.56%. That’s a nine-month high.

  • Morning News: April 25, 2016
    Posted by on April 25th, 2016 at 7:20 am

    Global Stocks Drop With Oil as Glut Seen Persisting; Yen Rises

    Middle East Economies Face Oil Revenue Fall, IMF Says—Energy Journal

    German Business Sentiment Has Weakened in April

    How Argentina Settled a Billion-Dollar Debt Dispute With Hedge Funds

    How a Bestseller Helped Change the Rules of Retirement

    Gannett Offers $815 Million for Tribune Publishing

    Ball to Sell Beverage-Can Assets to Ardagh for $3.42 Billion

    Apple Results to Show How Far iPhone Sales Have Fallen

    Saudi Prince Says Aramco Valuation Seen at Above $2 Trillion

    Xerox’s Revenue Falls on Lower Printer Sales

    The Future of Coke and Pepsi Depends on This Unlikely Beverage

    Philips Slumps as Lighting IPO Looks Increasingly Likely

    Theranos’s Fate Rests With a Founder Who Answers Only To Herself

    Josh Brown: Bad Active Management Can’t Survive the Internet

    Jeff Miller: Weighing the Week Ahead: Can Stocks (finally) Set a New Record?

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  • Why Diversification Matters
    Posted by on April 23rd, 2016 at 10:15 pm

    On Friday, Microsoft (MSFT) dropped 7.17% thanks to its earnings report. Personally, I didn’t think the earnings report was that bad but I’ve learned that it’s hard to argue with a market that’s out for blood.

    MSFT04232016

    Despite the big hit from Microsoft, I was pleased to see that our Buy List slightly outperformed the market on Friday. This is a good lesson on why diversification is so important.

    Roughly speaking, MSFT was a 36-basis-point drag on the whole portfolio (7.17% divided by 20; that’s not exact but it’s good enough for our purposes).

    On Friday, the S&P 500 gained just under half a basis point so it rounds to being flat for the day while our Buy List gained 0.03%. A strong portfolio is like a well-rounded sports team — on any given day, you’ll never know who the hero will be.

  • Barron’s Likes Biogen
    Posted by on April 22nd, 2016 at 8:03 pm

    In the wake of its strong earnings report, Johanna Bennett at Barron’s notices that Biogen (BIIB) is going for a good value,

    Biogen investors have good reason to stay bullish.

    Tecfidera sales appear to have stabilized. Biogen has a major restructuring underway and has one of the most promising experimental drug pipelines in the industry.

    With the company reportedly exploring the sale of its hemophilia drug business, Biogen’s $6.8 billion cash pile could swell, spurring more acquisitions and share buybacks.

    At 15 times expected 2016 earnings, the stock has rarely been this cheap in the last five years, due partly to growth concerns.

    (…)

    While investors are scrutinizing Tecfidera sales, Biogen stock is worth buying given its attractive valuation, depressed price and the company’s appealing prospects.

    The shares are up 6.3% in the last two days.

  • CWS Market Review – April 22, 2016
    Posted by on April 22nd, 2016 at 7:08 am

    “Don’t look for the needle in the haystack. Just buy the haystack!” – John C. Bogle

    We’re in the thick of earnings season, and the market gods are happy. At least, for now. We know they’re a fickle bunch. On Wednesday, the S&P 500 broke above 2,111 for the first time in more than five months. The index isn’t that far from its all-time high set last May. In fact, the S&P 500 Total Return Index (below), which includes dividends, already made a new all-time high.

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    Right now, the market is obsessed with earnings, earnings and more earnings. Even next week’s Federal Reserve meeting will get second billing to Q1 earnings. We had six Buy List earnings reports this week, and I’m happy to say, five of the six topped Wall Street’s consensus. Our only miss was Microsoft, and it was close. Including last week’s report from Wells Fargo, we’re now six for seven this earnings season.

    Looking at some highlights, Signature Bank reported its 26th record quarter in a row. Stryker not only beat expectations but raised its full-year guidance. (I love it when that happens.) Biogen, our favorite biotech stock, topped Wall Street’s forecast by 32 cents per share and jumped 5%. Unfortunately, we had a dud with Alliance Data System. Even though ADS beat earnings, their guidance was soggy. I’ll have all the details, plus I’ll have some updated Buy Below prices for you. Now let’s run down this week’s earnings reports.

