October Unemployment = 7.9%
Posted by Eddy Elfenbein on November 2nd, 2012 at 3:52 pm

This morning was the important jobs report for October. This will be the last major economic report before the election next week.

The government said that the U.S. economy created 171,000 net jobs last month. The gain for August was revised upward from 142,000 to 192,000. The gain for September was also revised higher, to 148,000 from 114,000. The economy has now gained back slightly more than half of the 8.78 million jobs lost between January 2008 and February 2010.

The unemployment rate ticked up from 7.8% to 7.9%. Oddly, part of the reason the unemployment rate rose is that more people rejoined the workforce looking for jobs. The official unemployment had been held down because so many people had simply stopped looking for work altogether.

For the U.S. economy to have the same jobs-to-population ratio as we had 12 years ago, we would need either 13.3 million more jobs, or 20.8 million fewer people.

Here’s a look at the unemployment for the final month before a presidential election. The current one ranks highest of the last 17.

CWS Market Review – November 2, 2012
Posted by Eddy Elfenbein on November 2nd, 2012 at 8:28 am

“Success or failure in business is caused more by the mental attitude even than by mental capacities.” – Walter Scott

In last week’s CWS Market Review, I mentioned how I saw the market heading for “rough waters.” Of course, I meant that as a metaphor but it came literally true this week as Hurricane Sandy pounded the New York area. For the first time in more than 120 years, the New York Stock Exchange closed for two days in a row due to weather. I hope everyone survived the storm intact.

Despite the abbreviated trading this week, our Buy List continues to do well. I told you in last week’s issue to “look for an earnings beat” from Ford ($F), and that’s exactly what we got. The automaker smashed Wall Street’s expectations by 33%. Once trading resumed on Wednesday, the stock gapped up nearly 8%, and it pushed even higher on Thursday to reach its highest close in six months. Also on Thursday, shares of AFLAC ($AFL) closed at their highest level since May 17, 2011.

However, not all of our earnings reports have been great. Nicholas Financial ($NICK) had a mildly disappointing report, and WEX Inc. ($WXS), the new name for Wright Express, fell six cents shy of estimates. I still want investors to position themselves defensively. We’re not out of the woods just yet, but we are getting close.

In this week’s issue, I’ll survey our recent Buy List earnings reports; plus I’ll discuss the final batch of earnings reports due next week. But first, let’s look at the remarkable turnaround at Ford Motor.

Ford Is a Strong Buy Up to $13

I have to admit that I had been baffled by the steady erosion in Ford’s ($F) share price since the beginning of last year. The company was clearly doing well and all of the problems negatively affecting their business were out of their control. Sure, their European sales were going down the drain, but they’ve been working to cut back production there.

On Tuesday, we got the results and they were very good. For the third quarter, Ford earned 40 cents per share which was 10 cents more than Wall Street’s consensus. This was despite a 4% drop in overall revenues. I’ve looked over Ford’s numbers and what’s most impressive is that they got their profit margins in North America up to 12%. That’s outstanding.

The success of this earnings report was laid a few years ago when the company dramatically restructured itself. Ford worked to cut costs and change its operations. That’s basically what Ford is planning to do in Europe today. Looking at the numbers, we can see that Europe was clearly Ford’s weak spot. The company lost $468 million in Europe.

Ford is doing amazingly well in North America and that drove the strong results. On Wednesday, Ford jumped 7.7% to $11.16. On Thursday, the stock rose another nine cents to $11.25. The last time the stock was this high was on April 30th. Despite the rally, shares of Ford are still attractively priced. I think Ford can earn as much as $1.62 per share next year which means the stock is going for less than seven times next year’s earnings. I’m raising my Buy-Below on Ford to $13 per share.

Nicholas Financial Earns 42 Cents Per Share

I had been eagerly waiting for Nicholas Financials’ ($NICK) earnings report but the results were a slight disappointment. For the third quarter, the used-car financier made 42 cents per share. Their results were hurt by higher operational costs and for their interest rate swaps. I don’t want to overstate my disappointment. The company is still doing very well and my long-term view of the company hasn’t changed. With short-term interest rates poised to remain low for the next few years, plus a slowly recovering economy, the future looks bright for NICK. I think the company can continue to earn about 45 cents per share (give or take) for the next several quarters. Don’t let any short-term bumps rattle you, NICK is doing well. The stock continues to be a strong buy up to $15.

Fiserv ($FISV) has been a great stock for this year (+28.35% YTD). Except for a dip in May, the stock has climbed nearly every month this year. On Tuesday, the company reported third-quarter earnings of $1.27 per share which was inline with Wall Street’s consensus. Fiserv also reiterated its full-year forecast of earnings growth of 11% to 14% which comes to $5.05 to $5.20 per share. Earnings for the first three quarters were up 13% to $3.75 per share so Fiserv should have little trouble hitting their full-year target. In fact, I think they have a shot of slightly beating that. Fiserv remains a very good buy. I’m raising my Buy-Below price to $80 per share.

For such a quiet stock, Harris ($HRS) has been very volatile recently. The shares got knocked down by 8% over two days in mid-October due to a downgrade. On Monday, the company reported quarterly earnings of $1.14 per share which was two cents more than expectations. The most important news is that Harris is sticking by its full-year guidance of $5.10 to $5.30 per share. If the next three quarters are like the first, Harris will hit that target easily. When trading resumed on Wednesday, the stock dropped, which I found puzzling. Sure enough, the shares rallied back strongly on Thursday to reach a three-week high. Harris remains a good buy up to $50.

WEX Inc. ($WXS), which used to be known as Wright Express, reported third-quarter earnings of $1.08 per share which was six cents below estimates. Revenues rose 6% to $161 million. WXS sees Q4 earnings ranging between $1.01 and $1.08 per share. The Street had been expecting $1.10 per share. Despite the earnings miss and poor guidance, the shares are holding up well. WXS is a good buy anytime the shares are below $75.

The Last Batch of Q3 Earnings Reports

We have three more Buy List earnings reports coming up. Moog ($MOG-A) reports on Friday, November 2. The results are probably out by the time you’re reading this. Unfortunately, Moog’s stock has been a dud this year. It’s the single worst-performing stock on our Buy List.

The problem is that Moog makes flight control systems for commercial and military aircraft. That whole sector has been…well, a no-fly zone this year. Wall Street expects earnings of 89 cents per share (this will be for Moog’s fiscal Q4). I’ll be curious to see if Moog reiterates their guidance for FY 2013 (which we just started). Earlier Moog had said it expects fiscal year earnings of $3.50 to $3.70 per share. The good news is that the stock’s lagging performance has made it an attractive buy. I rate Moog a strong buy up to $45 per share.

On Monday, November 5th, Sysco ($SYY) is due to report earnings, and DirecTV ($DTV) follows on Tuesday, November 6th, which is also Election Day. Sysco is expected to earn 50 cents per share which sounds about right. The stock currently yields 3.42% which is a very good deal. Here’s the thing: Sysco has raised its dividend for the last 42 years in a row. Even though their earnings were about the same as last year’s, I think they’ll want to keep the dividend streak alive, so look for a penny-per-share increase in the quarterly dividend very soon. Sysco is a good buy up to $32.

That’s all for now. Obviously the big news next week will be the election. 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: November 2, 2012
Posted by Eddy Elfenbein on November 2nd, 2012 at 6:26 am

Deutsche Bank Faces Top Surcharge as FSB Shuffles Tiers

R.B.S. Expects Libor Fine Amid Third-Quarter Loss

Japan’s Electronics Behemoths Speak of Dire Times Ahead

World Bank Offers Myanmar Development Grant

Dollar Advances Against Most Peers Before U.S. Jobs Data

FERC Takes Aim at Wall Street

Consumer Comfort in U.S. Held Close to Six-Month High Last Week

Big Storm Was Just A Fender-Bender For U.S. Auto Sales

Retail Sales Climb In October, But Sandy Clouds Outlook

Starbucks Grows Stores, Sales

Exxon and Shell Earnings, Hurt by Natural Gas, Are Helped by Refining

AIG Earnings and Revenue Exceed Expectations

Honda to Nissan Extend China Sales Plunge on Islands Dispute

Cullen Roche: Why the Stock Market is Rooting For Obama

Jeff Carter: MF Global, One Year Later. No One Charged

Be sure to follow me on Twitter.

Consumer Confidence Hits Four-Year High
Posted by Eddy Elfenbein on November 1st, 2012 at 10:38 am

The stock market is up nicely this morning. We had a few nuggets of good economic news. I was very pleased to see that the ISM report came in at 51.7. That was a small increase over the 51.5 for September. Any number over 50 means that the manufacturing sector of the economy is expanding.

The Conference Board reported that consumer confidence rose to its highest level since February 2008. ADP, the private payroll firm, said that 158,000 new jobs were created last month. Everyone is waiting for tomorrow morning when the official employment numbers from the government are released. Economists expect a gain of 125,000. Today’s jobless claims reports fell by 9,000 to 363,000. Economists were expecting 370,000.

On our Buy List, Ford ($F) said that Alan Mulally will stay on as CEO through 2014. That’s good news for Ford’s shareholders.

Morning News: November 1, 2012
Posted by Eddy Elfenbein on November 1st, 2012 at 7:07 am

Geithner-Draghi No Show Risk Turning Mexican G-20 Into Flop

China Fund Buys 10% Stake In London’s Heathrow Airport

Encouraging Signs in Chinese Manufacturing Data

U.S. Is Nearing Its Debt Ceiling Again, Treasury Department Warns

Oil Trades Near 3-Day High as Refineries Resume

Sharp Issues Survival Warning As It Forecasts Huge Loss

Hurt by $1.6 Billion Charge, Lloyds Bank Posts a Loss

Shell Struggles In Q3 Amid ‘Volatile’ Energy Markets

GM Sees European Operations Breaking Even By Mid-Decade

Sony Posts 7th Straight Loss as TV Sales Slump on Economy

AB InBev Beer Volume Drops on Slow Russia, Brazil Demand

Icahn Pounces on Netflix

Apple’s Cook Fields His A-Team Before A Wary Wall Street

Joshua Brown: The Baghdad Bob of Redmond, Washington

Stone Street: Thoughts on a Trip to Jos A. Bank

Be sure to follow me on Twitter.

“Ways to Make Your Money Grow”
Posted by Eddy Elfenbein on October 31st, 2012 at 5:58 pm

In an insightful article on investing, John DeFeo of TheStreet drops this nugget:

Meanwhile, if you’re looking for insightful analysis of individual stocks, Eddy Elfenbein’s Crossing Wall Street blog is a must-read.

Thanks! Check out the whole column.

Hubbell Inc. ($HUB-B)
Posted by Eddy Elfenbein on October 31st, 2012 at 3:09 pm

Ever heard of Hubbell Inc. ($HUB-B)? Don’t worry, you’re not alone.

The reason I’m highlighting it — and let me make it clear that I’m not saying it’s a buy — is that it’s a pretty high-quality company. Despite Hubbell’s strong performance the stock is almost completely ignored by Wall Street. It has a market value of $5 billion and there are no earnings estimates for it. Not a single one.

Here’s a description from Hoovers:

The Hubble telescope and Hubbell Inc. both feature lots of modern electrical equipment — but you don’t have to go into space to check out Hubbell’s wares. The company’s two operating segments — Electrical (which now includes Hubbell’s former Industrial Technology segment) and Power — make electrical and electronic products for commercial, industrial, telecommunications, and utility applications. Hubbell’s products include lighting fixtures, outlet boxes, enclosures and fittings, wire and cable, insulators and surge arresters, and test and measurement equipment. The company gets most of its sales in the US.

Now check out this long-term chart. I’ve added the trailing earnings-per-share at the bottom.

I’ll let you in on a secret — you don’t need an MBA or a CFA or anything else to analyze a company. You simply want to find a company with a nice track record of growing earnings, just like we see above with Hubbell. The earnings don’t grow every quarter or every year, but there’s a clear upward trend. That’s exactly what we want to see.

The stock reacts in lots of short-term fits and starts, but over the long haul, it moves up with the earnings.

Hubbell is clearly a good company, yet it’s almost never mentioned on CNBC. Hubbell rarely makes news that you can find in the Wall Street Journal. Every bump and wiggle from Apple is covered relentlessly. Yet Hubbell quietly goes about their business.

Since 1978, Hawkins ($HWKN) is up about 17,250% while the S&P 500 is up 1,386%. Yet the number of analysts who follow HWKN = 0.

As an investor, don’t ever feel pinned in by the top names on Wall Street. There are thousands of companies out there. Many are bad, but there are a few gems.

Books for New Investors
Posted by Eddy Elfenbein on October 31st, 2012 at 3:02 pm

This is from my FAQ page but I wanted to highlight it for new visitors.

I’m new to investing. Do you recommend any books to learn about the stock market?

I think the best place to start is Peter Lynch’s “One Up On Wall Street.” It’s easy-to-read and Lynch’s conservative message is still timely. Another excellent book is “The Essays of Warren Buffett,” which is a collection of Buffett’s writings over the years.

Nicholas Financial Earns 42 Cents Per Share
Posted by Eddy Elfenbein on October 31st, 2012 at 12:11 pm

The results are out! For their fiscal second quarter, Nicholas Financial ($NICK) earned 42 cents per share. This was on the low side of my expectations, but it’s hardly troubling. The company was dinged by about four cents per share (pre-tax, about 2.4 cents per share by my math, post tax) on their interest rate swaps. Operating costs rose about 8% over the last rise which is pretty steep considering that revenues only rose about 3% over last year.

Still, the fundamentals of NICK’s business look solid. Their pre-tax yield is still running over 12% which is very good. My assumption is that NICK will earn about 45 cents per share for the next several quarters (plus or minus).

Put it this way: Even if NICK’s numbers for this quarter were to continue for the next four quarters (and I tend to doubt that since this was on the low side), that still means NICK would earn $1.69 per share for the year. That’s less than eight times earnings going by yesterday’s close.

Here’s a spreadsheet of NICK’s financials going back a few years.

The Stock Market Is Open…Finally!
Posted by Eddy Elfenbein on October 31st, 2012 at 10:22 am

After four days, the stock market is finally open today. The S&P 500 is up about three points to 1,415. On our Buy List, Ford ($F) is currently up more than 52 cents to 5.1% to $10.83 per share.

WEX Inc. ($WXS), formerly Wright Express, reported earnings of $1.08 per share. That was six cents below estimates. Revenues rose 6% to $161 million. WXS sees Q4 ranging between $1.01 and $1.08 per share. The Street had been expecting $1.10 per share. The stock is currently up 35 cents today to $72.46 per share.