Morning News: April 24, 2012
Posted by Eddy Elfenbein on April 24th, 2012 at 5:49 am

In a Change, Mexico Reins In Its Oil Monopoly

Spain and EU Deficit Calculations Add Up

In an Unlikely Corner of Asia, Strong Promise of Growth

Gold May Decline on Concern Over Slack Physical Demand

Aging workforce Strains Social Security, Medicare

Wal-Mart Stock Falls Nearly 5%

Facebook Reveals Revenue, Profit Slide Ahead of IPO

Netflix Spooks Street With Sputtering User Growth

Barnes & Noble Gains as Activist Investor Discloses Stake

LG Display Optimistic Despite Loss

Shell Agrees to Buy Cove After Raising Bid to $1.8 Billion

Lamborghini, BMW Expect Car Sales Growth in China to Slow

Novartis Quarterly Profit Drops as Diovan, OTC Sales Slump

MetLife to Pay $500 Million to Settle Death-Benefit Probe

Dumb Money: A Few Brief Thoughts On Coke. Er, Hold, Not a Buy

Howard Lindzon: The Stocktwits Social Heatmap – Finding Signal Inside Stocktwits

Roger Nusbaum: Message From the Yield Curve

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S&P 500 Earnings By Sector
Posted by Eddy Elfenbein on April 23rd, 2012 at 10:44 am

Investor Quiz: What’s the Only Commodity Banned from Futures Trading?
Posted by Eddy Elfenbein on April 23rd, 2012 at 9:33 am

Onions.

No, really.

The Onion Futures Act (7 U.S.C Chapter 1 § 13-1) is a United States law banning the trading of futures contracts on onions. In 1955 two onion traders, Sam Seigel and Vincent Kosuga, cornered the onion futures market on the Chicago Mercantile Exchange. The resulting regulatory actions led to the passing of the act on August 28, 1958. It remains in effect as of 2012.

(…)

In the fall of 1955, Seigel and Kosuga bought enough onions and onion futures so that they controlled 98 percent of the available onions in Chicago. Millions of pounds of onions were shipped to Chicago to cover their purchases. By late 1955, they had stored 30,000,000 pounds (14,000,000 kg) of onions in Chicago. They soon changed course and convinced onion growers to begin purchasing their inventory by threatening to flood the market with onions if they did not. Seigel and Kosuga told the growers that they would hold the rest of their inventory in order to support the price of onions.

As the growers began buying onions, Seigel and Kosuga purchased short positions on a large amount of onion contracts. They also arranged to have their stores of onions reconditioned because they had started to spoil. They shipped them outside of Chicago to have them cleaned and then repackaged and re-shipped back to Chicago. The new shipments of onions caused many futures traders to think that there was an excess of onions and further drove down onion prices in Chicago. By the end of the onion season in March 1956, Seigel and Kosuga had flooded the markets with their onions and driven the price of 50 pounds (23 kg) of onions down to 10 cents a bag. In August 1955, the same quantity of onions had been priced at $2.75 a bag. So many onions were shipped to Chicago in order to depress prices that there were onion shortages in other parts of the United States.

Seigel and Kosuga made millions of dollars on the transaction due to their short position on onion futures. At one point, however, 50 pounds (23 kg) of onions were selling in Chicago for less than the bags that held them. This drove many onion farmers into bankruptcy. A public outcry ensued among onion farmers who were left with large amounts of worthless inventory. Many of the farmers had to pay to dispose of the large amounts of onions that they had purchased and grown.

Morning News: April 23, 2012
Posted by Eddy Elfenbein on April 23rd, 2012 at 5:35 am

Draghi’s ECB Rejects Geithner-IMF Push for Measures

Euro-Area Services, Manufacturing Contract More Than Estimated

Spain’s Economy Contracted 0.4% In 1Q-Central Bank

China, Amid Uncertainty at Home and in Europe, Looks to Germany

Hong Kong Regulator Punishes IPO Sponsor

Emerging Stocks Drop for Third Day on China Manufacturing

Agreement on a Global Firewall, but Little Beyond That

Aiming for Clarity, Fed Still Falls Short in Some Eyes

Nestle to Buy Pfizer Baby Food Unit for $11.9 Billion

Cable & Wireless Agrees to Vodafone Takeover

AstraZeneca Seals $1.26 Billion Ardea Deal

Philips Posts Profit Growth

Wal-Mart Probe Could Cost Some Executives Their Jobs

U.S. Retailers Play Catch-Up In Fashion Speed Race

Epicurean Dealmaker: A Good Offense

Joshua Brown: What If Someone Wrote an Owner’s Manual for the Financial Markets?

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Game Theory
Posted by Eddy Elfenbein on April 21st, 2012 at 9:54 am

Via: Joe Weisenthal

SEC Comes Down on Stock-Picking Robot
Posted by Eddy Elfenbein on April 20th, 2012 at 9:27 pm

From the SEC’s website:

Washington, D.C., April 20, 2012 – The Securities and Exchange Commission today charged twin brothers from the U.K. with defrauding approximately 75,000 investors through an Internet-based pump-and-dump scheme in which they touted a fake “stock picking robot” that purportedly identified penny stocks set to double in price. Instead, the brothers were merely touting stocks they were being paid separately to promote.

The SEC alleges that Alexander John Hunter and Thomas Edward Hunter were just 16 years old when they set their fraud in motion beginning in 2007. They disseminated e-mail newsletters through a pair of websites they created to tout stocks selected by the robot – which they described as a highly sophisticated computer trading program that was the product of extensive research and development. Their claims were persuasive as the Hunters received at least $1.2 million from investors primarily in the U.S. who paid $47 apiece for annual newsletter subscriptions. Some investors paid an additional fee for the “home version” of the robot software.

In reality, the SEC alleges that the Hunters used a third website to offer their services as stock promoters, claiming that they could “rocket” a stock’s price and increase its volume by sending out newsletters. The Hunters were consequently paid at least $1.865 million in fees from known or suspected stock promoters, and they did not disclose to their newsletter followers the conflicting relationship between their two businesses.

CWS Market Review – April 20, 2012
Posted by Eddy Elfenbein on April 20th, 2012 at 5:16 am

We’re entering the high tide of the first-quarter earnings season, and so far earnings have been quite good. Of course, expectations had been ratcheted down over the past several months, but there have still been fears on Wall Street that even the lowered expectations were too high.

According to the latest figures, 103 companies in the S&P 500 have reported earnings and 82% have beaten Wall Street’s expectations. That’s very good. If this “beat rate” keeps up, it will be the best earnings season in at least ten years.

Earnings for our Buy List stocks are doing especially well. JPMorgan Chase, Johnson & Johnson and Stryker all beat expectations. Plus, J&J did something I always love to see: raise their full-year forecast.

Next week is going to be another busy earnings week for us; we have five Buy List stocks scheduled to report earnings. In this week’s issue, I’ll cover the earnings outlook for our Buy List. I’m expecting more great results from our stocks. I’ll also let you know what some of the best opportunities are right now (I doubt AFLAC will stay below $43 much longer.) But before I get to that, let’s take a closer look at our recent earnings reports.

Three Earnings Beats in a Row

In last week’s CWS Market Review, I said that I expected JPMorgan Chase ($JPM) to slightly beat Wall Street’s consensus of $1.14 per share. As it turned out, the House of Dimon did even better than I thought. On Friday, the bank reported earnings of $1.31 per share. Interestingly, JPM’s earnings declined slightly from a year ago, but thanks to stock repurchases, earnings-per-share rose a bit.

The stock reacted poorly to JPM’s earnings—traders knocked the stock down from $45 to under $43—but I’m not too worried. The bank had a very good quarter and Jamie Dimon has them on a solid footing. Last quarter was better than Q4 and this continues to be one of the strongest banks on Wall Street. (If you want more details, here’s the CFO discussing JPM’s earnings.) Don’t be scared off; this is a very good stock to own and all the trends are going in the right direction. I rate JPMorgan Chase a “strong buy” anytime the shares are less than $50.

On Tuesday, Stryker ($SYK) reported Q1 earnings of 99 cents per share which matched Wall Street’s forecast. Last week, I said that 99 cents “sounds about right.” I was pleased to see that revenues came in above expectations and that gross margins improved. That’s often a good sign that business is doing well.

Stryker’s best news was that it reiterated its forecast for “double-digit” earnings growth for this year. I always tell investors to pay attention when a company reiterates a previous growth forecast. I think too many investors tend to ignore a reiteration as “nothing new,” but it’s good to hear from a company that its business plan is still on track. I suspect that Stryker will raise its full-year forecast later this year. Stryker is an excellent buy up to $60.