    This Week’s Buy List Earnings Reports

    On Wednesday, Signature Bank (SBNY) reported Q1 earnings of $1.97 per share. That beat Wall Street’s estimate by two cents per share. This was Signature’s 26th consecutive record quarter. Not many banks can say that. Signature made $1.64 per share in last year’s Q1.

    I tend to think of SBNY as a smaller bank, but that’s not so true anymore. Total deposits are now up to $28.11 billion. For any bank, the key metric to watch is net interest margin. For Q1, Signature’s net interest margin was 3.22%. That’s quite good.

    Signature is a well-run ship, but one trouble spot has been their taxi-medallion loan business. Uber and ride-sharing companies have radically altered the economics of this business. As a result, the price for taxi medallions has dropped by half over the last three years.

    Bear in mind that SBNY doesn’t own the medallions outright. Instead, they’ve financed the buyers, and many of those loans have gone kablooey. For Q1, Signature wrote off $4.4 million in medallion loans. Unfortunately, that’s not going to get better soon. Still, I want to put the medallion issue in proper context. It’s bad, but it’s only a small part of Signature’s overall business. Let’s remember that the bank made a cool $104 million last quarter. I have full confidence they can manage the medallion losses.

    The shares pulled back after the earnings report, but I’m not concerned at all. Signature is a solid bank, and we’re in this one for the long run. I’m keeping our Buy Below on SBNY at $144 per share.

    After Wednesday’s closing bell, Stryker (SYK) reported Q1 earnings of $1.24 per share. That beat consensus by four cents per share. Earlier this year, the orthopedic company had given Q1 guidance of $1.17 to $1.22 per share, so they’ve beaten their own numbers.

    I like Stryker, but like a lot companies, they’ve been dinged by the strong dollar. I’m glad to see that’s abated somewhat. For Q1, net sales rose by 4.9% to $2.5 billion. In constant currency, that’s an increase of 6.1%. In places like China and Brazil, Stryker’s business has been weak, but that’s more due to economic weakness in those countries.

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    The good news is that Stryker already feels confident enough to raise its full-year guidance. The company now sees full-year organic sales growing between 5.5% and 6.5%. The previous range was 5% to 6%.

    For earnings, Stryker sees full-year EPS ranging between $5.65 and $5.80. The previous range was $5.57 to $5.77. For Q2, they see earnings coming in between $1.33 and $1.38 per share. Wall Street had been expecting $1.34 per share.

    SYK has been a big hit for us this year (see chart above). It’s our #1 performer on the Buy List with a YTD gain of 17.6%. I’ve been holding off raising the Buy Below until I saw the earnings report. Well, I like what I saw. This week, I’m raising our Buy Below on Stryker to $114 per share.

    In recent issues of CWS Market Review, I’ve touted Biogen (BIIB) as an attractive buy, and I’m glad I did. On Thursday, the biotech firm reported Q1 earnings of $4.79 per share. That’s a 25% increase over last year, and it easily beat Wall Street’s consensus of $4.47 per share. Quarterly revenue rose 6.7% to $2.73 billion, which was a tad below consensus.

    The earnings were led by a 15% increase in sales of Tecfidera, their multiple-sclerosis drug. The drug was a big hit for Biogen, but it got shaken up last year when the FDA warned that it was associated with a rare brain infection.

    In the last month, shares of Biogen are up 13.5%, and that includes a nice 5.1% rally after Thursday’s earnings report. This was a solid report. I’m keeping our Buy Below on Biogen at $290 per share.

    Alliance Data Systems (ADS), the loyalty-rewards people, reported Q1 earnings of $3.84 per share. That beat Wall Street’s estimates by two cents per share.

    The problem is that ADS had weak guidance for Q2. The company sees earnings of $3.58 per share for this quarter, which is 20 cents below Wall Street’s forecast. Traders did not like that. On the plus side, ADS reiterated its full-year guidance of $16.75 in core EPS.

