Morning News: December 28, 2022
Posted by Eddy Elfenbein on December 28th, 2022 at 7:05 am

China’s $1.3 Trillion Housing Crackdown Leaves Few Winners

Hong Kong Ends Last Covid Curbs in Bid to Revive Finance Hub

Hong Kong November Home Prices Ease to More than 5-Year Low

Five Scenarios That Threaten More Strife for Global Markets

The Bull-and-Bear Case for 2023

Crypto Exchange Kraken to Stop Operations in Japan

Solana Tumbles Again, Bringing Crypto Token’s 2022 Plunge to 94%

Sam Bankman-Fried’s Power Was Contingent on Belief

How the World’s Biggest Wealth Gainer Added $40 Billion in 2022

Treasury Department Outlines Rules for New Corporate Taxes

Holiday-Related Debt Soars 24% to an Eight-Year-High of $1,549

Google Employees Brace for a Cost-Cutting Drive as Anxiety Mounts

With New EVs Arriving, Brand Loyalty Goes Out the Window

The World Just Doesn’t Have Enough Planes as Travel Roars Back

Southwest’s Debacle, Which Stranded Thousands, to Be Felt for Days

AMC CEO Adam Aron, who Earns $19 Million, Asks for Salary Freeze in 2023 as Shares Plunge

Mickey’s Copyright Adventure: Early Disney Creation Will Soon Be Public Property

Misleading Ads Fueled Rapid Growth of Online Mental Health Companies

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CWS Market Review – December 27, 2022
Posted by Eddy Elfenbein on December 27th, 2022 at 7:24 pm

Ladies and Gentlemen,

Drumroll please.

I give you our 2023 Buy List.

Abbott Laboratories (ABT)
AFLAC (AFL)
AmerisourceBergen (ABC)
Broadridge Financial (BR)
Carrier Global (CARR)
Celanese (CE)
Danaher (DHR)
FactSet Research (FDS)
FICO (FICO)
Fiserv (FISV)
HEICO (HEI)
Hershey (HSY)
Intercontinental Exchange (ICE)
Intuit (INTU)
Middleby (MIDD)
Miller Industries (MLR)
Moody’s (MCO)
Otis Worldwide (OTIS)
Polaris (PII)
Science Applications International (SAIC)
Silgan (SLGN)
Stepan (SCL)
Stryker (SYK)
Thermo Fisher Scientific (TMO)
Trex (TREX)

The five new buys are:

AmerisourceBergen (ABC)
Celanese (CE)
Intuit (INTU)
Middleby (MIDD)
Polaris (PII)

The five sells are:

Church & Dwight (CHD)
Reynolds Consumer Products (REYN)
Ross Stores (ROST)
Sherwin-Williams (SHW)
Zoetis (ZTS)

This is our 18th annual Buy List. The new Buy List won’t go into effect until the start of trading on Tuesday, January 3. The 25 stocks will be equally weighted based on the closing price as of December 30.

Here’s the performance of our ETF versus the S&P 500 ETF over the last few months.

Our ETF is based on the Buy List but it’s not always a perfect match.

I’ll have more to say about the new buys in upcoming issues, but I’ll share some thoughts with you.

I’ve wanted to add AmerisourceBergen for some time. I came close last year but decided to cut it at the last minute. That was a mistake. The company is a major drug wholesaler. AmerisourceBergen was formed 20 years ago through the merger of Bergen Brunswig and AmeriSource. They also have units offering consulting services and veterinary supply.

Part of the reason I shied away from ABC in previous years is due to the legal liabilities surrounding ABC’s role in the opioid crisis. I won’t go into its culpability, but the outlook has cleared up to some extent.

Celanese is the world’s leading maker of acetic acid. That’s one of those things that few people even think about, but it’s used in dozens of applications. Celanese is also the world’s leading maker of vinyl acetate. That’s a key ingredient in furniture glue. They make 25% of the world’s supply.

Earlier this year, Celanese agreed to buy the Mobility and Materials division from DuPont for $11 billion in cash. The stock currently yields 2.7%.

I like Intuit a lot. They’re the folks behind TurboTax, QuickBooks, Credit Karma and Mailchimp. It’s a great business. To be frank, we’re adding it at a higher price than I’d prefer.

But today’s elevated price comes after a year in which the shares were clobbered. Intuit is down about 40% YTD. Even if we’re not getting in at a discount, at least we’re getting it a lot less than where it was. With a market value of more than $100 billion, Intuit is by far the largest of the new additions.

Middleby returns to our Buy List after a one-year hiatus. The company is a major supplier of kitchen equipment for restaurants and hotels. The stock did not have a good year in 2022 (-30%), but the business has rebounded quite well. I like this company.

Originally, Polaris made snowmobiles. They still do today, but they also make all sorts of off-road vehicles, those crazy “slingshot” cars, plus snowmobiles, power boats, pontoon boats and lots of other stuff. They also do a nice business in selling apparel. Polaris has increased its dividend every year for the last 27 years.

Coming up with the sells each year is hard, because you can’t help getting attached to some stocks. Ross Stores was on our Buy List for 10 years. It made 325% for us which is about double the gain of the S&P 500. Church & Dwight was on for five years, and Sherwin-Williams was on for six years. Most of our sells this year lowered guidance at some point in 2022.

Church & Dwight was particularly difficult to let go, but I think I made the right call. Perhaps I’ll add it back in the future like I’m doing with Middleby.

I decided to keep Heico, but it’s a pricey stock. It’s tempting to take profits and move on, but I’m willing to let it run for now. The recent earnings report helped convince me to keep it.

I was strongly considering adding Nike this year, but the stock shot up after its recent earnings report. Some other companies that I was considering were Trane Technologies, 3M, CDW Corporation and Dollar General.

AFLAC and Fiserv have been on all 18 Buy Lists. Also note that sometime in Q4 of 2023, Danaher will spin off its Environmental & Applied Solutions segment into its own company. The new company will be composed of Danaher’s Water Quality and Product Identification businesses. Until the company gets a name, it will be known as EAS.

That’s it. The Buy List is locked and sealed, and I can’t make any changes for an entire year. I announce our changes before they go into effect just so no one can claim that I’m playing games with our track record.

That’s all for now. The stock market will be closed on Monday, January 2. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Morning News: December 27, 2022
Posted by Eddy Elfenbein on December 27th, 2022 at 7:08 am

Putin Can’t Count on the Global Oil Market

Japan’s Nakao Sees Smoother Path for Kuroda’s Successor with BOJ Policy Shift

Chinese Public Shows Mixed Emotions About Covid Zero Ending

Amazon Packages Burn in India, Last Stop in Broken Recycling System

U.S. Finance Faces ESG Backlash, More to Come in 2023

Wall Street’s Big Banks Score $1 Trillion of Profit in a Decade

The Money Party is Over

Drug Prices Reach New High—in the Millions

Chip Inventories Swell as Consumers Buy Fewer Gadgets

‘Most Pro-Union President’ Runs Into Doubts in Labor Ranks

Retirees Are One Reason the Fed Has Given Up on a Big Worker Rebound

Laid Off Tech Workers Quickly Find New Jobs

What Would It Take to Turn More Offices Into Housing?

Getting Creative With Vacant Office Space: Storage, Gym, Film Set

Is A.I. the Future of Test Prep?

Southwest Airlines CEO Says More Cancellations Ahead as Airline Tries to Recover

Apple Japan Hit with $98 Million in Back Taxes

In the Bahamas, a Lingering Sympathy for Sam Bankman-Fried

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Morning News: December 26, 2022
Posted by Eddy Elfenbein on December 26th, 2022 at 7:04 am

Five Charts That Capture the State of Global Energy in 2022

Britain’s Soaring Energy Costs Strain Crisis Responders

Germany’s Energy Crisis Is a Cue to Chop Wood and Stock Up

Russia May Raise Crude Oil Exports if EU Ban Cuts Refining

Rising Power Prices in Europe Are Making EV Ownership More Expensive

In Nord Stream Mystery, Baltic Seabed Provides a Nearly Ideal Crime Scene

Why the Price of Plastic Is Crashing After a Record Surge

BOJ Kuroda Dismisses Near-Term Chance of Exiting Easy Policy

World Economy Is Headed for a Recession in 2023, Researcher Says

The Boundless Fatuity Informing the Simple-Minded Word ‘Recession’

Musk Warns Against Margin Debt on Risk of Market ‘Mass Panic’

Are You ‘Extremely Hardcore’ or Not? How Elon Musk Is Dividing Silicon Valley’s Elite

Reasons for Optimism in 2023

Why 2023 Will Be Like 1967’s ‘Summer of Love’ for the Stock Market

Housing Slump Set to Give Fed an Inflation-Fighting Assist

Baking Supplies Cost a Lot More This Year. So Did Flying. But That Flat-Screen TV Got Cheaper.

Restaurant Staffers Are Returning to Work After Covid Flight

When a Taylor Swift Concert Means Getting Your First Credit Card

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Merry Christmas!
Posted by Eddy Elfenbein on December 24th, 2022 at 9:21 am

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

This has been an incredible year for us. The Buy List has soundly beaten the overall market. The newsletter is popular and our Twitter following is growing.

In September, our ETF turned six years old. I want to thank all our shareholders for their trust and confidence in me.

I also want to thank my tireless editor, Marcia Robertson. She also posts the invaluable morning news links. I also want to acknowledge some of my fellow financial bloggers: Barry Ritholtz, Josh Brown, Cullen Roche, Morgan Housel, Michael Batnick, Howard Lindzon, Ben Carlson, 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.

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

Let’s hope 2023 brings us more success!

Morning News: December 23, 2022
Posted by Eddy Elfenbein on December 23rd, 2022 at 7:04 am

Ukraine’s Parallel War on Corruption to Unlock Door to West

Japan’s Consumer Inflation Hits Fresh 40-Year High

Egg Prices Surge to Records as Bird Flu Hits Poultry Flocks

As Cases Explode, China’s Low Covid Death Toll Convinces No One

China’s Future Isn’t What It Used to Be

France Desperately Needs Workers, but the Fixes Could Anger Left and Right

Why America’s Economy Remains Surprisingly Strong – But You Don’t Realize It

It’s Boom Times for Santa

For Many Wall Street Bankers, This Year’s Bonus Season Is a Bust

Why New Year’s Eve Revelers Will Find Fewer Places to Party in Times Square

BlackRock’s Pitch for Socially Conscious Investing Antagonizes All Sides

YouTube Paying Roughly $2 Billion a Year for NFL Sunday Ticket

Elon Musk Says He Will Not Sell More Tesla Stock for About Two Years

Meta Agrees to Pay $725 Million Over Cambridge Analytica Scandal

SBF’s $250 Million Bail Is One of the Largest in US History. It Doesn’t Mean He Has That Much

Bankman-Fried’s ‘Epic’ Legal Battle

Top Executive for Financier Greg Lindberg Pleads Guilty to Charges Related to Insurance Fraud

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Morning News: December 22, 2022
Posted by Eddy Elfenbein on December 22nd, 2022 at 7:04 am

Without a Covid Narrative, China’s Censors Are Not Sure What to Do

Zelenskiy Wins Applause, Aid in Half-Day Dash Through Washington

Investors Trapped in Russian Bonds Find Saviors in Kazakh Buyers

How Changing Diets Leave Us Exposed to War, Extreme Weather and Market Turbulence

Oil Prices Rise, Extending Rally, After Decline in U.S. Inventories

Japanese Homeowners Face An Unfamiliar Headache: Higher Mortgages

Home Sales Dropped 7.7% in November

Biden and Congress Still Haven’t Made Inflation Central in Budget Matters

Fed’s Balance Sheet Drawdown Could Sunset Next Year

Bankman-Fried Associates Flip as FTX Co-Founder Arrives in NYC

All The Ways That Crypto Broke in 2022

A New Chat Bot Is a ‘Code Red’ for Google’s Search Business

Microsoft Gambles on ‘Nice Guy’ Strategy to Close Activision Megadeal

Tesla Dangles $7,500 Discount in Rare Move to Boost Deliveries

Elon Musk’s Distraction Is Just One of Tesla’s Problems

The End of Netflix Password Sharing Is Nigh

Sports and Fashion Won Big Together This Year

What Will Happen in 2023: All the Latest Predictions for Next Year

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Morning News: December 21, 2022
Posted by Eddy Elfenbein on December 21st, 2022 at 7:02 am

Russia and Iran Are Building a Trade Route That Defies Sanctions

Italy Backs Levy on Payments Firms, Banks If They Do Not Cut Fees for Retailers

Japan Bends to Global Forces Pushing Up Interest Rates

S&P 500 Facing a Historical Warning Sign After This Year’s Slump

Big Changes to 401(k) Retirement Plans Move Ahead in Congress

Jamie Dimon Is More Crucial Than Ever to the Bank He’s Run for 17 Years

High Commodity Prices Feed a Boom in the U.S. Farm Belt

Many Hospitals Get Big Drug Discounts. That Doesn’t Mean Markdowns for Patients.

3M to Stop Making, Discontinue Use of ‘Forever Chemicals’

Bans on TikTok Gain Momentum in Washington and States

Elon Musk Plans to Step Down as Twitter Head After Casting Doubt on Poll

Musk Says Cost-Cutting Averted $3 Billion Twitter Shortfall

Meta is Building Virtual World Open to App Makers, CEO Tells Antitrust Court

Core Scientific Files for Bankruptcy. Crypto Miners Are at Rock Bottom.

Nike: Huge Q2 Earnings Beat

Google’s YouTube in Talks for Rights to NFL Sunday Ticket

Phoenix Suns, Mercury Valued at $4 Billion in Record NBA Deal

Wells Fargo to Pay $3.7 Billion Over Consumer Banking Violations

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CWS Market Review – December 20, 2022
Posted by Eddy Elfenbein on December 20th, 2022 at 6:51 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.”)

Before we get to today’s issue, let me remind you that we will unveil the 2023 Buy List one week from today. As usual, the Buy List will have 25 stocks. Five new names go into the Buy List and five old names will come out.

This will be the 18th year of our Buy List. In honor of the new Buy List, the stock market will be closed on Monday, December 26. The 2023 Buy List won’t go into effect until Tuesday, January 3, which is the first trading day of the year.

This looks to be a very good year for our Buy List in terms of relative performance. Since April, we’ve outperformed the overall stock market by a nice margin. I’ll have full details on our 2022 performance in upcoming issues.

The Stock Market’s Lousy December

Unfortunately, the stock market has been somewhat sluggish this month. Today, the S&P 500 snapped a four-day losing streak with a gain of just 0.1%. Earlier this month, the index compiled a five-day losing streak.

Until December, the S&P 500 had been recovering well since the low in mid-October. It seems like every time the stock market gets going, it stumbles to another new low. Was that just another bear-market rally?

It’s too early to say, but there’s been a crucial difference between the market in December and previous pullbacks, and that’s the strength of the bond market. Interest rates, especially at the long end, have gradually slumped lower over the past few weeks. On November 9, the 30-year Treasury yielded 4.31%. It’s recently ticked below 3.5% (although it’s up to 3.7% now).

The paring of high bond prices and lower stocks is often taken as the market preparing for a recession. That may be a prudent decision. There are lots of reasons to believe the overall economy may slow down next year, or even fall into a recession.

Bloomberg recently surveyed economists and found that 70% of them expect a recession next year. That’s double the number from a similar survey in June. The economists see the U.S. economy expanding by a measly 0.3% next year.

They’re not alone. In September, the Federal Reserve was expecting the U.S. economy to grow by 1.2% next year. Last week, the Fed lowered that forecast to growth of just 0.5%. I don’t think the economy will fall off a cliff, but it’s wise to expect a modest slowdown. The economy had a mild slowdown in 2015-2016 without going into a recession.

The housing market is already feeling the squeeze. Today we learned that housing starts fell by 0.5% last month to an annualized rate of 1.43 million. Single-family homebuilding fell to its lowest rate in more than two years.

The outlook may not improve soon. Applications to build fell by 11.2% and permits to build single-family homes dropped by 7.1% to their lowest level since 2020. Housing in some areas of the country is pretty ugly. Bill McBride points out that home sales in California are down 48% over the last year. Homebuilder confidence fell to 31 last month from 33 the month before. Any number below 50 means the homebuilders are pessimistic.

Another place where we see pessimism is on Wall Street. Analysts have been cutting back their earnings forecasts. At the middle of the year, Wall Street was expecting the S&P 500 to report Q4 earnings of $60.46 per share (that’s the index-adjusted number). Since that time, the Q4 forecast has been ratcheted back to $53.91 per share. That’s a decrease of more than 10% in less than six months. That also helps explain the recent behavior of stocks and bonds.

For all of 2023, Wall Street had lowered its forecast by 8% since the summer. The full-year 2023 forecast is now down to $227.17 per share from $249.01 per share this summer.

If those forecasts are accurate (which is a big if), then it means that the stock market is reasonably priced. The S&P 500 is currently going for just under 17 times next year’s earnings estimate. That’s not bad, especially if the Fed keeps rates steady for much of this year.

This has been an unusual year for the stock market, and it may be one of the worst years in decades for an old stand-by portfolio. I’m speaking of the 60/40 Portfolio. That means a portfolio that’s 60% in stocks and 40% in bonds.

For many years, the 60/40 Portfolio has represented the optimal well-balanced portfolio. It’s not that this portfolio performed the best but rather that it performed the best relative to its volatility. According to Vanguard, the 60/40 Portfolio has gained an average of 8.8% per year for nearly 100 years. Owning the 60/40 Portfolio meant you could sleep well at night.

That is, until this year. In normal times, stocks and bonds tend to move in opposite directions which has meant that the right combo of the two would balance each other out. Investors got growth with stability.

Thanks to inflation and higher interest rates, both stocks and bonds moved lower for much of this year. As a result, the 60/40 split didn’t do much to help you. Both were losers. The failure of the 60-40 this year has shocked many investors. It was assumed that a 60-40 portfolio could never have a really bad year, but it happened. One of the lessons for investors is that so-called extreme events happen more often than you think.

There really isn’t a substitute for owning high-quality stocks. Speaking of which, let’s look at a stock that’s been an all-star, until about five years ago.

Stock Focus: J.M. Smucker

“With a name like Smucker, it has to be good.” So said the old slogan for J.M. Smucker (SJM). I’m not sure why a name would cause anyone to discount the seriousness of a business enterprise, but the famous slogan certainly worked.

For over 120 years, Smucker has kept America fed with its high-quality brand names. If you’re inclined to think Smucker is just jelly, allow me to disabuse you of that notion. Of course, it owns Jif peanut butter as well.

Ok, it’s more than PB&J as well.

In fact, there’s an entire stable of brand names that Smucker owns. This company owns Crisco and Knott’s Berry Farm. The Dunkin’ Donuts brand is also licensed to Smucker to sell coffee at the retail level. Coffee is a big part of their business. Smucker also owns Folgers.

It doesn’t end there. Smucker has an entire pet food division to make sure Rover gets fed. Smucker owns Meow Mix, 9 Lives and Milk-Bone. Both Folgers and Milk-Bone are the top brands in the U.S. Smucker also owns Uncrustables, a personal favorite. About 95% of the company’s sales come from the United States. Smucker also used to be a Buy List stock for three years, from 2017 to 2019.

Check out this long-term chart:

You’ll notice that while Smucker has been a long-term winner, it hasn’t done so well lately. Since the middle of 2016, the S&P 500 has more than doubled, including dividends, but SJM is only up by about 20%.

What happened? Well, the company made a few ill-advised acquisitions that didn’t turn out as well as planned. I can’t help but think of Peter Lynch’s observation that too much cash on a firm’s balance sheet is not a good thing because it forces them to do something dramatic and unwise. Lynch referred to this as the Bladder Theory of Corporate Finance. In particular, Smucker’s premium dog food biz has not been a winner.

Today, Smucker’s current market value is just over $16 billion. That’s a good-sized company, and I have strong hopes for the company.

The last earnings report came out on November 21, and it was quite good. Smucker earned $2.40 per share for its fiscal Q2. That beat the Street by 21 cents per share. This was for three months ended in October.

I was also impressed to see Smucker increase its full-year guidance. The company now sees earnings ranging between $8.35 and $8.75 per share. That’s an increase of 15 cents per share to both ends of its guidance.

“Our second quarter results reflect the ongoing strength of our business, continued demand for our leading brands, and the ability of our team to execute with excellence,” said Mark Smucker, Chair of the Board, President and Chief Executive Officer. “We delivered organic top-line growth across all of our businesses, driven by the strength of our portfolio, and our ability to recover cost inflation and manage our supply chain environment.”

The next earnings report will be out in late February. Wall Street expects $2.12 per share. That’s a decrease over the $2.33 Smucker earned in the same quarter one year ago. Smucker currently pays a quarterly dividend of $1.02 per share. That works out to a yield of 2.6% which isn’t bad.

Smucker is an attractive buy at this price. It won’t be a giant winner for you but it could prove to be a consistent performer in your portfolio. It’s one of the best consumer staples stocks. Smucker has increased its dividend every year for the last 25 years in a row.

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.

FactSet Earns $3.99 per Share
Posted by Eddy Elfenbein on December 20th, 2022 at 8:44 am

This morning, FactSet (FDS) said it made $3.99 per share for its fiscal Q1. That’s up 22.8% over last year. Wall Street had been expecting $3.61 per share. Revenues rose 18.9% to $504.8 million.

The company reiterated its full-year earnings guidance of $14.50 to $14.90 per share.