The S&P 500 Priced in Beer
Posted by Eddy Elfenbein on December 30th, 2014 at 11:51 am

Or at least the S&P 500 divided by the alcoholic beverage portion of the CPI:

Sterne, Agee & Leach on Signature Bank
Posted by Eddy Elfenbein on December 30th, 2014 at 11:18 am

From Barron’s:

Our top organic growth pick is Signature Bank.

Universal banks continue to treat their customers…universally bad. We highlighted in our note dated Sept. 15 that management indicated that customer irritation was higher this year than it was a year ago. The irritation has been caused by initiatives at multiple “mega banks” to segment employees and customers — driving middle-market commercial clients into Signature Bank’s (ticker: SBNY) hands.

(…)

Since third-quarter results were reported, the 2015 consensus earnings-per-share estimate has moved higher to $6.76, which is in-line with our 2015 EPS estimate of $6.75. However, our 2016 EPS estimate of $8.00 remains above the Street’s view of $7.81. Our model reflects year-over-year average-earning-assets (AEA) growth of 25% in 2014, 20% in 2015 and 16% in 2016. Our price target is $136, or 17 times our 2016 EPS estimate (long-term average: about 18 times)

I won’t even attempt a 2016 EPS estimate for SBNY, but if $8 is right, then the bank is going for a very good price.

Oil Continues Downward
Posted by Eddy Elfenbein on December 30th, 2014 at 11:12 am

The pain in oil isn’t over. Spot crude dropped even lower yesterday. At one point, West Texas Intermediate got as low as $52.60 per barrel. On June 13, crude was going for $107.68.

Morning News: December 30, 2014
Posted by Eddy Elfenbein on December 30th, 2014 at 8:00 am

Euro Falls to Two-Year Low Amid Greek Concern as Yen Advances

Seeking to Ride on China’s Stock Market Highs

BRICs Busted as Stocks Diverge Most on Record on Outlook

U.S. Stock-Index Futures Decline After Equities Closed at Records

Oil’s Wide Ride in 2014 Signals Return to Volatility

Persian Gulf Stocks Stumble as Oil Slide Deepens

Sub-$55 Oil Has U.S. Drillers Idling Most Rigs in 2 Years

UPS, FedEx Got Back On Time This Holiday

Hyundai Will Add Two Factories in China to Meet Demand

Tech Firm Xiaomi Corp. Raises $1.1 Billion in Funding Round

Shake Shack Files for IPO That Could Value It at $1 Billion

Credit Suisse to Fight New York Mortgage Securities Case

Jeff Miller: 2014 in Review: Best of the Silver Bullet Awards

Roger Nusbaum: Weekly Market Review

Jeff Carter: Seed Investors Are Tax Exempt

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Morning News: December 29, 2014
Posted by Eddy Elfenbein on December 29th, 2014 at 7:10 am

Russian Economy Suffers First Major Contraction Since 2009

Greek Impasse Forces Early Elections and Fears of Euro Crisis Return

Abenomics Finally Gets Working for Average Japanese

Access to Gmail Is Blocked in China After Months of Disruption

U.S. Bond Sentiment Worst Since Disastrous ’09 as Fed Shifts

High-Cost Oil Production Not Worthwhile

Texans Discover Oil Grows on Olive Trees as Crude Drops

SEC Rater Report, MF Global Restitution, BofA

Billionaire Milner Sees Xiaomi at $100 Billion

For Qualcomm, China Settlement May Be Just the Beginning

Roche Receives FDA Emergency Permission for Ebola Test

`Monster Strike’ Gives Former Social Media Giant Mixi a Second Act

Lion Capital Sends Letter to American Apparel Urging It to Explore Options

Joshua Brown: The Most Hated Rally Ever That Everyone Loves

Epicurean Dealmaker: Greatest Hits of 2014

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CWS Market Review – December 26, 2014
Posted by Eddy Elfenbein on December 26th, 2014 at 7:08 am

“The best stock to buy may be the one you already own.” – Peter Lynch

I hope everyone had a wonderful holiday. Despite this past week being a holiday-shortened week, there was still some important economic news. On Tuesday, the government revised higher the Q3 GDP report to 5%. That means that the third quarter was the strongest quarter for economic growth in eleven years. The Dow celebrated by breaking through 18,000 for the first time in history.

