CWS Market Review – October 23, 2015
Posted by Eddy Elfenbein on October 23rd, 2015 at 7:08 am

“Investing without research is like playing stud poker and never looking at the cards.” – Peter Lynch

We’re in the thick of earnings season, and so far, it’s been very good for our Buy List. Last week, Wells Fargo (WFC) started us off with a solid earnings beat. This week, we got strong results from several more Buy List favorites including Microsoft (MSFT), Stryker (SYK), CR Bard (BCR) and eBay (EBAY). You can check out the complete calendar of our earnings reports.

In Thursday’s trading, shares of eBay shot up nearly 14%. Not a bad gain for one day! In Thursday’s after-hours trading, Microsoft was up more than 7.7%. If that holds up into Friday, the software giant won’t merely be at a 52-week high; it will be at a 15-year high. Can you believe that less than two months ago, MSFT was below $40 per share? We really need to thank those panicky day traders.

In this week’s CWS Market Review, I’ll run through our latest earnings reports. We’re not done yet. There are seven more reports coming our way this week. I’ll preview them for you in just a bit. Plus, I have some new Buy Below prices for you. But first, let’s look at the market’s recent upswing.

The S&P 500 Nears Its 200-DMA

Earlier this month, I sounded our “All Clear” signal—that’s when the VIX closed below 20. Since then, the stock market has climbed steadily higher, while the VIX has fallen even lower. The market has massively chilled out. On Thursday, the VIX closed at 14.45. In other words, it’s been cut in half in less than one month.

On August 24, I sent you a special newsletter urging you not to get swept up in the fear hitting Wall Street. I wrote, “Don’t panic. Don’t sell. Take a step back and don’t get caught up in this mess. The volatility will pass.” It certainly has. The market’s up more than 8% since then.

On Thursday, the S&P 500 closed at 2052.51, which is a two-month high. The stock market has now made back everything it lost in the two-day plunge from August 21 to August 24. Wall Street got a nice boost this week when Mario Draghi signaled that the ECB could take on another big stimulus package. Interest rates there are already negative, and that’s part of the reason why the dollar’s been so strong.

I’m also happy to see that the S&P 500 is nearing its 200-day moving average (the gold line in the chart above) which is an important sentiment indicator. The 200-DMA is currently at 2,060.04, so there’s a very good chance we’ll top it soon. You may recall that until this summer, the S&P 500 had stayed above its 200-DMA nearly every day for 30 straight months.

Right now, Wall Street is focused on earnings. Some stocks, like Amazon (AMZN) and Alphabet (GOOGL), have surged on strong numbers. So far this earnings season, 74% of companies have topped their earnings expectations, while 44% have beaten their sales expectations. Of course, earnings expectations had been pared back as earnings season approached. At the current rate, the S&P 500 is tracking an earnings decline of 6.7%, but earnings growth should tick positive for Q4.

Now let’s look at our earnings results, starting with one of my favorite banks.

Signature Bank Is a Buy up to $150 per Share

On Tuesday, Signature Bank (SBNY) reported Q3 earnings of $1.88 per share which was six cents better than estimates. That’s a big increase from the $1.52 per share Signature made in last year’s Q3. In the last year, total deposits are up 25%. Signature has now delivered 24 record quarters in a row! Not many banks can say that.

“Once again, Signature Bank delivered another quarter of record-setting performance as exemplified by both record deposit and loan growth as well as record earnings. The Bank’s disciplined approach to client-centric banking allows us to continue to flourish while meeting the rigors of the unprecedented current regulatory environment,” said Joseph J. DePaolo, President and Chief Executive Officer.

Signature prefers to stay out of the spotlight. I like that. For Q3, their net interest margin was 3.22%. That’s very good. Their efficiency ratio is 33.4%, which is amazingly good.

