Morning News: April 9, 2015
Posted by Eddy Elfenbein on April 9th, 2015 at 7:19 am

It’s 1950 for Cameron as BOE Extends Period of Record-Low Rates

Why This Earnings Season Could Be The Worst Since 2009

Wall St. Is Told to Tighten Digital Security of Partners

Blankfein’s Bet on Goldman Sachs Bond Trading Seen Reaping Gains

What the Shell-BG Deal Says About Oil Prices and Deal Making

Dimon Says JPMorgan Must Be Ready for Greek Exit From Euro Area

Dimon Says Once-in-3-Billion-Year Treasury Move Warning Shot

Google Plots New YouTube Subscription Service as Soon as This Year

Zynga Cofounder Pincus Returns as CEO Two Years After Stepping Down

Google Buying Twitter Would Be Like Microsoft Buying Yahoo

Why TNT Acquisition Is A Good Deal For FedEx

Alcoa Posts Strong Q1 Profit But Revenue Lacks Luster

Samsung Expects Record Galaxy Shipments, S6 Edge Shortage

Credit Writedowns: Is Greece’s Debt Odious?

John Hempton: So What Exactly Do You Get With Bank of the Internet Stock?

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Bed Bath & Beyond Earns $1.80 Per Share
Posted by Eddy Elfenbein on April 8th, 2015 at 4:22 pm

Bed Bath & Beyond (BBBY) earned $1.80 per share for fiscal Q4 which is largely what was expected. Their outlook, however, was weak. The company sees Q1 earnings between 90 and 95 cents per share. The stock is off by 3% in the after-hours market.

From the earnings report:

For the fourth quarter of fiscal 2014, the Company reported net earnings of $1.80 per diluted share ($321.1 million) compared with net earnings for the fourth quarter of fiscal 2013 of $1.60 per diluted share ($333.3 million). Net sales for the fourth quarter of fiscal 2014 were approximately $3.337 billion, an increase of approximately 4.2% from net sales of approximately $3.203 billion reported in the fourth quarter of fiscal 2013. Comparable sales in the fourth quarter of fiscal 2014 increased by approximately 3.7%, compared with an increase of approximately 1.7% in last year’s fiscal fourth quarter. Comparable sales for the fourth quarter of fiscal 2014 include an approximate 0.2% unfavorable impact from the change in the Canadian currency exchange rate.

For the fiscal full year ended February 28, 2015, the Company reported net earnings of $5.07 per diluted share ($957.5 million) compared with $4.79 per diluted share ($1.022 billion) in the full year of fiscal 2013. Net sales for fiscal 2014 were approximately $11.881 billion, an increase of approximately 3.3% from net sales of approximately $11.504 billion in fiscal 2013. Comparable sales for both fiscal 2014 and fiscal 2013 increased by approximately 2.4%.

Cost Plus World Market was excluded from the comparable sales calculations through the end of the fiscal first half of 2013 and is included beginning with the fiscal third quarter of 2013. Linen Holdings is excluded from the comparable sales calculations and will continue to be excluded on an ongoing basis because it represents non-retail activity.

Share Repurchase Program

During the fourth quarter of fiscal 2014, the Company repurchased approximately $947 million of its common stock, representing approximately 11.8 million shares. Of this total, approximately $782 million, representing approximately 10.3 million shares, were from open market repurchases, and the remaining $165 million and 1.5 million shares represented the net settlement at the completion of the Company’s $1.1 billion accelerated share repurchase program in December 2014. As of February 28, 2015, the remaining balance of the current $2.0 billion share repurchase program was approximately $884 million.