    So what went wrong? From the company:

    “Entering 2016, the two biggest concerns raised by stockholders focused on the likelihood of higher loss rates at Card Services and worsening economic conditions in Canada. Ironically, both were favorable during the first quarter as loss rates came in slightly better than expected (5.2 percent actual vs. 5.3 percent guidance), and Canada produced its strongest results in quite some time (4 percent revenue growth, 11 percent adjusted EBITDA growth – both in constant currency – on 5 percent issuance growth). Conversely, these positives were offset by softer-than-expected results in the agency business at Epsilon and gross-yield compression in Card Services as early-stage delinquencies improved.”

    The stock got a 7% haircut on Thursday, but ADS said they expect sales and earnings growth to accelerate later this year. I’m keeping our Buy Below at $225 per share.

    Snap-on (SNA) had a very good quarter. For Q1, the company earned $2.16 per share, which was nine cents better than Wall Street’s consensus. That’s an increase of 15.5% over last year’s Q1. Sales growth was basically flat, but again, they were hurt by the strong dollar.

    The results were mostly positive across their different sectors. I’m still targeting $9 per share in earnings for this year. This week, I’m lifting our Buy Below on Snap-on to $166 per share.

    After Thursday’s close, Microsoft (MSFT) became our first earnings miss this season. The software giant reported fiscal Q3 earnings of 62 cents per share. That was two cents below expectations. This was a tough quarter for them; adjusted revenue rose by just 1.6%.

    The earnings miss was a shocker, since the company has been executing so well lately. The shares were even sneaking up on their all-time high set in 1999.

    Sales for their Productivity and Business Processes division, which includes Microsoft Office, rose by 1%, but profits fell by 6.6%. Revenue at their cloud business rose by 3.3%, but profits for that division fell by 14%. One bright spot was Surface revenue, which jumped by 61%.

    Shares of MSFT fell more than 4% in Thursday’s after-hours market. Don’t worry too much about this one. Things are still working in Microsoft’s favor. I’m keeping our Buy Below for Microsoft at $58 per share.

    Six More Buy List Earnings Reports Next Week

    Now let’s take a look at the Buy List earnings reports for next week. On Monday, April 25, Express Scripts (ESRX) is scheduled to report their Q1 earnings. In February, they told us to expect Q1 earnings to range between $1.18 and $1.22 per share. That’s almost certainly too low. Wall Street expects $1.23 per share.

    By the way, this week, Express finally struck back at Anthem and countersued. This fight is really making the lawyers rich. Express is claiming that Anthem hasn’t negotiated in good faith and that they’re looking to rewrite the terms of their contracts. They’re right.

    On Tuesday, AFLAC (AFL) is due to report. The stock has been doing very well for us lately. This week, the duck stock broke $68 per share. I think some of this is due to the stronger Japanese yen, which got close to an 18-month high against the greenback. Wall Street expects earnings of $1.63 per share. The company has forecast 2016 earnings of $6.17 to $6.41, but that’s based on a yen at 120.99. It’s now under 110.

    Wabtec (WAB) will also report on Tuesday. The shares have rallied impressively over the last two months. I was impressed by their EPS guidance for 2016 ($4.30 to $4.50). Wall Street expects Q1 earnings of $1.00 per share.

    CR Bard (BCR) is set to report on Wednesday, April 27. This is another stock that’s done well for us this year (+9.3%). Wall Street expects earnings of $2.17 per share. Bard said they expect 2016 earnings to range between $9.90 and $10.05 per share. That’s growth of 9% to 11%.

    I’m looking forward to Ford Motor’s (F) earnings report, which is scheduled for Thursday, April 28. Wall Street didn’t like their last earnings report, but I did. It seems that many investors think the auto cycle has peaked. I’m not so sure about that. GM has already reported decent earnings for Q1. The consensus on Wall Street is for Ford to report earnings of 46 cents per share. I think they’ll beat that.

    Stericycle (SRCL) is also due to report on Thursday. This is a very good company that doesn’t make a lot of news. Last year, the medical-waste-management company earned $4.40 per share. For 2016, they said they expect $5.28 to $5.35 per share. Wall Street expects Q1 earnings of $1.16 per share. My numbers say that’s about right. Here’s the recent earnings trend from CNBC:

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    One last thing before I go. Shares of Hormel Foods (HRL) have backed off over the last month. I’m going to drop our Buy Below to $41 per share. Hormel is still a very good stock.

