Morning News: January 5, 2023
Posted by Eddy Elfenbein on January 5th, 2023 at 7:03 am

BOJ’s Policy Tweak Hasn’t Led to Lending Windfall, Mizuho Head Says

France’s Le Maire Says Inflation, Public Finances Key Challenges

How a Texas Border City Is Shaping the Future of Global Trade

Fed Official Compares Inflation to Uber Surge Pricing

Fed Officials Fretted That Markets Would Misread Rate Slowdown

Why Republicans Probably Won’t Tank the Economy to Stick It to Biden

Good News on Taxes Came Too Late for Many SPACs

Supply Problems Hurt Auto Sales in 2022. Now Demand Is Weakening.

Tesla Bulls Brace for a Rough Year Ahead

US Job Growth to Slow or Even Reverse After Near-Record Year

Amazon Layoffs to Hit Over 18,000 Workers, the Most in Recent Tech Wave

Samsung’s Consumer-Products CEO Expects Tech Slump to Persist

Meta’s Ad Practices Ruled Illegal Under E.U. Law

Why It’s Hard for Apple to Make iPhones Outside of China

The Huge Number of Small Breweries Creates a Beer Glut

FTX’s Former Top Lawyer Aided U.S. Authorities in Bankman-Fried Case

Silvergate Raced to Cover $8.1 Billion in Withdrawals During Crypto Meltdown

20 Great Stock Ideas For 2023 From Top-Performing Fund Managers

Be sure to follow me on Twitter.

Morning News: January 4, 2023
Posted by Eddy Elfenbein on January 4th, 2023 at 7:03 am

The UK Recession Will Be Almost as Deep as That of Russia, Economists Predict

Why Are Energy Prices So High? Some Experts Blame Deregulation.

Renewable Companies Strive for 24-Hour Power

Job-Openings Report to Give Snapshot of Labor Demand

Jack Ma’s Ant Wins Approval for $1.5 Billion Capital Plan

Salesforce Plans to Cut 10% of Jobs After Customers Pull Back

Big Tech Is in Crisis. That’s Exactly What It Needed.

Video Game Workers Get a Union Foothold at Microsoft

CES 2023: Annual Tech Show Kicks Off as Hardware Startups Face an Innovation Crunch

New Hedge Fund Soars 163% Betting Everything Is Going Down

Crispin Odey’s Hedge Fund Soars 152% in Best Ever Year on Inflation Bet

Investing Novices Are Calling the Shots for $4 Trillion at US Pensions

Cathie Wood Bought Tesla During Biggest Rout in Two Years

Banks Should Be More Cautious on Crypto Contagion Risks, U.S. Regulators Warn

Ex-CFO Pleads Guilty to Stealing from SPACs to Trade Meme Stocks, Cryptocurrencies

Southwest Airlines Offers 25,000 Points to Passengers Hit by Travel Meltdown

Don’t Blame the Weather for Flight Delays. Here’s Who’s at Fault

How McDonald’s Won Russia—and Then Lost It All

Be sure to follow me on Twitter.

CWS Market Review – January 3, 2023
Posted by Eddy Elfenbein on January 3rd, 2023 at 6:48 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

Happy 2023!

If you haven’t had a chance to see it, here’s our 2023 Buy List. I’m proud to say that after one day, we’re already beating the market this year. The bad part is that like much of 2022, we’re down, just by less than everybody else.

I’ll be honest with you, I’m not sorry to see 2022 go. It was a difficult year for investors.

Last year was the fourth-worst year for the stock market in the last 80 years. Some of that, I should add, is due to the calendar effect. The market peaked on the first day of trading in 2022, and things got worse from there.

Investors were also fooled by several bear-market rallies. It seems like the market knows exactly when to lure you in and then hit you with another downturn.

The major investing story this past year was the resurgence of inflation combined with the Federal Reserve’s interest rate hikes. In retrospect, it’s alarming how slow the Fed was to realize the scope of the problem.

I don’t expect the Fed to get everything right, but even after the evidence became clear, the Fed was still slow to react. I’ll give you an example. At the December 2021 meeting, the Fed released its economic projections for 2022. The FOMC members expected inflation to be just 2.6% in 2022. They weren’t even close.

The Fed finally raised interest rates in March 2022, but even that was by just 0.25%. They still didn’t get it. Only after the issue became unavoidable did the Fed snap into action. For the year, the Fed raised rates seven times, and four of those times were by 0.75%.

The Fed’s target range for interest rates is 4.25% to 4.50%, and that will most likely rise another 0.25% in four weeks.

The Fed consistently fights its current battle with what it should have done in its previous battle. When Covid appeared, the Fed and the Federal government responded massively.

I suspect they were trying to avoid the Fed’s slow response to the Financial Crisis. If you recall, Ben Bernanke famously said that the subprime mess was “contained.” The Fed got the message, eventually.

But in 2020, the Fed jumped into action and thanks to the Fed cutting interest rates to near 0% in 2020, that effectively took risk out of the market. Investors responded as you would guess—they frantically bid up all the risky areas of the market. “Why not? The Fed has our back!” was the reasoning.

Shaky stocks like Peloton (PTON) and Zoom (ZM) zoomed. Zoom did so well that shares of ZOOM also rallied even though it was the wrong ticker. That was the thinking at the time.

Not only that, but areas like Crypto and NFTs soared. Once the Fed started to raise rates, then the high-risk rally got undone. It’s not over. Even today, shares of Tesla (TSLA) fell to another 52-week low.

A little over a year ago, Tesla was going for $414 per share. Today it got down to $105 per share. The losses are so bad that Elon Musk became the first person to lose $200 billion. It’s the greatest loss of fortune of anyone in history. (Don’t worry about Elon, he still has plenty left.)

Our Buy List vs. the S&P 500

Let’s look at some market numbers for 2022. Last year, the S&P 500 lost 19.44%. If we include dividends, then the index was down 18.11%. Our 2022 Buy List was down 10.42%. Including dividends, we were down 9.28%.

If there’s a silver lining to 2022, it’s that the selling was largely concentrated away from the sectors of the market that we prefer. Just by looking at the stats, you can see how much better safe stocks did last year.

For the year, the S&P 500 Growth Index (all these numbers are with divs) was down by 29.41%. The S&P 500 Value Index lost only 5.22%. The S&P 500 High Beta Index was down by 20.31% while the S&P 500 Low Vol Index lost 4.59%. The S&P 500 High Dividend Index fell only 1.11%. Safety was in last year.

S&P divides the S&P 500 into 11 different sectors. Here’s how the sectors performed last year.

Energy was the big winner. Both Exxon (XOM) and Chevron (CVX) are poised to make a combined profit of $100 billion this year.

I generally steer clear of making economic predictions, but I’m going to make a few qualified exceptions. The first is that I think it’s very likely the U.S. economy will enter a mild recession this year. The timing may take longer than people think, but that is the safe assumption.

By no means do I encourage investors to cut and run. In fact, times like these are often very good times to invest. That’s what bear markets are good for. I’m most concerned about the weakening housing market. Unfortunately, the housing market always finds itself placed between the Federal Reserve and the economy. When the Fed fights off inflation, the housing sector is collateral damage. That’s what’s happening right now.

From Reuters a few days ago:

U.S. single-family homebuilding tumbled to a 2-1/2 year low in November and permits for future construction plunged as higher mortgage rates continued to depress housing market activity.

The dour report from the Commerce Department on Tuesday followed on the heels of news on Monday that confidence among homebuilders plummeted for a record 12th month in December. The housing market has borne the brunt of the Federal Reserve’s fastest interest rate-hiking cycle since the 1980s as the U.S. central bank wages war against inflation.

I also expect the U.S. dollar to lose some steam this year. The greenback has had a good run from early 2021 until a few months ago, but now the European and American economies are out of sync. Our friends across the pond are still hiking and the Fed could be looking to cut rates before the end of the year. In fact, the dollar has already started to pull back since November. A weaker dollar could help cushion the blow of any weaker growth we may face.

Stock Focus: Dollar General

Speaking of the dollar, that reminds me of this week’s stock which is Dollar General (DG). This has been a remarkably successful company and it has a remarkably simple business model. You can get basic items at a discount.

I came close to adding DG to this year’s Buy List as a good replacement for Ross Stores (ROST). What troubled me was its recent earnings report which showed that Dollar General still has supply chain issues. Still, this is a very good company, and it may be worth a closer look.

First, let’s look at how successful DG has been. In 2009, the company IPO’d at $21 per share. Last March, it got to an all-time high of $262 per share. That works out to a return of more than 21% per year for over a decade.

There are now more 18,000 locations across the United States. Dollar General says it has more brick-and-mortar locations than any other retailer in the country. The company was founded in Kentucky in 1939. Even today, the company has a strong southern focus. There are currently more stores in Mississippi than in New York.

Dollar General didn’t get the present name until 1955. The company IPO’d for the first time in 1968. It was later taken private in 2007, slimmed down and then IPO’d again. The company now has a market value of $55 billion.

A few years ago, the company was part of the great Dollar Bidding War of 2014. This involved Dollar General, Dollar Tree and Family Dollar. Dollar General offered nearly $10 billion to buy Family Dollar. The bid was rejected, and Dollar Tree agreed to merge with Dollar General. Honestly, I’m glad Dollar General lost.

It wasn’t a total loss. Dollar General picked up Dollar Express which was a spinoff from the Family Dollar-Dollar Tree deal.

Dollar General works hard to get the lowest possible prices for its customers. DG’s operating margin runs about 10%. This business is all about cost control. Dollar General is also a good business when consumers are worried about inflation.

Dollar General currently pays a dividend 55 cents per share. That’s a tiny yield but I expect to see the dividend increased soon.

Last month, DG reported its fiscal Q3 results. Net sales were up 11.1% to $9.5 billion and same-store sales were up by 6.8%. EPS rose 12% to $2.33 per share.

The problem was that that was an earnings miss of 20 cents per share. It seems that Dollar General continues to face supply chain issues. This has been a big issue for them. Last year, it helped snap the company’s 31-year run of higher same-store sales.

Along with the earnings report, Dollar General slashed its Q4 earnings range to $3.15 to $3.30 per share. Wall Street had been expecting $3.66 per share. The stock fell more than 7% on the news.

I’m going to continue watching Dollar General, but I want to see these problems get behind them before I can consider it a good investment. It’s a great business and it’s a good example of a stock that’s probably not fully valued due to its capacity for growth.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want to learn more about the stocks on our Buy List, please sign up for our premium service. It’s $20 per month, or $200 per an entire year.

Morning News: January 3, 2023
Posted by Eddy Elfenbein on January 3rd, 2023 at 7:02 am

Germany Open to Seizing Russian Assets to Help Ukraine Rebuild

Tourism and Manufacturing Fight for the Future of Power in Europe

Exxon, Chevron Focus on Oil Projects in the Americas

The Law That Brought Down Mob Bosses Is Being Turned Against the Oil Industry

Japan’s Business Owners Can’t Find Successors. This Man Is Giving His Away

Why Japan’s Sudden Shift on Bond Purchases Dealt a Global Jolt

Here’s (Almost) Everything Wall Street Expects in 2023

Get Ready for the Richcession

Biden Caps Two Years of Action on the Economy, With New Challenges Ahead

Take Warren Buffett’s Advice: Don’t Buy Any Stock in 2023 Unless It Passes This Test

More Bosses Order Workers Back to the Office as Job Market Shifts

Wave of Job-Switching Has Employers on a Training Treadmill

General Electric Set to Spin Off Health Unit—Putting Focus Back on Power Division

SpaceX Valued at $137 Billion in Latest Funding Round, CNBC Says

Tesla Car Sales Grow Slower Than Expected, Amplifying Concerns

Tesla Fined in Korea for Alleged False Advertising

Elon Musk Has Lost a Bigger Fortune than Anyone in History

How Bankman-Fried Negotiated His Way Out of Jail

Be sure to follow me on Twitter.

Morning News: January 2, 2023
Posted by Eddy Elfenbein on January 2nd, 2023 at 7:01 am

Lula Is Back in Brazil, Promising Prosperity Amid Global Economic Pain

Russia’s War on Ukraine Worsens Global Starvation

IMF Chief Georgieva Warns of ‘Tough Year’ for World Economy

ECB’s Nagel Says More Action Needed to Curb Price Expectations

Yen Starts Year on Front Foot as Traders Eye Dollar Cliff Edge

Why China’s Economy Faces a Perilous Road to Recovery

‘OK, Mexico, Save Me’: After China, This Is Where Globalization May Lead

Canada Is Banning Some Foreigners from Buying Property After Home Prices Surged

Soaring Costs Threaten U.S. Offshore-Wind Buildout

Shift to EVs Triggers Biggest Auto-Factory Building Boom in Decades

Startups End a Bruising 2022, Stare Down Another Challenging Year

The Year Big Tech Stocks Fell From Glory

U.S. Pours Money Into Chips, but Even Soaring Spending Has Limits

What TikTok Told Us About the Economy in 2022

Future Consumption Will Make the Prosperous Present Seem Deprived by Comparison

Dubai’s Alcohol Gambit

Can Southwest Airlines Buy Back Its Customers’ Love?

Troubles at Sam Bankman-Fried’s Alameda Began Well Before Crypto Crash

Be sure to follow me on Twitter.

The 2023 Buy List
Posted by Eddy Elfenbein on December 31st, 2022 at 9:06 pm

Here are the 25 stocks for the 2023 Buy List. It’s locked and sealed, and I can’t make any changes for 12 months.

For tracking purposes, I assume the Buy List is a $1 million portfolio that’s equally divided among 25 stocks. Below are all 25 positions with the number of shares for each and the closing price for 2022. Whenever I discuss how the Buy List is doing, the list below is what I’m referring to.

Here are the five new buys with their starting Buy Below prices:

AmerisourceBergen ($180)
Celanese ($110)
Intuit ($410)
Middleby ($140)
Polaris ($110)

The five sells are:

Church & Dwight
Reynolds Consumer Products
Ross Stores
Sherwin-Williams
Zoetis

Here are the corporate descriptions of our five new stocks:

AmerisourceBergen fosters a positive impact on the health of people and communities around the world by advancing the development and delivery of pharmaceuticals and healthcare products. As a leading global healthcare company, with a foundation in pharmaceutical distribution and solutions for manufacturers, pharmacies and providers, we create unparalleled access, efficiency and reliability for human and animal health. Our approximately 44,000 global team members power our purpose: We are united in our responsibility to create healthier futures. AmerisourceBergen is ranked #10 on the Fortune 500 with more than $200 billion in annual revenue.

Celanese Corporation is a global chemical leader in the production of differentiated chemistry solutions and specialty materials used in most major industries and consumer applications. Our businesses use the full breadth of Celanese’s global chemistry, technology and commercial expertise to create value for our customers, employees, shareholders and the corporation. As we partner with our customers to solve their most critical business needs, we strive to make a positive impact on our communities and the world through The Celanese Foundation. Based in Dallas, Celanese employs approximately 13,000 employees worldwide and had 2021 net sales of $8.5 billion.

Intuit is the global financial technology platform that powers prosperity for the people and communities we serve. With more than 100 million customers worldwide using TurboTax, Credit Karma, QuickBooks, and Mailchimp, we believe that everyone should have the opportunity to prosper. We never stop working to find new, innovative ways to make that possible.

The Middleby Corporation is a global leader in the foodservice industry. The company develops and manufactures a broad line of solutions used in commercial foodservice, food processing, and residential kitchens. Supporting the company’s pursuit of the most sophisticated innovation, the state-of-the-art Middleby Innovation Kitchens showcases and demonstrates the most advanced Middleby solutions. In 2022 Middleby was named a World’s Best Employer by Forbes and is a proud philanthropic partner to organizations addressing food insecurity.

As the global leader in powersports, Polaris Inc. (NYSE: PII) pioneers product breakthroughs and enriching experiences and services that have invited people to discover the joy of being outdoors since our founding in 1954. Polaris’ high-quality product line-up includes the Polaris RANGER®, RZR® and Polaris GENERAL™ side-by-side off-road vehicles; Sportsman® all-terrain off-road vehicles; military and commercial off-road vehicles; snowmobiles; Indian Motorcycle® mid-size and heavyweight motorcycles; Slingshot® moto-roadsters; Aixam quadricycles; Goupil electric vehicles; and pontoon and deck boats, including industry-leading Bennington pontoons. Polaris enhances the riding experience with a robust portfolio of parts, garments, and accessories. Proudly headquartered in Minnesota, Polaris serves more than 100 countries across the globe.

In terms of market value, Thermo Fisher (TMO) is our biggest stock at $216 billion. Danaher (DHR) and Abbott Labs (ABT) are both near $190 billion. Thirteen of the 25 stocks have market values between $10 billion and $70 million.

Miller Industries (MLR) is our smallest stock. Stepan (SCL) is our second smallest, and it’s about eight times larger than Miller.

The 2022 Buy List
Posted by Eddy Elfenbein on December 31st, 2022 at 1:47 pm

The 2022 investing year is on the books!

This was a difficult year for Wall Street. The stock market had its worst year since the financial crisis. The S&P 500 peaked on the first trading day of the year, and it was downhill from there.

Investors were rattled by the highest inflation in 40 years and seven Fed interest-rate hikes. Many of the former popular stocks were especially punished this year. The market reached its low in October (at least, its low so far). Along the way, investors were treated to a few bear-market rallies, and each one fizzled out.

The good news is that the 2022 Buy List held up well. We were down, but not as much as the rest of the market. This was our best year relative to the overall market in 12 years. This is especially impressive when you consider that we got off to a rocky start. By April, our Buy List was trailing the market by more than 4%.

Keeping calm paid off. Let’s look over the numbers. For the year, the S&P 500 lost 19.44%. Including dividends, it was down 18.11%. Our Buy List was down 10.42%. Including dividends, we were down 9.28%.

For the 17 years of the Buy List, the S&P 500 with dividends is up 333.17%, while our Buy List is up 435.73%.

The Buy List had a “beta” this year of 0.8274.

Our best stock of the year was FICO (FICO), which gained 38.03% (before dividends). Not far behind that was SAIC (SAIC), a newcomer, which was up 32.75%. In third place was AFLAC (AFL), which has been a fixture of all 18 Buy Lists. The duck stock was up 23.21%.

Seven of our 25 stocks closed higher this year. Our worst stock this year was Trex (TREX). The deck stock lost 68.65% this year. Even if Trex had jumped 90% on the final day of trading, it still would have been our worst stock. Ironically, Trex was our best stock last year and the year before.

I should give a special “Come from Behind” award to Ross Stores (ROST). The deep-discounter plunged during the first half of the year but staged a furious rally in the second to close just barely in the black for this year. ROST finished this year 67% above its 52-week low.

Ross Stores won’t be returning in 2023, but it’s been a big winner. In 10 years, shares of ROST gained 329% for us. Sherwin-Williams (SHW) made 165% in six years, and Church & Dwight (CHD) made 60% in five years.

How did our sells from last year do? Not so well. Middleby lost 32%. Ansys was down by 40%, and Disney lost 44%. Cerner was bought by Oracle, and Check Point Software gained 8%.

I always strive to be as transparent as possible when discussing our track record. Here’s a breakdown of how our Buy List performed in 2022. For tracking purposes, I assume the Buy List is a $1 million portfolio and all 25 stocks are equally weighted at the start of the year.

Here’s the data behind the dividend-adjusted returns. I’ve listed each stock’s beginning price, ending price and dividend-adjusted starting price.

The Buy List used to yield much less than the S&P 500, but it’s been much closer in recent years.

Every Buy List Stock
Posted by Eddy Elfenbein on December 31st, 2022 at 10:22 am

Here are all 102 Buy List stocks and when they made the cut.

AFLAC and Fiserv are the only two left that have been on every year. Stryker is on for the 16th year in a row.

Morning News: December 30, 2022
Posted by Eddy Elfenbein on December 30th, 2022 at 7:04 am

Euro Brings Closure for Croatia Almost 30 Years After War

The Year the Long Stock Market Rally Ended

After $18 Trillion Rout, Global Stocks Face More Hurdles in 2023

Biden Signs Government Funding Bill, Preventing Shutdown

Retiring Fed President Challenged the Consensus Inside Central Bank

Mortgage Rates in the US Rise for First Time in Seven Weeks

Tax Credits for Electric Vehicles Are About to Get Confusing

Deal-Making Thrived in 2022, Then Hit a Road Bump

The 2022 Good Tech Awards

As Infrastructure Windfall Approaches, Transit Agencies Grapple With How to Spend It

Large Pay Gains Outpace State Minimum-Wage Boosts for Many Workers

Small Businesses Find Some Relief From Hiring Woes

It Takes an Iron Will to Create a Fitness Empire Out of Kettlebells

Hershey Sued Over Chocolate Containing Heavy Metals

Southwest’s Silver Lining: Memories of Gaffes Fade Fast

Tesla Stock Is Headed for Its Biggest-Ever Annual Decline

Bahamas Seized $3.5 Billion FTX Assets on Custody Concerns

Roman Abramovich’s Very Bad Year of Losses, Forced Sales and Moored Superyachts

Be sure to follow me on Twitter.

Morning News: December 29, 2022
Posted by Eddy Elfenbein on December 29th, 2022 at 7:09 am

Japan Insurers to Continue Russia Shipping Coverage

Europe Taps Tech’s Power-Hungry Data Centers to Heat Homes

After a Bumpy Year, Renewable Energy Looks Poised for Boom Times

Oil Falls as China COVID Spike Dampens Demand Outlook

Exxon Sues EU in Move to Block New Windfall Tax on Oil Companies

Euro Zone Business Lending Growth Slows Sharply in November

The Stephanomics Guide to the Global Economy in 2023

The Numbers in the News

Wall Street’s Top Stars Got Blindsided by 2022 Market Collapse

The Most Interesting Success and Failure of 2022

What ‘Get Into a Fistfight’ and Bosses’ Other New Year’s Resolutions Mean for You

As Silicon Valley Retrenches, a Tech Talent Shift Accelerates

Inflation Takes Biggest Bite From Middle-Income Households

Consumers Change Food-Delivery Habits

Tesla’s Worst-Ever Year Brings $17 Billion Windfall for Shorts

Southwest’s Woes No Longer ‘Weather-Driven,’ Transportation Secretary Says

How Southwest Airlines Melted Down

18% of Families Pile on Debt to Finance Trip to Disney, Study Shows

Be sure to follow me on Twitter.