Fiscal 2015 Financial Model

The Company is modeling a 2.0% to 3.0% increase for comparable sales for both the fiscal 2015 first quarter and full year, net earnings per diluted share to be between $.90 to $.95 for the first quarter of fiscal 2015, and to be between relatively flat and a mid-single digit percentage increase for the fiscal full year. The Company’s fiscal 2015 model includes the impact of approximately $.24 per diluted share related to four non-comparable items between its 2014 results and its 2015 model. These non-comparable items are: an increase in the 2015 tax rate due to a reduction in the amount of distinct tax events modeled in fiscal 2015; a credit card fee litigation settlement benefit in fiscal 2014 that is not expected to reoccur in 2015; the modeled unfavorable foreign currency exchange rate impact in 2015; and an increase in investments in compensation and benefits in 2015 beyond those historically planned. The modeling of net earnings per diluted share is based upon a number of assumptions which will be described in the Company’s fourth quarter of fiscal 2014 conference call. Information regarding access to the call is available in the Investor Relations section of the Company’s website.

The China Bubble
Posted by Eddy Elfenbein on April 8th, 2015 at 12:56 pm

I often tell investors that true stock bubbles are relatively rare. That runs counter to what we often hear, but I stand by it.

Of course, just because the market goes down doesn’t mean it was a bubble beforehand. Sometimes the fundamentals deteriorate. What I call a bubble is when prices soar way, way beyond fundamentals, and that doesn’t happen very often — at least not in the U.S. market.

But looking at China, we can see a highly chaotic market. The Shanghai Composite has nearly doubled in nine months. As crazy as that is, it doesn’t come close to the incredible rally of just a few years ago. From late 2005 to October 2007, the Shanghai Composite rallied 460% in less than two years. Soon afterwards, it lost nearly all of it.

This is why I’m suspicious of the Chinese market. Healthy markets simply shouldn’t move like that.

Morning News: April 8, 2015
Posted by Eddy Elfenbein on April 8th, 2015 at 7:22 am

Japan’s Dilemma Over the China-led Infrastructure Bank

US Authorities Upgrade India’s Aviation Safety Rating

Learning Mandarin in the Tundra – Russia Invites China Into Oil Business

Cubans Eager for More Clarity on Doing Business With U.S.

Forget Interest Rates, the Fed Has Another Big Decision to Make in the Next Year

Charles Grassley Questions Diversion of Fannie and Freddie Earnings

Oil Price Falls Ahead of U.S. Inventory Data

5 Things to Know About the Biggest Oil Merger in a Decade

Berkshire to Acquire $560 Million Axalta Stake From Carlyle

McDonald’s Looks to Beef Up Image With $5 Mega-Burger

Rite Aid Sales Grow on More Prescription Orders

Bezos’s Blue Origin Nears Opportunity to Take Tourists Into Space

JPMorgan Algorithm Knows You’re a Rogue Employee Before You Do

Jeff Carter: Farming Meets Tech – People Got To Eat

Roger Nusbaum: Figuring It Out: Being Positive

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Bed Bath & Beyond’s Quarterly Stats
Posted by Eddy Elfenbein on April 7th, 2015 at 1:28 pm

To get ready for tomorrow’s Bed Bath & Beyond (BBBY) earnings report, here are some quarterly stats I have for the past few years.

The Rate Hike Gets Pushed Back
Posted by Eddy Elfenbein on April 7th, 2015 at 8:03 am

i thought this was an interesting chart. This is the futures contract for the September 2015 Fed funds rate. As the contract gets to 100, that means interest rates will be at 0%.

Very gradually over the past 15 months, it’s dawned on the market that interest rates probably aren’t going up anytime soon.

Morning News: April 7, 2015
Posted by Eddy Elfenbein on April 7th, 2015 at 7:14 am

World Economy Ready to Bounce After Sluggish Opening to 2015

America Immobilized as Iran-Saudi Arabia Proxy War Turns Bloody

British Services Growth Hits Seven-Month High in March

Aussie Moving Before RBA Third Month Spurs Regulator’s Probe

Big Companies Pay Later, Squeezing Their Suppliers

Samsung’s Profit Decline Moderates

France’s Vivendi jumps Into Obstacle Race For Dailymotion

Dutch TNT Express Accepts FedEx Offer In Cut-Throat Parcel Delivery Market

Uber Is Winning Over Americans’ Expense Accounts

Boeing Beats Airbus in First Quarter Net Orders, Deliveries

Starbucks Sweetens Its College Tuition Program For Baristas

Domino’s CEO: ‘We’ve Gotta Pay More’ To Hire Good Workers

Google Accused of Using ‘Unfair and Deceptive’ Ads on YouTube Kids

Pragmatic Capitalism: Should You Be Mostly Cash Like Mohamed El-Erian?

Reformed Broker: Brian Gilmartin: The 4 Big Traits of Our Bull Market

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The Opening Day Market
Posted by Eddy Elfenbein on April 6th, 2015 at 3:25 pm

It’s finally Opening Day! At least for most teams.

Well, the market was supposed to go down today, but as it likes to do, the market has fooled us all. This has turned into a good day for stocks. The S&P 500 is currently up 19 points of 0.92%. Energy stocks are leading the way while Finance and Healthcare are up the least. Surprisingly, the 10-year yield is up a few basis points to 1.91%. It was as low as 1.84% this morning.

This morning we learned that the ISM Non-Manufacturing Index fell to 56.5 last month. Last week’s ISM Manufacturing report showed that the index fell for the fifth month in a row.

On our Buy List, Snap-on (SNA) and AFLAC (AFL) hit new 52-week highs this morning. Microsoft (MSFT) is up more than 3% today. Another Buy List stock, Wells Fargo (WFC), raised their rating on MSFT. The big loser is Qualcomm (QCOM). The stock was downgraded by FBR Capital. Also, a website got their hands on the Galaxy S6 and found that it doesn’t use Qualcomm’s chips.

Bloomberg has an interesting article noting that Amazon (AMZN) is luring away some of eBay’s (EBAY) loyal merchants.

Amazon’s pool of merchants climbed to more than 2 million in 2014, while the number of sellers on EBay has remained flat at about 25 million in the past two years. Businesses that at first set up online storefronts on EBay say they’re surprised how quickly sales surge on Amazon once products appear on both sites.

The move to Amazon, which boasts a bigger user base and offers more ways to ship merchandise, poses a threat to EBay, which pioneered the idea of an Internet marketplace where merchants big and small could hawk wares.

Shares of eBay are flat today.

Dividends Rose Nearly 15% Last Quarter
Posted by Eddy Elfenbein on April 6th, 2015 at 12:40 pm

Dividends had another solid quarter for Q1. According to numbers from Standard & Poor’s, the S&P 500 paid out $10.55 in dividends last quarter. That’s the index-adjusted number (each one point in the index is about $8.85 billion).

That’s an increase of 14.84% over the first quarter of 2014. The S&P 500 only rose 0.43% for the first quarter, or 1.76% annualized. That means that the dividend yield is increasing for stocks. The dividend yield is, of course, only one measure of value, but for now, it doesn’t signal that stocks are in bubble territory.

Dividends for the first quarter were 93% higher than they were for the first quarter of 2010. That’s an impressive growth rate for five years. The S&P 500 will probably pay out about $44 in dividends this year. What’s interesting is how closely the index has tracked a 2% dividend yield over the past several years.

Here’s a chart of the S&P 500 (left scale, black line) along with the dividends (right scale, blue line). I scaled the two lines at a ratio of 50-to-1 so whenever the lines cross, the dividend yield is exactly 2%.

Beginning in about 2003, the blue and black lines track each other fairly well. The exception is during the financial crisis, but they soon got back together.

Again, dividend analysis is only one tool in our arsenal. But one thing I like about it is how steady the trends are, especially compared with the volatility of prices.

The Lagging S&P 100
Posted by Eddy Elfenbein on April 6th, 2015 at 10:17 am

The S&P 100 is an interesting index to watch. It’s the 100 largest companies in the S&P 100. It’s basically an index of mega-cap stocks.

While the mega-caps drove a lot of the 1990s rally, they’ve been lagging lately. Part of it is the impact of the strong dollar, but the underperformance started before that.

Here’s the S&P 100 compared with the S&P 500 since August 1, 2012:

Relative to how those two usually perform, that’s a large divergence. Yet the lines really aren’t that far apart. The point I’m making is how much the S&P 500 is dominated by the S&P 100. I believe that S&P 100 comprises about 57% of the market cap of the S&P 500.