The shares ran to $155 by July before dropping to $127 last month. In September, I dropped my Buy Below price by $17 to $139 per share. It took a little patience, but SBNY is rallying again. This week, I’m raising my Buy Below on Signature Bank to $150 per share. I’ll keep my summary brief: this is a great bank.

eBay Soars 14% on Earnings Beat and Higher Guidance

eBay (EBAY) stunned Wall Street (and me) by reporting very good Q3 results. This was the first earnings report without PayPal, and it was feared that their results would be lackluster. Expectations were for 40 cents per share. Instead, eBay reported earnings of 43 cents per share.

Last quarter, the online auction house added two million active users to reach a total of 159 million. These numbers shouldn’t mask the fact that eBay’s business is under a lot of pressure from many different directions. Quarterly revenues were down 2%, and profits were off by 25%. People were expecting worse.

The good news is that eBay raised its full-year forecast to a range of $1.80 to $1.82 per share from the previous range of $1.72 to $1.77 per share. The stock rocketed higher on Thursday by $3.37 per share, or 13.9%, to close at $27.58.

As pleased as I am with this latest surge, I’ve been disappointed with eBay’s performance. I have to admit that it may not make it onto next year’s Buy List. I’m keeping our Buy Below on eBay at $28 per share.

Five Buy List Earnings Reports on Thursday

Thursday was the big day for us. We had five Buy List earnings reports. Before the bell, Snap-on (SNA) reported Q3 earnings of $1.98 per share which was four cents better than estimates. Sales rose 1.9% to $821.5 million.

“We believe our third-quarter results continue to confirm Snap-on’s capabilities in serving serious professionals performing critical tasks in workplaces of consequence around the world,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “These results, which include 7.3% organic sales growth and a 12.5% increase in diluted earnings per share, demonstrate continued progress along our defined runways for coherent growth while overcoming headwinds in certain end markets and geographies. The 130-basis-point improvement in operating margin before financial services also reflects contributions from our Snap-on Value Creation Processes, which drive ongoing improvements in safety, quality, customer connection, innovation and rapid continuous improvement.”

This was a solid quarter for Snap-on. The shares rose 2.5% on Thursday to $164.11. Snap-on remains a buy up to $169 per share.

Also that morning, we got our first earnings dud which was from Wabtec (WAB). The company reported Q3 earnings of $1.02 per share which was two cents below estimates. To be fair, the company got dinged by five cents due to currency and by another two cents due to acquisition costs. Revenue rose 1.5% to $809.5 million which missed estimates of $846.35 million.

For the full-year, Wabtec sees earnings of $4.10 per share (which implies Q4 earnings of $1.05 per share). That’s slightly below consensus of $4.13 per share. Wabtec also sees full-year revenue growth of 9%, which comes to $3.32 billion. That was below consensus of $3.37 billion.

WAB got slammed hard at Thursday’s open. At one point, the stock was off by 10%. I don’t believe the results were that bad. Fortunately, the shares recovered a little lost ground, and by the end of the end day, WAB closed at $83.74 for a loss of 5.4%. This week, I’m lowering my Buy Below on Wabtec to $90 per share.

After the closing bell, Microsoft (MSFT) reported fiscal Q1 earnings of 67 cents per share. That beat Wall Street’s estimates of 59 cents per share. The story here is that Microsoft is having success with its cloud business. Satya Nadella, the CEO, said that MSFT’s cloud business is on track to pull in $8.2 billion this year.

Microsoft is the midst of an impressive corporate turnaround. They’ve had to let a lot of people go, and there are probably more layoffs to come. The company also re-organized itself into three operating divisions in an effort to emphasize its mobile and cloud businesses. That was a smart move.

Microsoft didn’t give EPS guidance for the December quarter, but the company said revenues should range between $24.8 billion and $25.4 billion. I estimate that should work out to about 75 cents per share. Last month, I told you that MSFT looked especially good when it was below $44 per share. Now it looks to open today over $51 per share. Remember that they boosted their dividend by 16% last month. I’m raising my Buy Below on Microsoft to $53 per share.

CR Bard (BCR) reported Q3 earnings of $2.28 per share. That was five cents better than Wall Street’s estimate. That was also more than the range Bard had given us of $2.21 to $2.25 per share.

