• Amazon Touches $250
    Posted by on August 30th, 2012 at 11:31 am

    Earlier today, shares of Amazon.com ($AMZN) finally touched $250. That’s an astounding run since the comapny’s IPO more than 15 years ago. What’s interesting is even if bought Amazon at its 1999 peak of $113 per share and held on, you would have more than doubled your money 13 years later. The S&P 500, by contrast, is still down.

    The problem, of course, is the “and hold on” part. Would you have been able to watch your initial investment at $113 plunge all the way down to $5.51 as Amazon did after 9/11? I doubt I could.

    Wall Street currently expects Amazon to earn $2.38 per share next year. That means the stock is going for 105 times earnings. I don’t think this will end well.

  • Morning News: August 30, 2012
    Posted by on August 30th, 2012 at 8:10 am

    Euro-Area Confidence Drops, German Jobless Increases

    ECB Action Prospects Underpin Italian Bond Auction

    ICBC Profit Growth Slips to 11% as China Slowdown Hits Loans

    China to Continue Investing in Europe

    Gold Holds Steady Ahead of Jackson Hole Symposium

    U.S. Q2 Growth Revised Up, Fed Still Seen in Play

    Mortgage Settlement With Banks Starts To Ease Foreclosure Crisis

    Hedge Fund Proposal Would Allow Secretive Enclave to Open Up

    Costco, Limited Exceed August Sales Estimates

    GSV Capital, Placing Bets on Start-Ups, Falters

    Citigroup Agrees To Pay $590 Million In Shareholder Suit

    Sears Holdings Exiting S&P 500

    Joshua Brown: An Asset Allocator’s Prayer

    Howard Lindzon: The Web and Google are Winning…Facebook and Twitter are only #Winning

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  • JoS A Bank Soars on Strong Earnings
    Posted by on August 29th, 2012 at 3:35 pm

    For the second time this week, one of our Buy List stocks is soaring. And for the second time, it was one of the stocks I had been down on.

    This morning, JoS. A. Bank Clothiers ($JOSB) reported quarterly earnings of 83 cents per share for its fiscal second quarter. That was 10 cents per share more than Wall Street had been expecting. The metric is that same-store sales were up 6.1%. The company did especially well with its online sales.

    JoS A Bank, which competes with Men’s Wearhouse Inc, has set up Amazon.com Inc and eBay Inc stores, aiming for a bigger slice of shoppers’ wallets by catering to different consumers than the ones who come to their own websites and physical stores.

    Sales at its direct marketing segment, which comprises the Internet and catalog call centers, rose 39.3 percent for the second quarter. The segment recorded higher sales in August compared to last year, the company said.

    Direct marketing, driven primarily by Internet sales, accounted for about 10 percent of total sales last year.

    Several retailers are looking to grow into the online market place by setting up storefronts on Amazon and eBay.

    JoS A Bank also signed up for PayPal’s in-store service in May that allows shoppers to pay through their mobile phones, making purchases at brick-and-mortar stores easier.

    Comparable store sales increased 6.1 percent for three months ended July 28. Total sales rose 12.9 percent to $260.3 million.

    In last week’s CWS Market Review, I expressed my frustration with JoS. A. Bank. I even said that adding it to this year’s Buy List was a mistake. This is why I don’t try to time the market. Though in my defense I did say that the stock wasn’t unreasonably priced at $41.

    At one point today, the stock was up 18.76%, and that doesn’t include the stock’s 3.51% rally yesterday. JOSB has settled down some and it’s currently up just over 14%. Of course, much of today’s gain is merely walking back losses from earlier in the year. As of now, JOSB is down just over 2% for the year.

  • Q2 GDP Growth = 1.7%
    Posted by on August 29th, 2012 at 11:15 am

    The economy had some good news, and it’s slightly more evidence in favor of our the-economy-is-stronger-than-people-realize thesis. The government revised higher its estimate for second quarter GDP growth.

    The initial estimate one month ago said the economy grew by 1.5% during the second quarter. Now they’re saying it was 1.7%. Sure, that’s not a major revision but at least it’s in the right direction.

    A second straight quarter of slowing growth shows the world’s largest economy is having difficulty making headway as consumers stay frugal and looming tax changes prompt companies to limit investment and hiring. Chairman Ben S. Bernanke this week may reaffirm the view of many Federal Reserve policy makers that more stimulus will be needed unless the expansion shows signs of strengthening.

    “We are very much struck in a slow-growth mode,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who correctly forecast the revision. “We still don’t see the economy breaking free of this 1.5 percent to 2 percent growth rate. A 1.7 percent pace is the personification of the Fed’s frustration.”

    The economy grew by 2% in the first quarter. Before today’s data came out, we were able to say that economic growth was “decelerating,” meaning rate of growth was slowing. That’s still technically true, but it’s probably more accurate to say that growth has leveled off during the first half of this year.

  • Morning News: August 29, 2012
    Posted by on August 29th, 2012 at 7:34 am

    Draghi Hits Back at German Criticism of ECB Bond Plan

    Spain, Italy Yields Hit 2-Week Highs on New Issue, Catalonia

    AgBank Sees Stern Challenges Ahead

    Hungary Tests Investors With Rate Cut as Recession Deepens

    What Downturn? Bank Profits Hit $34.5 Billion

    Home Prices Jump In 20 Major U.S. Cities

    Consumer Confidence in U.S. Declines by Most Since October

    Occupy Sets Wall Street Tie-Up as Protesters Face Burnout

    Daikin Buys Goodman For $3.8 Billion, Gains Access To North America

    U.S. Sets Higher Fuel Efficiency Standards

    Ford Breaks Ground On New Plant In Eastern China

    GM To Invest $1 Billion In Russia Within 5 Years

    Lexmark’s Inkjet Exit Symptomatic Of Industry

    Unplugged or Checked Out?

    Stone Street: Book Review: “Bailout” by Neil Barofsky, or: Why I’ll Never Work in Washington D.C.

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  • Morning News: August 28, 2012
    Posted by on August 28th, 2012 at 7:54 am

    Spain Says Recession Deepening, GDP Shrinks 0.4%

    German at European Central Bank at Odds With Country’s Policy Makers

    ECB Said to Urge Weaker Basel Liquidity Rule on Crisis Risks

    A Youthful Populace Helps Make the Philippines an Economic Bright Spot in Asia

    Occupy Hong Kong Holdouts Defy Order to Leave Despite Effort by HSBC

    Greece Plans “Special Economic Zones” To Boost Growth

    Isaac Seen Making Release of U.S. Strategic Oil Likely

    Apple Seeks Ban on Sales of Eight Samsung Phones in U.S.

    IBM Taps Into Talent With Kenexa Buy

    Struggling AOL Defies Gravity Again

    Ford’s European Legacy Losing to Hyundai’s Newcomer Edge

    Ford Readies Lincoln Launch In China By 2014

    New York Bank Merger May Be Too Good To Be True

    Credit Writedowns: Profit Incentives, Disruptive Technology, and Reducing Health Care Costs

    Cullen Roche: John Bogle’s 10 Rules of Investing

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  • Harris Raises Dividend
    Posted by on August 27th, 2012 at 10:52 am

    More good news for our Buy List this morning. Harris ($HRS) just announced a 12% dividend increase. The quarterly dividend is rising from 33 to 37 cents per share. Going by Friday’s close, the stock yields 3.18%.

  • Hudson City to Merge With M&T Bank
    Posted by on August 27th, 2012 at 8:37 am

    One of our Buy List stocks is getting married! Hudson City ($HCBK) has decided to merge with M&T Bank ($MTB). Investors can get cash or stock worth 0.08403 of an MTB share. Based on Friday’s close, that comes to $7.2156 per share. Hudson City closed Friday at $6.44 per share.

    My advice is to take the MTB shares, and that’s how I’ll adjust the Buy List.

    Here’s the press release:

    Hudson City Bancorp, Inc. (HCBK) (“Hudson City”) and M&T Bank Corporation (MTB) (“M&T”) announced today that they have entered into a definitive agreement under which Hudson City will merge into a subsidiary of M&T, expanding the premier community banking franchise in the eastern United States.

    Under terms of the agreement, each Hudson City share will receive consideration valued at 0.08403 of an M&T share in the form of either M&T stock or cash, based upon the election of each Hudson City shareholder, subject to proration as specified in the merger agreement (which provides for an aggregate split of total consideration of 60% common stock of M&T and 40% cash). Based on the closing price of M&T stock on August 24, 2012, the transaction is valued at approximately $3.7 billion. The transaction is expected to be immediately accretive to the combined company’s capital ratios, capital generation and tangible book value per share, as well as its GAAP and operating earnings per share.

    “This merger creates tremendous opportunities to build on the successes that each company has achieved individually in its own markets,” said Hudson City Chairman and CEO, Ronald E. Hermance, Jr. “Hudson City recently embarked on a diversification of our product lines and our balance sheet. This transaction accelerates that transformation. As we combine Hudson City’s attractive retail network with M&T’s full service commercial banking suite, our stakeholders will participate in the growth of one of the nation’s strongest and most successful banking franchises.”

    “M&T, which was established in 1856, and Hudson City, founded in 1868, have been serving their customers and communities for generations, and we look forward to building on that long history and tradition together in the future,” said Robert G. Wilmers, M&T Chairman and CEO.

    M&T will acquire Hudson City’s network of 135 branch offices, which are located in New Jersey (97 branches), downstate New York (29 branches) and Fairfield County, Connecticut (9 branches). M&T’s existing branch network is adjacent to Hudson City’s franchise, with very little overlap. The combined network of 870 branches will stretch from Connecticut to Virginia.

    M&T expects to gain approximately $25 billion in deposits and $28 billion in loans from the merger (before acquisition accounting adjustments), giving M&T the fourth largest deposit share in New Jersey.

    “To the customers and communities now served by Hudson City, M&T brings a wider array of banking products and services,” continued Wilmers. “As a thrift, Hudson City focused primarily on deposits and mortgages. M&T will build on Hudson City’s loyal customer base to create a comprehensive community banking franchise that provides a full range of checking and savings accounts, debit and credit cards, home equity loans and other lending options, plus small business and commercial banking services and our premier wealth management and corporate trust solutions through Wilmington Trust.”

    Headquartered in Buffalo, N.Y., M&T has $80.8 billion in assets. Hudson City, based in Paramus, N.J., currently has $43.6 billion in assets. After the merger is completed, M&T expects to repay approximately $13 billion of Hudson City’s long-term borrowings by liquidating its comparably sized investment portfolio. M&T’s pro forma balance sheet will have then increased by approximately $28 billion.

    The merger has been approved by the boards of directors of each company, and is subject to certain conditions, including regulatory approvals and approval by M&T’s and Hudson City’s common shareholders. After the transaction is completed, Mr. Hermance will be appointed to the boards of directors of M&T and its principal banking subsidiary, M&T Bank.

    J.P. Morgan acted as financial adviser to Hudson City and rendered a fairness opinion in connection with the transaction, and Sullivan & Cromwell LLP acted as its legal adviser. Evercore Partners rendered a fairness opinion to M&T in connection with the transaction, and Wachtell, Lipton, Rosen & Katz acted as its legal adviser.

    M&T is a financial holding company headquartered in Buffalo, New York. M&T’s principal banking subsidiary, M&T Bank, operates banking offices in New York, Pennsylvania, Maryland, Virginia, West Virginia, Delaware and the District of Columbia. Trust-related services are provided by M&T’s Wilmington Trust-affiliated companies and by M&T Bank.

    Hudson City Bancorp, Inc. maintains its corporate offices in Paramus, New Jersey. Hudson City Savings Bank, a well-established community financial institution serving its customers since 1868, is the largest thrift institution headquartered in New Jersey. Hudson City Savings Bank currently operates a total of 135 branch offices in the New York metropolitan and surrounding areas.

  • Morning News: August 27, 2012
    Posted by on August 27th, 2012 at 7:32 am

    German Business Confidence Falls

    Merkel Reins In Greek Exit Talk in Euro’s Decisive Phase

    German, French Finance Ministries To Coordinate Euro Zone Proposals

    Wen Targets Confidence as China Risks Weakest Growth in 13 Years

    China Approves Ford, Mazda, Changan To Split JV In Two: Ford CEO

    Gold Hits 4-1/2 Month High On Fed Stimulus Hopes

    Jackson Hole May Disappoint Investors Primed for Stimulus

    Apple Triumphs Over Samsung In Landmark Patent Case

    Nokia to Microsoft Seen Benefiting From Possible Samsung Ban

    Hertz and Dollar Thrifty Announce a Merger Deal

    BHP Sells Australian Uranium Deposit to Cameco for $430 Million

    Times Co. Sells About.com for $300 Million

    Tiffany & Co Lowers Sales, Profit Views

    Joshua Brown: Save Yor Money, It Won’t Work

    Jeff Miller: Weighing the Week Ahead: Hopes Too High for Jackson Hole?

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  • CWS Market Review – August 24, 2012
    Posted by on August 24th, 2012 at 6:31 am

    The Great Summer Snoozefest continues. Volatility is low, and trading volume is moribund. Don’t worry, though, friends. Things will get a lot more exciting once all the traders and hedge-fund big shots get back from the Hamptons and Martha’s Vineyard after Labor Day.

    In this week’s CWS Market Review, I’ll tell you why the S&P 500 may be due for a short-term pullback. Not a biggie, but perhaps a short rest is in order. I’ll also highlight another good earnings report from Medtronic ($MDT). And I’ll tell you why the latest reports of imminent Fed stimulus are way off base. Plus, we have an upcoming earnings report from Jos. A. Bank Clothiers ($JOSB). (Sadly, I’m not expecting much from them.)

    Expect a Modest Pull-Back over the Next Few Weeks

    On Friday and Monday, the S&P 500 came oh-so-close to finishing the day at a fresh post-Crash high. But it was not to be. Then on Tuesday, the index got as high as 1,426.68 before we gave back much of our gains. Still, even this uptick in volatility is kid’s stuff compared with the rollercoaster we were on last August. The market has had a pretty good run this summer. Going back to early June, the stock market has been on a definite upwards sawtooth rally (see the chart below).

    As I’ve described in recent issues of CWS Market Review, the underlying currents of the rally have changed. At first, the market was very defensive as we saw high-yielding stocks like Reynolds American ($RAI) and Johnson & Johnson ($JNJ) lead the charge. Lately, however, the market has adopted a more aggressive posture as stocks like JPMorgan Chase ($JPM) have marched higher.

    I suspect—though I’m not yet fully convinced—that this is due to the market’s newfound belief that the economy is doing better. Or at least, that it’s doing horribly at a slower pace than before. Some of the recent economic reports, like those for industrial production and retail sales, have been pretty good. Notice how stocks like Walmart ($WMT) and Bed Bath & Beyond ($BBBY) have done fairly well.

    I’ve also been impressed by a pickup in the housing market. Home prices just had their biggest jump in over six years. I should explain that traditionally the housing market has been a major catalyst for the economy to get back on its feet. The fear this time around is that with the massive overbuilding, any recovery would be hollow since it wouldn’t be aided by the housing market. That may be changing. The weak spot in the economy is still the jobs market, but initial jobless claims are holding below 400,000. We’ll know more when the next jobs report comes on September 7th.

    The problem right now is that the market has charged higher without much resistance. Over the next few weeks, Wall Street will face its greatest enemy—uncertainty. Not only is there an election coming, but there are still unresolved issues in Europe, plus the domestic earnings outlook isn’t quite so rosy. That leads me to believe that stocks will probably go sideways for a bit or may even lose some ground. But I think any pullback will be a prelude to a strong year-end rally.

    The most important fact facing investors is that stocks are cheap and bonds are pricey. Analysts’ estimates for next year have stopped falling. If they’re right, that means the S&P 500 is currently going for just over 12 times earnings. That’s pretty stiff competition for a 10-year Treasury, which is up to 1.67%.

    Ignore the QE3 Nonsense

    Sometimes Wall Street can be such a drama queen. On Wednesday, traders freaked out over the “news” that the minutes from the Federal Reserve’s last meeting hinted that more stimulus was imminent. The gold market was especially emotional. Here’s the line that everyone latched on to:

    Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.

    I hate to break it to them, but that sentence doesn’t mean much. Read by itself, it sounds far more impressive than it is. This is the type of boilerplate language that’s always included in Fed minutes. Read the whole thing, and you’ll see what I’m talking about.