There might be more good economic news for Q4. This week, we learned that personal income and spending remained strong through November. Also, the latest consumer confidence report came in at its highest level in nearly eight years. Lower gasoline prices are clearly making people feel more optimistic. One sour note was a poor durable goods report. This may mean that consumers are leading the economy while business spending takes a breather. I’ll have more on this in a bit.

In last week’s CWS Market Review, I unveiled the 2015 Buy List. In this week’s issue, I’ll go over the new buys in more depth. Remember that the new Buy List will take effect at the start of trading on Friday, January 2.

The market is closed on Thursday which is New Year’s Day, but that’s when I’ll send out next week’s issue. In it, I’ll give you a summary of our 2014 Buy List, and I’ll run down the details on our new Buy List. I’ll also give you Buy Below prices for our five new buys. Now let’s take a look at that blow-out GDP report.

The Strongest Economic Growth in 11 Years

This past spring, a lot of folks got rattled by the rotten GDP report for Q1. The more data we got, the worse it looked. A lot of businesses blamed the slowdown on the lousy winter weather (remember the polar vortex?). At the time, I remember a lot of bears rolling their eyes at this thinking it was a lame excuse for poor numbers. But the bulls were right. The economy was getting better, but it was doing so very slowly.

The GDP report for Q2 was quite good. Then in October, the government said the economy grew by 3.5% in Q3. Last month, Wall Street was expecting that number to be revised lower. It wasn’t. It was revised higher to 3.9%. Then on Tuesday, it was revised higher again, up to 5%. That’s the best number since the third quarter of 2003. Let’s also remember that the third quarter was July, August and September, which means this was before the big fall in oil prices.

I wouldn’t say that the economy is strong, but things are improving. The housing market remains sluggish; existing homes sales dropped to a six-month low. But the housing market should get better from here. Mortgage rates are down and housing inventories are low. Plus, demographics are working to the housing market’s advantage.

On Tuesday, the Michigan Consumer Confidence Index for December rose to 93.6 from 88.8 in November. That’s the highest level since January 2007. Americans have more spending money and they’re out shopping. We can see the results on our Buy List. Ross Stores ($ROST) broke $94 per share this week, and Bed Bath & Beyond ($BBBY) hit $76 per share. What a turnaround for BBBY! In the last six months, it’s gained $20 per share.

We can’t declare economic victory just yet. There are still many weak spots around the world. The latest report on durable goods was also quite poor. By durable goods, we mean orders for things meant to last three years or more. Economists were expecting a 3% gain. Instead, durable goods fell by 0.7% last month.

Part of the weakness was due to a big drop in defense-related areas. But even if we exclude that, the numbers were pretty blah. This could mean that consumers and businesses have changed places. It was business spending and record profits that led the recovery. Now it appears that business spending has cooled off while consumers take the lead. I’ll need to see more data before I’m confident in saying this is a trend.

2014’s Dominant Theme: The Strong Dollar Trade

The major investing theme of 2014—the surging U.S. dollar—showed no signs of abating last week. The strong GDP helped this trend as well. What can I say? People love owning the currency of a winning economy.

The euro dropped below $1.22 for the first time in more than two years (see below). Earlier this month, the poor yen dropped to a seven-year low against the dollar. On December 19, the yield on Japanese two-year notes fell to -0.04%.

The effects of the Strong Dollar Trade are still quite visible. According to AAA, the average price at the pump fell to $2.38 which is a five-year low. I noticed that Treasury yields perked up this week after the GDP report. The yield on the 10-year Treasury now goes for 1% more than the average of the other G-7 countries. That’s the widest gap since 2006.

I think we can conclude that the message from Janet Yellen and her friends at the Federal Reserve is getting through. The market now sees a rate hike coming sometime next year. Before the last Fed meeting, futures traders thought there was a 53% chance the Fed would raise rates by this September. Now that’s up to 68%.