There’s really not much to say about Bard. They just make money. This medical-devices company is as good as they get. The company has increased its dividend every year since 1972. For Q4, Bard expects earnings between $2.38 and $2.42 per share. That means full-year earnings between $9.03 and $9.07 per share. I currently rate CR Bard a buy up to $204 per share.

Lastly, Stryker (SYK) reported Q3 earnings of $1.25 per share which was two cents better than estimates. They also raised the low-end of their full-year guidance by one penny per share. They now see 2015 earnings coming in between $5.07 and $5.12 per share. In January, Stryker’s initial guidance was $4.90 to $5.10 per share. I said they should have no problem topping $5 per share this year. I think it’s possible they could do a major deal soon. Stryker is a buy up to $101 per share.

Seven Buy List Earnings Reports Next Week

Next week is going to be another busy week for earnings. On Tuesday, four Buy List stocks are due to report: AFLAC (AFL), Express Scripts (ESRX), Fiserv (FISV) and Ford Motor (F). I’m particularly curious to hear what Ford has to say. I feel like I’ve been a lonely voice saying that Ford is doing well. Only lately have the shares started to reflect that. Wall Street expects Ford to report earnings of 47 cents per share which is nearly double last year’s third quarter. I’ll probably raise our Buy Below next week, but I want to see the results first.

In July, AFLAC told us to expect Q3 earnings between $1.40 and $1.53 per share. That sounds about right. Business is going well. The problem is that the strong dollar pinches their profits. I’ll be curious to hear if AFLAC offers any guidance for 2016.

Then on Wednesday, PayPal (PYPL) will release its first earnings report as an independent company. Wall Street expects earnings of 29 cents per share. I expect an earnings beat here.

Ball Corp. (BLL) is due to report on Thursday, October 29. Ball is an impressive company, but I haven’t liked their recent earnings reports. I want to see clear signs of improvement here. I’d also like to hear an update on their merger with Rexam. The consensus is for earnings of 95 cents per share.

Moog (MOG-A) hasn’t officially said when they’ll report but I suspect it will be on Friday, October 30. That’s usually about when the numbers come out. Moog has had a terrible year this year. They lowered their full-year guidance three times. But recently, the company gave an upbeat forecast for next year.

That’s all for now. More earnings to come next week. The Federal Reserve meets again on October 28. Don’t expect a rate increase. On Tuesday, the Census Bureau reports on durable-goods orders for September. The big econ report will come on Thursday when the government releases its first estimate for Q3 GDP growth. We had a good number for Q2 (3.9%), but it’s been hard for the economy to string together more than two good quarters in a row. 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: October 23, 2015
Posted by Eddy Elfenbein on October 23rd, 2015 at 7:05 am

Global Stocks Hit Tow-Month High on Dovish Draghi Message

Weak Japan Inflation, Output Data to Cast Cloud Over BOJ Meeting

Oil Heads for Second Weekly Drop as Stockpiles Exacerbate Glut

Are We Tight Yet? The Fed’s Problem in Finding the Neutral Rate

Senate Panel Is Chilly to Puerto Rico’s Pleas and Obama’s Aid Plan

The IRS Freezes Most Retirement Plan Contribution Limits

Existing U.S. Home Sales Rise to Second-Highest Since 2007

Amazon Sales Top Estimates on Prime Day Event, Cloud-Computing

Australia Flags Concerns on $35 Billion Halliburton Bid for Baker Hughes

American Airlines Profit Jumps, Beats Expectations

Ericsson Q3 Operating Profit Lags Forecasts at $604 Million as China Sales Slow

Skechers’ Shares Plunge on Disappointing Sales

SAC Capital’s Steinberg Gets Insider-Trading Charges Dropped

Jeff Carter: Have Faith in Markets

Roger Nusbaum: Yieldco or Yieldno?

Be sure to follow me on Twitter.

Earnings from Snap-on and Wabtec
Posted by Eddy Elfenbein on October 22nd, 2015 at 12:01 pm

The S&P 500 is up to a new two-month high today. The index has now recouped everything it lost from the August 21 to 24 plunge. This morning, we’ve been as high as 2,046.42.