    That’s all for now. We have a bunch more earnings coming our way next week. There are also some key economic reports, plus a Fed meeting. On Tuesday, the durable-goods report for March comes out on Tuesday. On Wednesday afternoon, the Fed will release its latest policy statement. Don’t expect any rate increase. On Thursday, the government will release its first estimates for Q1 GDP growth. Wall Street isn’t expecting much, and they’re probably right. 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: April 22, 2016
    Posted by on April 22nd, 2016 at 7:03 am

    Uber Wil00 Million to Settle Suits With Drivers Seeking Employee Status

    Wall St. Regulators Propose Stricter Pay Rules for Bankers

    Alphabet Earnings Disappoint as Google Ad Clicks Cost Less

    Solar Developer SunEdison in Bankruptcy as Aggressive Growth Plan Unravels

    GE Tops Analysts’ Profit Estimates Amid Digital-Industrial Shift

    BOJ Officials Are Said to Eye Possible Negative Rate on Loans

    Daimler Shares Tumble on Diesel Emissions Review

    Coke Loses Fizz, Home Builder Looks Better For Dividends And Value

    Cybersecurity Firm SecureWorks Prices IPO Below Expectations

    Mitsubishi Motors Mileage Scandal Widens, U.S. Regulator Seeks Information

    Novartis Earnings Fall on Slide in Cancer-Drug Sales

    Oil Megaprojects Dreamed Up a Decade Ago Thrive Amid Price Slump

    Apple No Longer Immune to China’s Scrutiny of U.S. Tech Firms

    Jeff Miller: Expensive Misconceptions

    Roger Nusbaum: It Doesn’t Have to Be That Difficult

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  • Three Earnings Reports
    Posted by on April 21st, 2016 at 1:38 pm

    This is a busy day for earnings reports. We had three before the open and a fourth is due after the bell.

    First off, Snap-on (SNA) reported Q1 earnings of $2.16 per share. That topped Wall Street’s estimate by nine cents per share, but sales came in below expectations. I’m still targeting $9 in EPS for this year. The shares are down a bit today, but not too much.

    Biogen (BIIB) is our big winner today. The biotech firm reported Q1 earnings of $4.79 per share, which beat expectations by 32 cents. Revenues rose 6.7% to $2.73 billion which was just below expectations. The shares are up about 4% today.

    Alliance Data Systems (ADS) is again our problem child. For Q1, the company earned $3.84 per share which beat Wall Street’s estimate by two cents per share. The company had given guidance of $3.83 per share.

    The problem was guidance. For Q2, ADS sees earnings of $3.58 per share which is 20 cents below Wall Street’s forecast. Traders didn’t like that at all. The shares have been down as much as 9% today. But the company said they’re on track to earn $16.75 per share for this year.

    Microsoft’s (MSFT) earnings are due after the close. Wall Street is expecting earnings of 64 cents per share.

  • Morning News: April 21, 2016
    Posted by on April 21st, 2016 at 7:39 am

    ECB Keeps Up Unprecedented Stimulus as Draghi Assesses Impact

    The $2 Trillion Project to Get Saudi Arabia’s Economy Off Oil

    Sweden’s Central Bank Expands Bond-Buying Program

    Oil Higher as IEA Expects Biggest Non-OPEC Output Fall in 25 Years

    Verizon Profit Rises, But Misses Estimates

    Mitsubishi’s Efficiency Scandal Point to Big Competition Among Japan’s Tiny Cars

    GM Beats Estimates on Truck Sales in U.S., Break-Even in Europe

    Southwest Tops Estimates on Higher Traffic, Lower Fuel Costs

    Biogen Profit Beats on Higher Tecfidera Sales

    Novartis Profit Falls as Blockbuster Cancer Drug Sales Drop

    Travelers Profit Drops 17% on Hedge Funds, Texas Hail Storms

    Qualcomm Profit Rises 11%, Dispute With LG Resolved

    Uber Overtakes Rental Cars Among Business Travelers

    Cullen Roche: 2 Concerns About the U.S. Government’s Debt

    Howard Lindzon: Let’s Talk About Web Video…Again

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