    The Fed’s minutes are jam-packed with indefinite pronouns (many, several, some). The reason is simple—they’re debating the economy, and people have differing views. And even given these differing views, there are different opinions about what to do next. It’s very easy for “many” to feel that Action A would “likely be warranted” assuming event B becomes a reality. Big whoop. That’s a far cry from promising that a large-scale asset-purchase program is on the way.

    If the Fed is ready to act, then they would be far more decisive than they are at the moment. On Thursday, James Bullard, the head of the St. Louis Fed, said that even modest growth of 2% would be enough for the Fed to keep its powder dry. That may be unpleasant for some people to hear, but it sounds right to me.

    The minutes make it clear that at least one member (most certainly Richmond’s Jeffrey Lacker) is strongly opposed. There may be others. I don’t see how the Fed can implement a program so soon before an election, and with divisions within the Federal Open Market Committee. Bottom line: There’s no QE3 on the way.

    Medtronic Is a Buy up to $44

    Now let’s turn to our Buy List. On Tuesday, Medtronic ($MDT) reported quarterly earnings of 85 cents per share. That was in line with Wall Street’s forecast, though I was expecting a little more. The important news is that the company is sticking with its full-year earnings forecast of $3.62 to $3.70 per share.

    The good news is that sales of Medtronic’s coronary and vascular devices and structural heart products all improved. The downside is that sales of pacemakers and defibrillators fell. For the quarter, Medtronic’s sales rose 1.6% to $4.01 billion. I thought it was interesting that MDT’s earnings-per-share figure got a 3% boost thanks to fewer shares outstanding. That’s a pleasant exception to the normal corporate action of diluting shares via executive compensation. Notice how well-run companies do even the little things better.

    On CNBC, the CEO said that he was pleased by the performance of Medtronic’s new products. Even though the overall market isn’t growing very much, the company has been able to gain market share. That’s important to note. On Wednesday, shares of MDT touched a new 52-week high. Remember that the company bumped up its quarterly dividend by 7% in June to 26 cents per share. That’s a sign of confidence. At Thursday’s closing price, the stock yields 2.58%. Medtronic is a very solid buy whenever the shares are below $44.

    My Mistake with Jos. A. Bank Clothiers

    We have an earnings report due soon from Jos. A. Bank Clothiers ($JOSB). I don’t know the precise date just yet, but for the last few years, the company has reported on the Wednesday before Labor Day, so I’m assuming next Wednesday, August 29th will be the day this year.

    With JOSB, I have to confess that I made a mistake. I should not have kept it on this year’s Buy List. I try to be very up front with you about why we do what we do, and it’s important to realize when you’ve made a mistake. For many new investors, the biggest mistake they make is their refusal to admit an earlier and often smaller mistake.

    Three months ago, JOSB had a terrible earnings report—they missed by nine cents per share. Revenue dropped by more than 4%, and the key metric, same-store sales, dropped by 1%. Ugh! The company had warned us that the quarter would be weak, but those numbers are quite poor. JOSB did say that last quarter, the fiscal second, was off to a good start. We’ll see.

    For the second quarter, Wall Street expects earnings of 73 cents per share. That’s one penny below last year. I don’t have a precise estimate for you, but I’m afraid Wall Street might be too high. I’ll note in JOSB’s favor that the stock isn’t unreasonably priced at $41, but that’s because it’s down from $54 in March. My apologies, but this is why we keep a well-diversified Buy List. I’m keeping my buy price at $48.

    Some Buy-List Bargains

    I want to highlight a few stocks on our Buy List that look especially good right now. I’ve been impressed by the recent rally in Oracle ($ORCL). Look for another strong earnings report next month. I also like Ford ($F). I don’t see how the stock can go for less than $10, but it is. JPMorgan Chase ($JPM) has rallied, but it’s still going for a good price. Lastly, CA Technologies ($CA) has quietly settled to a good price. The stock also yields a cool 3.88%. Not bad.

    That’s all for now. Next week is the week before Labor Day, so I don’t expect to see much action. I’ll be curious to see if the government revises the Q2 GDP report higher on Wednesday. If not, it will give traders something to freak out about. 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