Thanks to its surprising earnings report, eBay (EBAY) is having a very good day. The shares are currently up close to 13%.

We have five earnings reports today, and two of them were this morning. Snap-on (SNA) reported Q3 earnings of $1.98 per share which was four cents better than estimates.

“We believe our third quarter results continue to confirm Snap-on’s capabilities in serving serious professionals performing critical tasks in workplaces of consequence around the world,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “These results, which include 7.3% organic sales growth and a 12.5% increase in diluted earnings per share, demonstrate continued progress along our defined runways for coherent growth while overcoming headwinds in certain end markets and geographies. The 130 basis point improvement in operating margin before financial services also reflects contributions from our Snap-on Value Creation Processes, which drive ongoing improvements in safety, quality, customer connection, innovation and rapid continuous improvement.

This was a solid quarter. The stock is currently up 2.5% today.

Our big loser today is Wabtec (WAB). The company reported Q3 earnings of $1.02 per share. Wall Street had been looking for $1.04 per share. Revenues rose 1.5% to $809.5 million, which missed estimates of $846.35 million.

For the full-year, Wabtec sees earnings of $4.10 per share (which implies Q4 earnings of $1.05 per share). That’s below the consensus of $4.13 per share. Wabtec also sees full-year revenue growth of 9% which comes to $3.32 billion. That’s below the consensus of $3.37 billion.

The stock gapped downward sharply at the open. At one point, WAB was down 10% on the day. It’s coming back some and is currently down 4%.

Morning News: October 22, 2015
Posted by Eddy Elfenbein on October 22nd, 2015 at 7:16 am

European Central Bank Keeps Interest Rates Unchanged

German Bond Yields Are Higher Now Than Before ECB Announced QE

China Plans 2020 Deadline for Dismantling Capital

Bitcoin Currency Trades ‘Should Be Exempt From VAT’

Apple To Raise China Solar Investment Fivefold with Climate Bid

Microsoft’s Rule-Breaking Vision of a Future With Countless Devices

Dow Chemical Makes Moves to Revamp Business

Eli Lilly’s 3Q Profit Beats Street Estimates as Costs Fall

Dunkin’ Brands Results Top Views Despite U.S. Weakness

EBay’s Profit Beat Shows There’s Life After PayPal

Daimler Expects Strong Earnings Growth This Year After Robust Third Quarter

Lego Forecasts Christmas Shortage, and Everything Is Panic

Raytheon Boosts Sales Forecast With Gain From Patriot Missiles

Joshua Brown: Biff Could’ve Just Bought Stocks

Howard Lindzon: Stocktoberfest 2015…Man on The Street

Be sure to follow me on Twitter.

eBay Earns 43 Cents per Share
Posted by Eddy Elfenbein on October 21st, 2015 at 4:18 pm

No one was expecting much from eBay (EBAY) but the online auction house earned 43 cents per share for Q3 compared with the Street’s consensus of 40 cents per share. This is their first earnings report without PayPal.

eBay Inc., a global commerce leader, today reported that gross merchandise volume (GMV) for the quarter ended September 30, 2015, increased 6% on a foreign exchange (FX) neutral basis, in-line with the prior quarter. Revenue for the quarter was $2.1 billion, driving non-GAAP net income from continuing operations of $529 million or $0.43 per diluted share, and GAAP net income from continuing operations of $545 million, or $0.45 per diluted share. The company repurchased $599 million of its common stock in the quarter, underscoring management’s confidence in the long-term value of the business.

“We drove solid results in the quarter in which we completed a complex separation,” said eBay Inc. President and CEO Devin Wenig. “We also marked eBay’s 20th anniversary and made progress on executing our strategy to reposition the company to deliver stable and profitable long-term growth.”

eBay Inc.’s commerce platforms continued to increase the role they play in global commerce, with an Active Buyer base that grew 5% year over year, to 159 million. GMV in the quarter was $19.6 billion, a 6% increase on an FX-Neutral basis and a 2% decline on an as-reported basis, reflecting the continued impact of a strong U.S. dollar. In the U.S., GMV grew 3%, a one point acceleration versus the prior quarter, and International GMV increased 7% on an FX-Neutral basis, while it was down 5% on an as-reported basis. Total revenue in the quarter of $2.1 billion was up 5% on an FX-Neutral basis and down 2% on an as-reported basis.

