• CWS Market Review – December 7, 2012
    Posted by on December 7th, 2012 at 6:07 am

    “If you can look into the seeds of time,
    And say which grain will grow and which will not,
    Speak then to me.”
    – Macbeth, Act 1, Scene 3

    And to me, too, while you’re at it. After a nice recovery since mid-November, the S&P 500 has settled into a narrow trading range. For the last seven days running, the index has closed between 1,407 and 1,417. Chart watchers generally think this is a positive sign because stocks haven’t immediately surrendered their gains and dipped to a new low. My advice for investors is to ignore this silly Fiscal Cliff alarmism and expect a strong rally ahead. I continue to be bullish on the market and think we’ll break 1,500 sometime early in 2013.

    Stay Tuned for the 2013 Buy List

    Before I get into today’s CWS Market Review, I want to announce that I’ll unveil next year’s Buy List two weeks from today, on Friday, December 21, 2012. As usual, the new Buy List will have 20 stocks, and as usual, I’ll take off five stocks and add five new ones. We try to keep our turnover low. I always unveil the new Buy List a few days before the end of the year so no one can claim I’m getting an unfair jump on investors.

    Once the changes are made, the Buy List is locked and sealed for the next 12 months and I’m not allowed to make any changes until next December. I’ll start tracking the new list at the start of trading on January 2nd. My purpose with the Buy List is to show investors that with patience and discipline, any investor can consistently beat the stock market with a user-friendly portfolio. I’m very fortunate that we’ve had great success at Crossing Wall Street. If all goes well, 2012 will be the sixth year in a row that we’ve beaten the S&P 500.

    The 2012 Buy List So Far

    Through Thursday, our 2012 Buy List is up 13.21% for the year (not including dividends), which is slightly more than the S&P 500. I’ll include dividends in the final numbers. The good news is that the second half of the year has been very friendly to us. Remember that you can see exactly how our Buy List is doing at any time during the year at our Buy List page. I try to make investing as transparent as possible. I also have my Buy Below prices there so you’ll know exactly what’s a good entry point.

    Let’s look at some of our recent Buy List standouts. Fiserv ($FISV) just broke $80 per share, which is an all-time high. The stock is a 36% winner for us this year. AFLAC ($AFL) finished the day on Thursday at $53.80, which is its highest close since May 17, 2011. I’m a big fan of the duck stock. Sysco ($SYY), one of the most stable stocks on our Buy List, also finished Thursday at an 18-month high. SYY currently yields 3.51%.

    How about little Nicholas Financial ($NICK)? The stock dropped sharply after what some believed were poor earnings. They weren’t poor at all (perhaps mildly disappointing), and with a little patience, NICK has nearly made back all it lost. Even after the recent rally, NICK yields 3.6%. Nicholas Financial is a great buy up to $15 per share.

    The Great Special Dividend Rush of 2012

    Recently you’ve heard me complain about the careless media alarmism about the impending Fiscal Cliff. One starts to wonder whether CNBC now stands for “Cliff, Nothing But Cliff.” Trust me: you can ignore all that.

    Wall Street has also been distracted by some turbulence in shares of Apple ($AAPL). Truthfully, the recent downturn in Apple isn’t all that surprising. Bespoke Investment Group points out that this is Apple’s 10th 20% correction in the last 10 years. As Josh Brown recently pointed out, the difference this time is that Apple’s correction begins at a very high nominal price.

    One truly important effect of the impending Fiscal Cliff is that companies have been rushing to pay special dividends to shareholders before the end the year, as dividend taxes are expected to rise. This is especially the case for cash-rich companies and firms with high insider ownership. So far, U.S. companies have announced $21 billion in special dividends. Other companies, like Walmart ($WMT), have moved up their dividend-payout dates.

    On our Buy List, Oracle ($ORCL) announced that they will pay out their next three quarterly dividends before the end of the year. To clear up any confusion, Oracle’s fiscal year ends in May, so they’re paying out their second-, third- and fourth-quarter dividends all at once. The quarterly dividends are six cents per share, so the total payment for this month will be 18 cents per share. That works out to a cool $200 million for CEO Larry Ellison.

    Oracle’s fiscal Q2 earnings report is due after the close on Tuesday, December 18th. I’m expecting a good report. During the earnings call in September, Oracle said Q2 earnings should range between 59 and 63 cents per share. That’s a nice increase from the 54 cents per share they made in last year’s Q2. Wall Street’s consensus is at the dead center of the range, at 61 cents per share. Earlier this week, Oracle’s stock got as high as $32.50, which is an 11-week high. Oracle remains a strong buy any time it’s below $35 per share.

    The day after Oracle reports, Bed Bath & Beyond ($BBBY) will report its fiscal Q3 earnings. An important earnings call will follow because BBBY will give their initial planning assumptions for next year. Wall Street currently expects earnings of $5.15 per share for next year, and I suspect that’s too high. Unfortunately, this will be the last we hear from BBBY for awhile. The company’s Q4 is hugely important for them: about one-third of their annual profits come during the holiday quarter. But that report won’t come out until early April. Until then, we won’t hear much of anything from BBBY. This is still a solid company. Bed Bath & Beyond is a good buy up to $62 per share.

    Stryker Raises Dividend By 25%

    In last week’s CWS Market Review, I said I expected Stryker ($SYK) to raise its quarterly dividend soon, and sure enough, I was right.

    I had said that I expected Stryker to increase its payout from 21.25 cents per share to around 23 cents per share. It turns out, I wasn’t optimistic enough. The company just announced that the dividend will rise 25% to 26.5 cents per share. That brings the annual dividend to $1.06 per share. At Thursday’s close, Stryker now yields 1.95%.

    Stryker’s board also approved a $405 million increase in the share buyback program, which brings the total to $1 billion.

    “Given the considerable strength of our balance sheet and strong cash flow generation, we are well positioned to pursue a capital allocation strategy that includes highly focused M&A, an increasingly robust dividend and share buybacks,” said Kevin A. Lobo, President and Chief Executive Officer of Stryker. “We are committed to a strategy that will help drive our sales and earnings growth while simultaneously returning capital to shareholders at meaningful and consistent levels. ”

    Stryker has raised its dividend every year since 1995. The stock is a buy up to $57.

    Not to be outdone, Medtronic ($MDT) also announced an accelerated dividend payment. The company usually pays its fiscal third-quarter dividend in early January. On Thursday, Medtronic said that it will pay out the dividend in December in order to avoid the taxman. If you recall, in June, Medtronic raised its dividend for the 35th year in a row. The company recently had a good earnings report and reiterated full-year guidance. Medtronic is a buy up to $44 per share.

    Before I go, I want to highlight the good sales report from Ford ($F). For November, vehicle sales were up 6%, and sales of the F-series trucks were up 18%. This was the best November for trucks in seven years. Ford also set a record for hybrid sales, but that’s a very small part of their overall business. I was pleased to see the company plans to build 750,000 vehicles in North America for Q1. That’s an 11% increase over last year.

    I think it’s possible we may even see a dividend increase from Ford. The company currently pays a nickel per share, which comes to an annual yield of 1.8%. Ford is on track to earn about $1.35 per share this year, so they can easily afford an increase. Ford is a good buy up to $13 per share.

    That’s all for now. Next week, we’ll get important reports on industrial production and retail sales. Also, the Fed meets on Tuesday and Wednesday. Following the meeting, Bernanke will hold a press conference. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: December 7, 2012
    Posted by on December 7th, 2012 at 5:30 am

    Bundesbank Slashes 2013 German Growth Forecast to 0.4%

    Greece Sticks To Buyback Plan, Says Will Shield Banks

    Horrific Fire Revealed a Gap in Safety for Global Brands

    Obama’s Tax Plan Would Spare Many Affluent Families

    Fed Exit Plan May Be Redrawn as Assets Near $3 Trillion

    U.S. Jobless Claims Fall to 370,000

    FHA’s Fund Shortfall Response Inadequate, Senators Say

    Small Business Hiring Plans Hit Post-Recession Low As Fiscal Cliff Nears

    S.E.C. Warns Netflix Over a Post on Facebook

    How Wal-Mart Got A Foot In The Door Of India’s Retail Market

    Diamondback is Shutting Down

    Deutsche Halts Nearly Half Its Japanese Equities Coverage

    Credit Suisse, Sberbank Said to Scrap Buyout Fund

    Credit Writedowns: Investing Tips From Hugh Hendry

    Joshua Brown: The Thing About Apple…

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  • I Hate the Monthly Jobs Report
    Posted by on December 6th, 2012 at 9:25 am

    I’m almost afraid to admit this, but I hate, hate, hate the monthly jobs report. There. I said it—and I know I speak for many others. The monthly jobs report needs to go die in a fire.