The interesting security to watch is the two-year Treasury. In mid-October, the yield on the two-year was going for 0.34%. Now it’s up to 0.73%. After hibernating near 0.1% for three years, the one-year yield suddenly woke up. This week, the one-year yielded as much as 0.28% which it hasn’t done since April 2011.

A strong move for a currency unleashes forces that eventually weaken the currency. I doubt we’ll see the U.S. dollar impact the markets in 2015 as dramatically as it did this year. This will especially be true if Europe and Japan do better. For now, investors should continue to focus on high-quality stocks, especially those that cater to consumers. Now let’s take another look at our new Buy List.

The 2015 Buy List

Last week, I unveiled the 2015 Buy List. Here it is again:

AFLAC ($AFL)
Ball Corp. ($BLL)
Bed Bath & Beyond ($BBBY)
Cognizant Technology Solutions ($CTSH)
CR Bard ($BCR)
eBay ($EBAY)
Express Scripts ($ESRX)
Fiserv ($FISV)
Ford Motor ($F)
Hormel Foods ($HRL)
Microsoft ($MSFT)
Moog ($MOG-A)
Oracle ($ORCL)
Qualcomm ($QCOM)
Ross Stores ($ROST)
Signature Bank ($SBNY)
Snap-on ($SNA)
Stryker ($SYK)
Wabtec ($WAB)
Wells Fargo ($WFC)

The five new buys are Ball Corp. ($BLL), Hormel Foods ($HRL), Signature Bank ($SBNY), Snap-on ($SNA) and Wabtec ($WAB). Here’s a brief description of each.

Ball Corp. ($BLL) is the largest producer of recyclable beverage cans in the world. The company started out making mason jars. While they’re no longer in that business today, Ball makes billions of recyclable metal containers. Based in Broomfield, Colorado, Ball also has an aerospace unit that makes parts for NASA. If you like boring and profitable, you’ll like Ball.

I always think of Hormel Foods ($HRL) as the Spam company. Not as in unwanted emails, but Spam the lunch meat. But Hormel is so much more. They own a bunch of food brands including Dinty Moore stew and Country Crock. More than 30 Hormel bands are ranked #1 or #2 in their markets. Last month, Hormel raised their dividend by 25%. It was their 49th consecutive annual dividend increase. Not bad for lunch meat.

Signature Bank ($SBNY) may be the quietest success story in banking. Signature is never in the news and that’s how they like it. But their performance tells the story. Signature’s loan delinquency rate is about one-tenth of the industry average. They also keep a tight rein on overhead which runs about 40% below industry average. Without anyone noticing, Signature has shaken up traditional banking.

Snap-on ($SNA) is a maker of high-end hand tools and power tools. They also make lots of machines for car repair like hydraulic lifts and tire changers. Snap-on makes products for the marine, rail and aviation industries. Last month, Snap-on raised their dividend by 20.5%. The company is based in Kenosha, WI (birthplace of Orson Welles), and they employ 11,500 people.

Wabtec ($WAB) was formed by the merger of Westinghouse Air Brake and MotivePower in 1999. The company traces its roots back to 1869 when George Westinghouse invented the railway airbrake. (In last week’s issue, I listed the stock as Westinghouse Air Brake Technologies, but Wabtec is the official name.) Wabtec makes locomotives, brakes and other parts for the freight and passenger rail industries. Business is going well; Wabtec recently raised guidance and their backlog is at a record. Barron’s notes that Wabtec is the only stock on any U.S. exchange that’s risen in each of the last 13 years.

In next week’s issue, I’ll give you the Buy Below prices for our new buys. Now here are some updates for our current Buy List.

Buy List Updates

In the middle of the day on Tuesday, Stryker ($SYK) spiked higher on news that it’s planning a takeover of Smith & Nephew ($SNN). I’m not sure why anyone would be surprised by this but the stock gapped up to a new high. It seems like this deal has been in the works for a long time. All we’re waiting for now is an official announcement. The fact is that for anyone in medical devices, it’s in your interest to find a tax inversion. Fast. Shares of SNN gained 9.37% on Tuesday. Stryker is a buy up to $98 per share.