For Q4, eBay expects revenues “between $2,275 million to $2,325 million, representing FX-Neutral growth of 3% – 5%.” They see Q4 earnings ranging between 47 and 49 cents per share. For the entire year, eBay sees currency neutral revenue growth of 3% to 5%, and earnings ranging between $1.80 and $1.82 per share.

The shares have been up as much as 10% after hours.

The Dollar’s Impact on Your Investments
Posted by Eddy Elfenbein on October 21st, 2015 at 1:55 pm

Simon Constable has an article at U.S. News & World Report on the dollar’s impact on the stock market.

The greenback is looking strong, but there’s no reason to believe that it can’t get even stronger. If it does, then it will have an impact on your investments. Here’s why it matters and some key things you need to know.

“It’s the kind of thing that Americans don’t think about much unless they travel overseas,” says Eddy Elfenbein, a Washington, D.C.-based private investor and author of the influential Crossing Wall Street blog. But when the dollar is strong, it does change the way various types of investments perform. “It’s like putting a magnet near a compass,” he says.

Read the whole thing.

Morning News: October 21, 2015
Posted by Eddy Elfenbein on October 21st, 2015 at 7:09 am

Saudis Risk Draining Financial Assets in 5 Years, IMF Says

Japan’s Export Growth Slows as China Stumbles

Netherlands and Luxembourg Ordered to Recover Taxes From Starbucks and Fiat

Demand for Rental Apartments Boosts U.S. Housing Starts

Credit Suisse to Launch $6.3 Billion Capital Increase

Fiat Chrysler Shares Ease After Ferrari IPO Priced

Michael Dell Dishes on Meg Whitman, the PC Biz and on EMC

Lam to Buy KLA-Tencor in $10.6 Billion Chip Machinery Deal

Chipotle Profit Misses, as Sales Growth Slows

Uber CEO Says Public Offering `Years Away’ as Company Matures

Intel to Convert Processor Chip Factory in China to Make Memory Chips

Consumer Reports Stops Recommending the Tesla

The 401(k) Crisis Is Getting Worse

Cullen Roche: Creating Demand Out Of Thin Air

Jeff Carter: The Reason The Fed Needs to Move Interest Rates Higher Now

Be sure to follow me on Twitter.

Signature Bank Beats Earnings
Posted by Eddy Elfenbein on October 20th, 2015 at 11:36 am

This morning, Signature Bank (SBNY) reported Q3 earnings of $1.88 per share which was six cents better than estimates.

Signature Bank (Nasdaq: SBNY), a New York-based full-service commercial bank, today announced results for its third quarter ended September 30, 2015. Net income for the 2015 third quarter reached a record $96.2 million, or $1.88 diluted earnings per share, versus $76.8 million, or $1.52 diluted earnings per share, for the 2014 third quarter. The record net income for the 2015 third quarter, versus the comparable quarter last year, is primarily due to an increase in net interest income, fueled by record deposit growth and record loan growth. These factors were partially offset by an increase in non-interest expenses.

Net interest income for the 2015 third quarter reached $250.0 million, up $44.7 million, or 21.8 percent, when compared with the 2014 third quarter. This increase is primarily due to growth in average interest-earning assets. Total assets reached $31.92 billion at September 30, 2015, an increase of $5.97 billion, or 23.0 percent, from $25.95 billion at September 30, 2014. Average assets for the 2015 third quarter reached $31.19 billion, an increase of $5.82 billion, or 22.9 percent, compared with the 2014 third quarter.