    It’s almost a mystery this highly misleading and often inaccurate economic report came to be the most important monthly event on Wall Street. And when I say event, I’m not exaggerating.

    On the first Friday of each month, the international finance world comes to a halt to hear the Bureau of Labor Statistics release some numbers that might as well be completely random. It’s just an estimate and a rather poor one at that. I’m especially tired of people thinking this report is an accurate portrait of the jobs market when in reality these figures have all the solidity of the summer breeze.

    Of course, the jobs number will get revised next month, and the revisions to the revisions get revised again. Jeff Miller, who’s been bravely leading the charge on the BS from the BLS, points out that the payroll number has a confidence interval of plus or minus 105,000. You got to be effing kidding me? That’s not even close to being accurate. Do they say this rather important fact on the evening news? Of course not. The household survey is even worse. The plus or minus is 450,000 jobs. The deeper analysis of the report consists at the looking at the sub industries but the error margin there is even wider.

    Imagine watching a football game where you didn’t know the score and the refs are constantly reversing calls from two quarters ago. That’s about where we’re at.

    What should be done? Here’s an idea: Wall Street should say to the government, we’d like to have an accurate picture of the labor market, that’s not endlessly revised and without too much lag time. Tell us the truth. If it can’t be done, that’s fine. We’ll move on. If the only accurate report takes nine months or a year, then Wall Street should drop its focus.

    There are lots of good reports that don’t have much lag time. Corporate earnings. The ISM Index correlates fairly well with NBER cycles. It’s rarely revised and it comes out on the first business day of the next month. Industrial production also lines up well. We get how these work.

    The jobs report is obviously the most important report politically which is an even greater argument for accuracy. This is a sensitive area and as an investor I believe that no data is better than bad data. If we can only use a survey, fine—make it broad and shallow. If the report needs to be revised each month, fine—delay it for a few months. Focus on some jobs metric with a greater confidence interval. Just stop jerking us around.

    If the Feds simply can’t get a good number, then work with some public-private consortium. There’s got to be a better way than what we have now.

  • Morning News: December 6, 2012
    Posted by on December 6th, 2012 at 6:34 am

    ECB Seen Refraining From Rate Cuts as Yields Sink on Bond Plan

    China Mobile Says Apple Must Discuss IPhone Benefit Sharing

    King Seen Maintaining QE as Osborne Extends Fiscal Squeeze

    The Future Of US Energy In 4 Charts

    Report Bolsters Case for Large U.S. Natural Gas Exports

    Despite Storm’s Impact, Services Sector Grew

    Short Sales of Homes Surge as Tax Break to Expire

    Daimler Raises $2.2 Billion From EADS Stake Sale

    Zynga Takes Gambling Step in Nevada

    Standard Chartered Sees $330 Million Iran Fine, Profit Rise Erodes

    Freeport Makes $9 Billion Energy Bet; Wall Street Pans Deal

    Citigroup’s Corbat Ends Pandit’s Surge With Job Cuts

    Trail to a Hedge Fund, From a Cluster of Cases

    Cullen Roche: Buffett: Wall Street has Turned into a “Casino Game”

    Phil Pearlman: Institutions Were Buying Netflix Yesterday Ahead of the Disney Announcement

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  • Stryker Raises Dividend 25%
    Posted by on December 6th, 2012 at 1:42 am

    In last week’s CWS Market Review, I said I expected Stryker ($SYK) to raise its quarterly dividend soon.

    I expected Stryker to increase its payout from 21.25 cents per share to around 23 cents per share. Well, I wasn’t optimistic enough. The company just announced that the dividend will rise 25% to 26.5 cents per share. That brings the annual dividend to $1.06 per share. At Wednesday’s close, Stryker now yields 1.95%.

    Stryker’s board also approved a $405 million increase in the share buyback program which brings the total to $1 billion.

    “Given the considerable strength of our balance sheet and strong cash flow generation, we are well positioned to pursue a capital allocation strategy that includes highly focused M&A, an increasingly robust dividend and share buybacks,” said Kevin A. Lobo, President and Chief Executive Officer of Stryker. “We are committed to a strategy that will help drive our sales and earnings growth while simultaneously returning capital to shareholders at meaningful and consistent levels.”

    Stryker has raised its dividend every year since 1995.

  • Our Buy List YTD
    Posted by on December 6th, 2012 at 12:25 am

    There are now just 17 trading days left in 2012, and our Buy List holds a narrow lead over the S&P 500. Through Wednesday, our Buy List is up 12.90% for the year while the S&P 500 is up 12.06%.

    That doesn’t include dividends, which I will include in the final tally, but it’s not that much. I estimate that the S&P 500 yields around 15 to 20 basis points more than the Buy List.

    Our Buy List‘s beta for the year is running at 1.0475.

  • December 6: A Good Day to Buy
    Posted by on December 5th, 2012 at 1:10 pm

    From Gary Alexander:

    On Friday, December 6, 1974, the U.S. stock market reached its lowest reading during the last 50 years, hitting 577.6 on the Dow. In the 38 years since then, the Dow is up 2,150%, or about 8.7% per year.

    On Monday, December 6, 1982, the Dow gained 24.3 points (+2.36%) in one day, rising from 1031 to 1055, capping a 36% gain in less than four months, up from a low of 777 on August 13, 1982. But the stock market, far from peaking, went on to gain another 20% in 1983 and 250% from 1982 to 1987.

    On Monday, December 6, 1994, Orange County (California) declared Chapter 9 bankruptcy, the single biggest bankruptcy filing by a U.S. municipality. The Dow fell 60 points (-1.7%) in the next two days to 3685. (P.S. Within five years, the Dow tripled and Orange County went back into the black.)

    On Friday, December 6, 1996, the Dow fell 55 points, and 140 points (-2.1%) for the week, from 6522 to 6382, mostly in reaction to Alan Greenspan’s Washington speech, in which he said that financial markets could be exhibiting “irrational exuberance.” (P.S. The Dow rose another 77% in the next three years

  • Intel Borrows Money To Buy Its Own Stock
    Posted by on December 5th, 2012 at 12:41 pm

    The stock market had a nice reversal today. The Dow went from being down 30 points to being up 130. Shares of Apple ($AAPL) are taking a beating today. At one point, Apple was down $30 per share.

    Citigroup ($C) is also in the news. The shares are up close to 6% on the news that the bank will lay off some 11,000 employees. I’m never impressed with these bold cost-cutting announcements. A good company should always be looking for ways to cut costs. Sadly, these big announcements usually get a big ovation from Wall Street.

    This morning’s jobs report from ADP said that 118,000 jobs were created last month. The big report comes Friday from the government. Economists expect to see a gain of 93,000 jobs. Also, the ISM Services Index rose to 54.7 last month. That was better than expectations.

    I see that Intel ($INTC) is going to the bond market to raise $6 billion. What’s interesting is that Intel is going to use the proceeds to buy back shares. This makes a lot of sense. Intel’s dividend currently yields 4.6%.

    The bond offering is $3 billion in five-years at 1.35%, $1.5 billion of 10-years at 2.7%, $750 million of 20-years at 4% and $750 million of 30-years at 4.25%.

    While this makes sense for Intel, I can’t say I’m a big fan of these moves. I’d much rather see Intel stick to its business and make money that way than by trying to goose a few pennies per share by financial engineering.

  • RIP: Dave Brubeck
    Posted by on December 5th, 2012 at 12:09 pm

    Dave Brubeck died today one day shy of his 92nd birthday.

    By the way, I love the mid-60s style in this clip. I feel like I want to stop by Sterling Cooper for a scotch.

  • Morning News: December 5, 2012
    Posted by on December 5th, 2012 at 7:17 am

    Euro-Area Manufacturing, Services Contract for 10th Month

    As Budget Talks Continue, Markets Change Little

    Euro Crisis Feeds Corruption as Greece Slides in Rankings

    Global Shipping Industry’s Troubles Are Threat for Biggest German Banks

    In Tax Fight, G.O.P. Seeks a Position to Fall Back On

    U.S. Bank Earnings Up 6.6% on Growth in Revenue, FDIC Says

    HSBC Sells Stake in Chinese Insurer for $9.4 Billion

    Philips, LG And Others Fined 1.47 Billion Euros by EU for Cartel

    US Auto Sales Race To 5-Year High For November

    Olive Garden Parent Cuts View On Restaurant Sales Drop

    Pandora Media Blames ‘Fiscal Cliff’ For Lowered Outlook

    AT&T Seeks Freedom From Ma Bell’s Rules in Internet Era

    Ex-Trader at Rochdale Is Arrested After $1 Billion Trade in Apple

    Roger Nusbaum: Learning About Skill vs Luck

    Jeff Miller: A Bull Market in Bad Predictions

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