Morning News: March 6, 2015
Posted by Eddy Elfenbein on March 6th, 2015 at 7:02 am

Greece Must Repay Loans in Full, Bailout Fund Head Klaus Regling Says

The Russian State Can No Longer Afford to Pay Its Own Salaries

Draghi Declares Victory for Bond-Buying Before It Starts

Big Banks Pass Muster in Latest Stress Tests

Goldman Shareholders’ Hope for Bigger Payout Dashed by Fed

Jobless Claims Hit Highest Level Since May

BP and Partners to Invest $12 Billion in Egypt Gas Deal

Humbled Amazon Turns to Rival Alibaba for Help in China

SAP to Reduce More Than 2,000 Jobs in McDermott’s Second Cut

Billionaire Robert Duggan’s Bet On Pharmacyclics Stands Among Top Trades Of Crisis Era

Kroger Profit Rises 23%, Outlook Beats Views

Staples Swings To Loss on Write-down of International Businesses

In Ellen Pao’s Suit vs. Kleiner Perkins, World of Venture Capital Is Under Microscope

Roger Nusbaum: Understanding Deflation, Negative Yields and Gold

Jeff Carter: Mark Cuban Thinks It’s Bubblicious

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Morning News: March 5, 2015
Posted by Eddy Elfenbein on March 5th, 2015 at 7:11 am

Draghi’s New Era Blighted by Old Woes as ECB Finalizes QE

ECB to Raise Growth Forecasts, Flesh Out Bond-Buying Plan

Chinese Premier Li Keqiang Lays Out Flaws in Country’s Economic Model

German Manufacturing Orders Fall by 3.9%

The Fed Knew the Economy Was a Disaster in 2009. Here’s What They Talked About Instead

Fed’s ‘Beige Book’ Is Decidedly Blue Over Energy Sector

AbbVie Makes Cancer Therapy Push With a $21 Billion Deal

Costco Treads on Thin Ice

Continental Expects Sales Jump as Car Output, Tech Demand Grows

Citigroup Sells Stake in Turkish Bank for $1.16 Billion

Carrefour to Step Up Investment as Plassat Set for Return

Adidas is Back on the Fairway and Can Just About See The Pin

McDonald’s Moving to Limit Antibiotic Use in Chickens

Howard Lindzon: Nasdaq 5,000 …Finally the Nasdaq Passes My Cholesterol Level

Joshua Brown: Why Amazon and Google Are Losing the War

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Stryker Approves $2 Billion in Buybacks
Posted by Eddy Elfenbein on March 4th, 2015 at 9:34 am

Stryker (SYK) just said that its board approved a $2 billion buyback of its shares. The company has a market cap of $35 billion so that’s a sizeable amount.

Chairman and Chief Executive Kevin A. Lobo said merger-and-acquisition activity across the company’s offerings remains the primary focus of Stryker’s long-term growth strategy, and that the stock-buyback authorization “recognizes that the strength of our balance sheet is sufficient to enable more significant share repurchases.”

Since Thanksgiving, the shares have mostly bounced between $90 and $96. A few weeks ago, Stryker raised its dividend by 13%.

Morning News: March 4, 2015
Posted by Eddy Elfenbein on March 4th, 2015 at 7:07 am

UK Wins in European Central Bank Court Challenge

Japan’s Growth in Solar Power Falters as Utilities Balk

India’s Sensex Drops With Rupee as Investors Bet Gains Overdone

U.S. Companies Are Stashing $2.1 Trillion Overseas to Avoid Taxes

The Price of Oil Is About to Blow a Hole in Corporate Accounting

Harsh Winter Weather Bit Into U.S. Auto Sales in February

Standard Chartered Profit Fell 37% in 2014

Citigroup to Sell Its Subprime Lender OneMain to Springleaf for $4.25 Billion

Toyota Moves Mark Step Forward for Non-Japanese Executives

Uber Buys Mapping Startup deCarta

Target to Cut Several Thousand Jobs

Britain Agrees Sale of Eurostar Stake to British, Canadian Funds

Equity Firms Are Lending to Landlords, Signaling a Shift

Beware the “Passive” Wolf in Sheep’s Clothing

Jeff Carter: The Hot Deal

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Mylan’s Earnings
Posted by Eddy Elfenbein on March 3rd, 2015 at 12:07 pm

Mylan (MYL) just reported Q4 earnings $1.05 per share which matched Wall Street’s estimate. Quarterly revenue rose 15% to $2.08 billion which beat consensus by $10 million.

I like to keep an eye on Mylan because it’s one of the great long-term performers. Since 1978, shares of Mylan are up 403,641% compared with 2,196% for the S&P 500. That’s amazing.

Four years ago, Mylan said they expect to double their profit by 2018:

Mylan said its sees EPS for this year ranging between $2.30 and $2.50. That’s a growth rate of 13% to 23%. It also means the stock is going for less than 10 times earnings. For next year, Mylan sees earnings of $2.75 per share. For 2018, Mylan said that its goal is earnings of $6 per share.

Let’s see how they’re doing. That forecast for 2012 was quite modest. Mylan actually earned $2.59 per share. They then beat the $2.75 per share forecast for 2013 by 12 cents per share. Mylan earned $3.56 per share last year, and expects to earn between $4.00 and $4.30 this year.

Let’s assume they hit the middle of their forecast range for this year. That means Mylan needs to grow earnings by 13.1% per year for the next three years to hit $6 per share by 2018. That’s quite possible, so that optimistic forecast from 2012 seems very doable.

People spend so much time looking for great stocks. Four years ago, Mylan was a bargain hidden in plain sight.

80 Years of Buy-and-Hold
Posted by Eddy Elfenbein on March 3rd, 2015 at 10:04 am

I thought I was strict with my policy of only changing five stocks a year on our Buy List, but the Voya Corporate Leaders Trust Fund hasn’t bought a new stock in 80 years.

Some of its holdings are unchanged, including DuPont, General Electric, Procter & Gamble and Union Pacific. Others were spun off from or acquired from original components, including Berkshire Hathaway (successor to the Atchison Topeka and Santa Fe Railway); CBS (acquired by Westinghouse Electric and renamed); and Honeywell (which bought Allied Chemical and Dye). Some are just gone, including the Pennsylvania Railroad Co. and American Can. Twenty-one stocks remain in the fund.

The plan is simple, and the results have been good. Light on banks and heavy on industrials and energy, the fund has beaten 98 percent of its peers, known as large value funds, over both the past five and ten years, according to Morningstar.

“This fund has been around a lot longer than I have, and it’s working,” said Craig Watkins, 29, an investment analyst for Conover Capital Management in Bellevue, Washington. Conover has recommended the Voya fund to 401(k) plans it advises.

Watkins compared the Voya fund’s “deep-value” approach to investor Warren Buffett’s, whose Berkshire Hathaway is the fund’s second-largest holding.

“It’s deep-value in the sense that all the companies in the portfolio have an amazing tenure,” Watkins said. He said the Voya fund’s strategy can be better than an index fund because it doesn’t have to change its weightings when the index changes

The S&P 500 and Its Earnings
Posted by Eddy Elfenbein on March 3rd, 2015 at 9:17 am

Here’s a look at the S&P 500 along with its earnings line. The S&P 500 is in black and it follows the left scale. The earnings line is in gold and it follows the right scale. The two lines are scaled at a ratio of 16-to-1 which means that whenever the lines cross, the market’s P/E Ratio is exactly 16. I don’t mean to imply that the market is fairly valued at 16 to 1. It’s simply a guidepost for this chart. The future part of the earnings line is based on analysts’ estimates.

As you can see, the earnings for the S&P 500 have entered a slight rough patch. Earnings growth is expected to flatline from Q4 of 2014 through Q3 of 2015. This isn’t unprecedented, even in this bull market. Earnings stagnated for the last half of 2012 and the first half of 2013, but the market did quite well.

Starting in Q4 of this year, earnings growth is expected to ramp up again. I should add that I don’t trust the longer-term forecasts of analysts, but it’s interesting to see what the crowd expects. I also think it’s interesting how the long-term forecast usually boils down to returning to the trendline. Notice how nice and neat the last part of the yellow line is? Only a model could forecast that.

In 2012 and 2013, the market bet that the earnings slowdown was transitory, and they were right. They’re making a similar bet now, but the difference is that the market is more richly valued today. See how the black line is currently well above the yellow line as opposed to mid-2012.

If the analysts’ forecast is correct (HA!) and if the market trades at 16 times earnings at the end of 2016, that means the S&P 500 would gain less than 3% over the next 22 months.

Here’s the same chart again but with data since the beginning of 2010. I made two other changes. The future part of the earnings line is in red, and the blue line was the earnings forecast on September 30. I think most of the earnings downgrade is due to the stronger dollar. Simply put: It knocked a year off earnings growth.

Morning News: March 3, 2015
Posted by Eddy Elfenbein on March 3rd, 2015 at 7:10 am

European Stocks Gain as German Retail Sales Rise

Draghi’s QE Moves to Starting Line as Outlook Brightens

CNPC Employee Lambastes China’s Pollution Documentary, Says Its Producer Doesn’t Have Brainpower

Nasdaq Math: 5000 Doesn’t Equal 2000

Dollar Bulls Are Undone as Yellen Turns Foe

Gold Above $1,200 as Dollar Eases, U.S. Rate Outlook Caps Gains

Springleaf Agrees to $4.25 Billion Deal for Citigroup’s OneMain

Barclays, Weighed Down by Litigation Charges, Reports Annual Loss

All-Touch BlackBerry Leap Launches With $275 Price Tag

Costco Picks Visa and Citigroup as New Credit Card Partners

Glencore 2014 Profit In Line, Takes $1.1 Billion Charge on Commodity Prices

Cardinal Health to Buy J&J’s Heart Business

Why Warren Buffett Is Worth $72 Billion and You’re Not

Cullen Roche: Raising Interest Rates Might not be as Crazy as Some Make it Seem

Roger Nusbaum: Negative Yields Proliferate in Europe

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Nasdaq 5,000
Posted by Eddy Elfenbein on March 2nd, 2015 at 10:38 am

Almost 15 years to the day, the Nasdaq hits 5,000:

Dividend Returns to Investors
Posted by Eddy Elfenbein on March 2nd, 2015 at 10:14 am

Here’s an interesting chart you don’t see often. This is the return to investors from dividends.

This is different from the market’s dividend yield, and it’s more accurate. This tells us how much money actually went to investors solely from dividends.

I took the Wilshire 5000 Total Return Index and divided it by the regular Wilshire 5000. I then saw how much that had changed in the last year.

In plainer terms, this isn’t just indicated dividend yield, what you most often see; it’s the dividend yield adjusted for increases or decreases in those dividends.

During the worst of the financial crisis, the market’s indicated dividend yield rose to 4% or so. But that’s based on trailing dividends — what had been paid out. But those payouts were cut. In real terms, dividends yielded investors 2.55%.