Last week, I said that Johnson & Johnson ($JNJ) usually beats Wall Street’s consensus by “about three cents per share.” This time they beat by two cents which is probably more of a testament to how well the company controls Wall Street’s expectations. For Q1, J&J earned $1.37 per share. I’ve looked at the numbers and this was a decent quarter for them.

For the first time in a while, I’m excited about the stock. A new CEO is about to take over, and the company will most likely announce their 50th-consecutive dividend increase. The company also won EU approval for its Synthes acquisition. But the best news is that the healthcare giant raised its full-year guidance by two cents per share. The new EPS range is $5.07 to $5.17. Johnson and Johnson is a good stock to own up to $70 per share.

Focusing on Next Week’s Earnings Slate

Now let’s take a look at next week. Tuesday, April 24th will be a busy day for us as AFLAC ($AFL), Reynolds American ($RAI) and CR Bard ($BCR) are all due to report. Then on Wednesday, Hudson City ($HCBK) reports and on Friday, one of our quieter but always reliable stocks, Moog ($MOG-A), will report earnings.

Let’s start with AFLAC ($AFL) since that continues to be one of my favorite stocks and because it has slumped in recent weeks. AFLAC has said that earnings-per-share for this year will grow by 2% to 5% and that growth next year will be even better. Considering that the insurance company made $6.33 per share last year, that means they can make as much as $6.65 this year and close to $7 next year.

So why are the shares near $42 which is less than seven times earnings? I really don’t know. AFLAC has made it clear that they shed their lousy investments in Europe. Wall Street’s consensus for Q1 earnings is $1.65 per share which is almost certainly too low. I think results will be closer to $1.70 per share but I’ll be very curious to hear any change in AFLAC’s full-year forecast. Going by Thursday’s close, AFLAC now yields more than 3.1% which is a good margin of safety. AFLAC continues to be an excellent buy up to $53 per share.

I’ve been waiting and waiting for CR Bard ($BCR) to break $100. The medical equipment stock has gotten close but hasn’t been able to do it just yet. Maybe next week’s earnings report will be the catalyst. Three months ago, Bard said to expect Q1 earnings to range between $1.53 and $1.57. That sounds about right. I like this stock a lot. Bard has raised its dividend every year for the last 40 years. It’s a strong buy up to $102.

With Reynolds American ($RAI), I’m not so concerned if the company beats or misses by a few pennies per share. The important thing to watch for is any change in the full-year forecast of $2.91 to $3.01 per share. If Reynolds stays on track to meet its forecast, I think we can expect the tobacco company to bump up the quarterly dividend from 56 cents to 60 cents per share.

Reynolds American has been a bit of a laggard this year. It’s not due to anything they’ve done. It’s more of a result of the theme I’ve talked about for the past few weeks: investors leaving behind super-safe assets for a little more risk. It’s important to distinguish if a stock isn’t doing well due to poor fundamentals or due to changing market sentiment. Reynolds is still a very solid buy. The shares currently yield 5.4%.

Hudson City Bancorp ($HCBK) raced out to a big gain for this year, but it’s given a lot back in the past month. The last earnings report was a dud, but the bank is still in the midst of a recovery. Some patience here is needed. Wall Street’s consensus for Q1 is for 15 cents per share. I really don’t know if that’s in the ballpark or not, but what’s more important to me is the larger trend. Hudson City is cheap and a lot of folks would say there’s a good reason. I think the risk/reward here is very favorable. At the current price, Hudson City yields 4.8%. The shares are a good buy up to $7.50.

As I mentioned before, Moog ($MOG-A) is one of our most reliable stocks. The company has delivered a string of impressive earnings reports. Moog has said that it sees earnings for this year of $3.31 per share (note that their fiscal year ends in September). That gives the stock a price/earnings ratio of 12.2. I think Moog can be a $50 stock before the year is done.

There are three Buy List stocks due to report soon but the companies haven’t told us when: Ford ($F), DirecTV ($DTV) and Nicholas Financial ($NICK). Ford and Nicholas are currently going for very good prices. They usually report right about now, so the earnings report may pop up any day now. I think both stocks are at least 30% undervalued.

That’s all for now. Next week will be a busy week for earnings. We’re also going to have a Fed meeting plus the government will release its first estimate for Q1 GDP growth. 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: April 20, 2012
Posted by Eddy Elfenbein on April 20th, 2012 at 4:31 am

Euro Zone Takes Stock of Arsenal

Europe Urged to Fix Crisis as G-20 Warns of More Stress

A Tarnished Standing for Europe

Sarkozy-Hollande Runoff Shaping Up in Fight on Finances

Japanese Government Bonds on Ice Awaiting Next Week’s BOJ Easing Decision

Small Yield Rise Would Cost Japan Banks Big

No Power, No Boom

Fears Rise That Recovery May Falter in the Spring

Morgan Stanley GIIPS Net Exposure Drops to $2.41 Billion

Bank of America Beats Analyst Estimates as Trading Jumps

Bank of America Leads Banks in Short Sales of U.S. Homes

Nestle Sales Beat Estimates on Nescafe, Friskies Pet Food

Microsoft Beats Estimates as Windows Makes a Stand

Nokia Logs Loss as Sales of Less Sophisticated Phones Slips

Hollywood Studios Lose Australia Lawsuit Over Downloads

Cullen Roche: IN CASE YOU THOUGHT THE WIZARD UNDERSTOOD HIS MACHINE….

Edward Harrison: Grantham: Missing a Bull Market is a Dismissible Offense

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Don’t Invest From 40,000 Feet
Posted by Eddy Elfenbein on April 19th, 2012 at 9:49 am

I read a lot of investment advice on and off the web. One of the mistakes I often see is that investors try to invest from 40,000 feet above their targets. By this, I mean they pay far too much attention to things like politics, seasonal effects or the Federal Reserve.

I hear people say things like, “I want to hold off investing right now until I see how the election turns out.” I’m never sure what that means exactly. Or they say, “I’d never investment now, not with Helicopter Ben in charge!”

I realize this sounds like heresy, but the Fed’s role in the movement of stocks is far, far over-rated. What’s more important is earnings and (to a lesser extent) valuations.

Look at McDonald’s ($MCD). The stock has done very well over the last ten years because its profits have done well. Yahoo‘s ($YHOO) profits haven’t well and the stock has suffered. Sure, there are exceptions, but those are the minority. Valuations, of course, do matter. Overall profits have increased while the market has done poorly.

Don’t mistake what I’m saying: Monetary policy is important, but even if you knew exactly what the Fed was going to do, that should barely impact your investments. Most investors would be much better off if they ignored all the news about the Fed or politics. People need to believe that someone is in control of the market, and that someone must be in Washington. I hate to break it to you, but they’re not running the market.

I also hear people say that sure, the market is up over the last three years, but that’s only because it’s been boosted by the Fed. They often say this as if the profits somehow don’t count. Don’t look for confirmation of your political views in the stock market (this is known as the “Larry Kudlow Effect”).

Since the beginning of 2009, Lowe’s ($LOW) is up about 40% while Home Depot ($HD) is up about 110%. Investors would do themselves a lot more good thinking about how two companies that are so similar can perform so differently or why Starbucks ($SBUX) went from $40 to $10 and is now over $60. What happened there? Google ($GOOG) gets tons of attention but its stock hasn’t outperformed the market over the past few years. Danaher ($DHR) gets almost no attention yet the stock keeps powering higher (even this morning, the AP calls the company a “health care conglomerate“). I don’t think that’s due to Ben Bernanke.

Ignore the large-scale stuff—anything where it’s easy to have a canned opinion (Obama, Bernanke, Romney). Instead, focus on low level things like one particular company’s sales, earnings and debt.

Morning News: April 19, 2012
Posted by Eddy Elfenbein on April 19th, 2012 at 5:48 am

European Rescue Fund May Face Biggest Test Yet

Spain Tests Nervous Markets With 10-year Issue

In Brazil and Elsewhere, Dismay at Argentina’s Nationalization Move

Italy Reneges on Vow to Balance 2013 Budget

Banks Ordered to Raise Loan Loss Reserves

IMF Gets $320 Billion in New Pledges to Raise Resources

Brazil Did A Massive Rate Cut, And Suddenly The Whole World’s Been Turned Upside Down

U.S. Caps Emissions in Drilling for Fuel

Talks With Instagram Suggest a $104 Billion Valuation for Facebook

Ford Plans $760 Million Factory in Eastern China

American Express 1Q Profit Up 7%; US Card Loans Increase 4%

EBay Posts Higher Profits, Raises Full-Year Outlook

Qualcomm 2Q Income More Than Doubles

Olympus Seeks Approval for New Board to Move Past Scandal

Jeff Miller: Are You Confused About Stocks? You Are Not Alone.

Phil Pearlman: Scott Thompson’s First Yahoo! Earnings Call Is All About Leadership

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