Deposits for the 2015 third quarter rose a record $2.16 billion, or 8.8 percent, to $26.61 billion at September 30, 2015. When compared with deposits at September 30, 2014, overall deposit growth for the last twelve months was 24.8 percent, or $5.29 billion. Excluding short-term escrow and brokered deposits of $4.40 billion at the end of the 2015 third quarter and $3.40 billion at the end of the 2015 second quarter, core deposits increased $1.15 billion for the quarter. Average deposits for the 2015 third quarter reached $26.10 billion, an increase of $1.54 billion, or 6.3 percent.

The shares have been as high as $146.39 today. From the July 21 high to the September 2 low, SBNY had fallen from $155.84 to $126.49.

Morning News: October 20, 2015
Posted by Eddy Elfenbein on October 20th, 2015 at 7:08 am

Eurozone Banks Take Advantage of QE, Lend on Easier Terms, ECB Survey Finds

Here’s Why Japanese Investors Have Gone Ga-ga Over That Leveraged ETF

The Man Accused of Spoofing Some of the World’s Biggest Futures Exchanges

Hedge Funds are Bringing Back Everyone’s Least Favorite Toxic Investment

Drug Makers Sidestep Barriers on Pricing

Anheuser-Busch InBev Aims Its Tax-Trimming Skills at SABMiller

With United Airlines’ Chief in the Hospital, General Counsel Will Fill In

Yum Brands Plans to Separate China Business

Apple CEO Defends Encryption, Opposes Government Back Door

United Tech Profit Falls on Currency Swings; Plans $12 Billion Share Buyback

BNY Mellon Profit Down 23% on Year-Ago Gains, Cuts Expenses

Citigroup Accused of Improperly Avoiding $800 Million in New York State Taxes

How Emojis Find Their Way to Phones

Joshua Brown: The Ballad of the Breakaway Broker

Roger Nusbaum: Market Stasis

Be sure to follow me on Twitter.

Ford’s Move to Aluminum is Paying Off
Posted by Eddy Elfenbein on October 19th, 2015 at 1:44 pm

Ford Motor (F) took a big gamble in changing their F-150 pick-up bodies to aluminum. After some initial mis-steps, the strategy seems to be paying off.

It’s not like the old F-Series was broken. In 2014, U.S. drivers bought one every 42 seconds or so. A full-frontal switch to aluminum was a massive gamble, and an expensive one. Ford essentially rebuilt two of its biggest factories to crank out the new trucks, shuttering them for 13 weeks at the opportunity cost of all the F-150s it could have made in that time—more than 90,000 vehicles in all.

The change, however, is palpable. At Ford, they call it “the 50-foot test”—you can tell in 50 feet of driving the difference all that aluminum makes. Specifically, the 2015 trucks are about 700 pounds lighter, which makes them far more peppy and eager. Even with the smallest of the four engines Ford offers, the F-150 will go from a dead stop to 60 miles per hour faster than the Ford Fusion, its little cousin. “Just 10 years ago, that would have been complete science fiction,” Levine said.

Cruising in a pickup is a bit like crawling in a Lamborghini; it’s possible, but not natural. That’s not the case with Ford’s new moneymaker. A long haul on an interstate isn’t a low-gear grind.
Then there’s the heavy lifting. Every version of Ford’s pickup will tow a few hundred pounds more than previous iterations, with a max load of 12,200 pounds. Smaller, faster, and stronger, it’s like a linebacker, a mountain of muscle that can run the 40 in less than 5 seconds.

A lot of truck fans don’t really care about those things. They buy a pickup because it feels like riding around in your living room, with bigger windows and more places to put a drink. Ford didn’t mess with that experience.

The F-Series still has a center console capable of holding a bag of groceries, and its cabin is layered with enough trays and bins to store a family’s worth of iPhones and beef jerky. Meanwhile, Ford’s engineers lowered the window frames by two inches to provide even more visibility. It’s one of the most thoughtful touches, in addition to a snug, hand-size space at the bottom of the steering wheel that presents a perfect handle on long, straight roads. The one place Ford left some steel is in the wall behind the engine, sealing a cabin as quiet as a church.

Earnings are due out a week from tomorrow, and I’m expecting good results. Ford made 24 cents per share for last year’s Q3. The consensus for this year is 47 cents per share.