Our big winner this week was Express Scripts ($ESRX). The catalyst for the big move was the company’s decision to go with AbbVie’s ($ABBV) hepatitis C treatment over the one from Gilead Sciences ($GILD), a former Buy List stock by the way. The move smacked GILD’s stock hard. Some analysts think this could start a price war which would certainly help ESRX. Express Scripts remains a solid buy up to $87 per share.

I also want to bump up a few of our Buy Below prices before the end of the year. This week, I’m raising Bed Bath & Beyond ($BBBY) to $77 per share. I’m lifting Fiserv’s ($FISV) Buy Below by $3 to $75 per share. I’m also raising Cognizant Technologies Solutions ($CTSH) to $56 per share, Qualcomm ($QCOM) to $76 per share and Ross Stores ($ROST) to $94 per share.

Let me add one more note about next year’s Buy List. We still don’t know the details yet, but eBay ($EBAY) hopes to spinoff PayPal in the second half of 2015. When that happens, PayPal will join the Buy List. This is how it’s worked with previous mergers or spinoffs. I promise to have full details once that happens.

That’s all for now. The 2014 trading year comes to an end on Wednesday. The market will be closed on Thursday, but the 2015 trading year commences Friday morning. Be sure to keep checking the blog for daily updates. I’ll send out the next issue of CWS Market Review on New Year’s Day. I’ll have performance details for 2014, and I’ll list the buy prices for the 2015 Buy List. I’m very excited for another profitable year. Thanks for your support!

– Eddy

Morning News: December 26, 2014
Posted by Eddy Elfenbein on December 26th, 2014 at 6:58 am

Russia Gears Up for Sharp Slump as Bailed-Out Bank Gets More Funds

Japan Inflation Slows and Output Slips, Keep BOJ Under Pressure

Saudi Ministry to Discuss Deficit Financing With Central Bank

Petrobras Probe Seen Infecting Brazil Bond Market in 2015

Oil Contracts Suggest Traders Expect Higher Prices

Shoppers’ Late Rush Gives Hope to Retailers

U.S. Minimum Wage Hikes to Affect 1,400-Plus Walmart Stores

Uber Sued By 45 Philadelphia-Based Taxi Corporations

CFTC Fines MF Global’s Parent Company $100 Million

China’s Antitrust Regulator Says Qualcomm Case to Be Settled Soon

Drones Become Popular Gifts, and That Worries the FAA

Xbox, PlayStation Networks Attacked, Hackers Claim Credit

Howard Lindzon: Hello 2015 – The Rebirth of Active Investing and the Rise of ‘Chart Art’

Joshua Brown: It Was the Best of Times, It Was the Worst of Times…

Marc Chandler: Russia, Oil, China and the Dollar

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Merry Everything!
Posted by Eddy Elfenbein on December 25th, 2014 at 7:12 am

I want to take this opportunity to wish everyone a Merry Christmas and a happy, healthy and profitable new year.

This has been a great year for Crossing Wall Street. Our Buy List is finishing up another profitable year. Traffic to the blog continues to be strong, and the newsletter, CWS Market Review, has a record number of subscribers.

I want to thank Marcia Hippen for editing my posts and repairing my numerous typos. I also want to acknowledge my fellow financial bloggers Barry Ritholtz, Josh Brown, Morgan Housel, Howard Lindzon, Tadas Viskanta and many, many others for their continued support.

I’d also like to thank the people who follow and interact with me each day on Twitter. In particular, I want to call out George Acs, Zachary Shrier and Joseph Weisenthal. I now have over 18,000 Twitter followers.

Most of all, I want to thank all of my readers for your continued support.

Let’s hope 2015 brings us more success!

46 Years Ago….
Posted by Eddy Elfenbein on December 24th, 2014 at 3:46 pm

Chart of the Year
Posted by Eddy Elfenbein on December 24th, 2014 at 1:02 pm

On Twitter, Joseph Weisenthal asked for “Chart of the Year” suggestions. For me, it’s hard to deny that the dollar’s surge defined the year in investing. Check out the DXY (Dollar Index):

I’d also add this one. A comparison of the GDPs of Poland and Ukraine: