• Johnson & Johnson Earns $1.37 Per Share
    Posted by on April 17th, 2012 at 9:14 am

    This morning, Johnson & Johnson ($JNJ) reported first-quarter earnings of $1.37 per share. That beat Wall Street’s consensus by two cents per share. On the top line, J&J’s revenue fell 0.2% to $16.14 billion which was short of Wall Street’s consensus of $16.28 billion. But the best news is that the healthcare giant raised its full-year forecast by two cents per share. The new EPS range is $5.07 to $5.17.

    Revenue rose 1.2 for prescription drugs, to $6.13 billion from $6.06 billion, as sales from new medicines made up for lower sales from two medicines that got generic competition last spring, Levaquin for serious infections and Concerta for attention deficit disorder.

    But revenue was down in J&J’s other two businesses. Sales of medical devices and diagnostic equipment, the company’s biggest segment, slumped 0.3 percent to $6.41 billion. Consumer product sales fell 2.4 percent, to $3.6 billion, due to the many products still not back in stores due to product recalls.

    This earnings report is good news for J&J. The company has run into a mess of problems recently with a seemingly endless series of recalls. I’m glad to see that a new CEO will be taking over at the shareholder meeting on April 26th.

    I also expect to see the company announce its 50th-straight dividend increase. The current quarterly dividend is 67 cents per share. I think the new dividend will be 70 cents per share.

  • Morning News: April 17, 2012
    Posted by on April 17th, 2012 at 5:12 am

    Spain Pledges Action Against Argentina Over YPF Seizure

    Merkel Offers Spain No Respite as Debt Cuts Seen As Key

    Japan Vows $60 Billion to Boost IMF Firepower

    Fitch’s Pant Says India Rate Cut Will Raise Corporate Spending

    Emerging-Market Drift From World Bank to Test Kim

    For Two Economists, the Buffett Rule Is Just a Start

    U.S. Retail Sales Climb More Than Forecast on Jobs

    Danone Revenue Beats Analysts’ Estimates on Water, Baby Food

    Mattel’s 1Q Net Down On Acquisition Costs, Lower Sales

    Rio Tinto’s Iron Ore Production Misses Analyst Estimates

    Burberry Eyes More Flagship Stores as Sales Rise Again

    Citigroup Shares Advance as Revenue From Bond Trading Climbs

    Apple Shares Lose Shine

    IBM May Raise Full-year Software Demand Forecast

    Cullen Roche: Europe’s Balance Sheet Recession is a Symptom

    Joshua Brown: Was it the Trillion Dollar Market Cap Calls or the Thousand Dollar Price Targets?

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  • IBM Vs. Microsoft
    Posted by on April 16th, 2012 at 11:17 am

    Here’s a look at IBM’s ($IBM) stock compared with Microsoft’s ($MSFT). This is a race that hasn’t gone the way many people would have thought.

    If you had asked most experts on December 31, 1999, which is a better buy—IBM or Microsoft, I’m pretty sure the majority would have sided with Microsoft. Instead, IBM has won the contest hands down with an 88% gain compared with a 47% loss for Microsoft.

    If we were to measure from Microsoft’s IPO in March 1986 until the end of the century, that’s a very different story. Microsoft would have won with a 600-fold gain to IBM’s triple. Over most of the last ten years, Microsoft’s stock has been flat. IBM has been an especially strong stock in the last three years.

    The lesson here is that companies left for dead can turn themselves around, while companies that have seemingly won the race can quickly lose their edge.

  • Retail Sales Report to Life Stocks
    Posted by on April 16th, 2012 at 9:06 am

    After dropping sharply late Friday, the stock market looks to open higher this morning. The good news is that the Commerce Department reported that retail sales rose by 0.8% this morning. Economists were expecting an increase of 0.3%. Today’s news could lead economists to raise their forecast for Q1 GDP growth. The consensus is currently at around 2.5%.

    Stop me if you’ve heard this before but there are still in concerns in Europe. The yield on the 10-year Spanish Treasury bond is back over 6%. Although that is higher, it’s below the 6.7% peak it reached in November.

    Earnings season rolls on. Citigroup ($C) reported Q1 earnings of 95 cents per share which was seven cents below estimates. The bank is trying to recover, but it’s been lagging the sector.

  • Market Timing
    Posted by on April 16th, 2012 at 8:19 am

    Via Greg Mankiw:

  • Morning News: April 16, 2012
    Posted by on April 16th, 2012 at 5:38 am

    Euro Area Seeks Bigger IMF War Chest on Spanish Concerns

    Spain Feels The Pain As Bonds Tank, CDS Widens

    GDF Suez, U.K. Utility Agree on Price

    China Stocks Czar Faces Battle to Win Back Investor Trust

    Japan 10-Year Yield Falls to 17-Month Low on Haven Demand

    South Korea Trims Growth Forecast on Europe Woes

    Indian Cash Rate Inches Higher; Rate Action Eyed

    Goldman Sachs Said to Raise $2.5 Billion in ICBC Sale

    U.S. Treasury Says China Yuan Move Helpful

    Solid Results at 2 Banks Bode Well for the Industry

    Unanswered Questions in F.C.C.’s Google Case

    Buyout Firm Carlyle Seeks $763 Million in IPO

    Infosys May Spend Up to $500 Million on European Deal

    Piramal Sees $1.5 Billion Revenue From Potential Alzheimer’s Drug

    Jeff Miller: Weighing the Week Ahead: Will Q1 Earnings Disappoint?

    Ask James: Bubbles, Change the World, Nudity, Sports Betting, Twitter Followers, And…My House

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  • “Nearer My God To Thee”
    Posted by on April 13th, 2012 at 5:42 pm

  • JPMorgan Earns $1.31 Per Share
    Posted by on April 13th, 2012 at 2:18 pm

    This morning, JPMorgan Chase ($JPM) reported first-quarter earnings of $1.31 per share which was 13 cents more than Wall Street’s estimate (though I saw different reports of what the consensus was). The bank’s net income fell slightly but thanks to stock buybacks, the per-share figure was slightly higher than a year ago.

    The stock was up during the pre-market but the shares gradually lost ground and are now down about 2.2% for the day. My take is that the market isn’t pleased with JPM’s investment banking business. Nelson D. Schwartz at Deal Book writes:

    Mortgage-related liabilities continued to be a drain on earnings, with the bank adding $2.5 billion in reserves to cover litigation expenses, reducing earnings by 39 cents a share.

    Despite the run-up in the stock market, trading volumes in the first quarter haven’t been especially robust. At JPMorgan’s investment bank, revenue was down 11 percent, to $7.3 billion. Its net income was down 29 percent, to $1.7 billion.

    The bank also faces tough comparisons with a strong first quarter in 2011, when healthy trading revenue and reserve releases lifted results.

    The amount set aside for compensation at the investment bank fell to $2.9 billion, from $3.29 billion in 2011. Headcount dropped to 25,707 from 26,494. Based on those figures, average compensation declined to $112,800, from $124,300 a year ago.

    First-quarter results included several one-time items, including a $1.8 billion gain from reduced loan loss reserves, which added 28 cents a share to earnings. It also included a $1.1 billion gain from a bankruptcy settlement linked to the acquisition of Washington Mutual, which raised profit by 17 cents.

    Here’s the CFO talking about the earnings on CNBC:

    On the earnings calls, Jamie Dimon said that the bank is “very conservative” with its investments. I’ve looked at the numbers and this was a very good quarter for JPM. Delinquencies are down and the credit card and mortgage business is doing well.

  • The S&P 500 Adjusted for Dividends and Inflation
    Posted by on April 13th, 2012 at 9:32 am

    Since the March CPI report came out this morning, I decided to take a look at the market’s long-term return.

    This is the S&P 500 adjusted for dividends and inflation. I set the index to 100 in January 1983. The chart is logarithmic. In real terms, the stock market is exactly where it was 13 years ago.

  • CWS Market Review – April 13, 2012
    Posted by on April 13th, 2012 at 8:20 am

    That money talks, I’ll not deny, I heard it once: It said, ‘Goodbye’.
    -Richard Armour

    After sliding for five days in a row, the stock market has started to right itself. On the first trading day of April, the S&P 500 closed at a 46-month high but promptly broke up like a North Korean rocket and shed 4.26% in a week. That’s not a major pullback, but it’s one of the biggest slumps we’ve seen in months. Thanks to rallies on Wednesday and Thursday, the market has already made back half of what it lost (in fact, the traceback has been almost exactly 50%).

    What’s most surprising about the market so far in April is the recrudescence of volatility on extremely low volume. Consider this: In the first 64 trading days of 2012, the S&P 500 suffered just one daily drop of more than 1%. In 2011, that happened 48 times. Then suddenly, we had three 1% drops in four days. Yet average daily trading volume last month was the lowest since December 2007. What gives?

    In this issue of CWS Market Review I want to look at why the market has gotten so jittery all of a sudden. But more importantly, I want to take a look at the first-quarter earnings season. Over the next month, 16 of our Buy List companies are due to report earnings. As always, earnings season is the equivalent of Judgment Day for Wall Street. I’m expecting good news for our stocks, but the outlook may not be so sunny for the rest of Wall Street.

    Sorry, Folks. QE3 Is Not Coming

    Part of the reason why the stock market got a sudden case of the worries is what I mentioned in the previous two editions of CWS Market Review. Wall Street has been focused on the March jobs report and first-quarter earnings season. The jobs report wasn’t so hot and the market took its pound of flesh. Earnings season is the next hurdle.

    Interestingly, the stocks that dropped the most during the five-day selloff were often the ones that rallied the most on Wednesday and Thursday. These tended to be cyclical stocks and financials. It’s also interesting to note that the Morgan Stanley Cyclical Index (^CYC) had peaked on March 19th, two weeks before the rest of the market. This means, the cyclicals had already started to erode before the jobs report pullback.

    The stock market was given a boost on Thursday when two Fed officials, Janet Yellen and William Dudley, said that rates will have to stay low for a while longer. That‘s not a big surprise. Let me add a quick note on QE3. Some folks think the weak jobs report will cause Bernanke and his buddies at the Fed to jump in with a third round quantitative easing. Do not believe any of this. We often forget that the C in FOMC stands for “committee” and it’s obvious that the policy-makers are very far from a consensus on this issue. The media has been searching for any hint, no matter how trivial, that QE3 is on the way. It’s not. Plus, the jobs report was hardly a harbinger of a new recession. For now, the talk of QE3 is pure nonsense.

    Although the selloff was initially triggered by the jobs report, it was kept alive by bad news from Europe and China. The yield spreads in Europe (specifically, between any country and Germany) have been inching upward, particularly in Spain. I think it’s somewhat amusing that Monsieur Sarkozy is using the example of Spain to scare French voters from supporting the socialist opposition in next month’s election.

    The wider spreads signal some nervousness from investors but it’s important to note that we’re a long way from the frenzy we had last year. I want to urge investors not to be carried away by these renewed concerns from Europe. The fears of Spain not being able to pay her bills are greatly overblown. Europe will not sink the U.S. stock market.

    Q1 Earnings: The Story Is About Margins

    Last earnings season was disappointing. This time around, investors don’t expect much. The numbers vary but the consensus is that first-quarter earnings will be about the same as they were last year. In other words, zero profit growth. How times have changed. Not that long ago, analysts were expecting double-digit earnings growth for Q1.

    One of the problems facing many companies is that higher fuel costs are cutting into profits. All 10 sectors of the S&P 500 will see higher sales numbers, but at least seven of those sectors will have a hard time turning those top-line dollars into bottom-line profits.

    The story here isn’t that a slowdown is upon us. Rather, it’s that business costs are rising after being held back for so long. Part of this is the cost for new employees, which is a good thing. As I’ve said before, the story here is about margins, not a weakening economy. Even with as much as earnings growth estimates have fallen, the stock market hasn’t responded in kind. That’s because Wall Street correctly sees this as a temporary issue. In fact, the current view is that earnings growth will reaccelerate later this year as Europe comes back online.

    The important point for us is that even with little earnings growth, the stock market is still a very good value compared with the competition. Bond yields have climbed, but they’re still way too low. As long as the migration away from super-safe assets continues, our Buy List will thrive.

    Now I want to focus on some upcoming earnings reports for our Buy List stocks (you can see an earnings calendar here). Unfortunately, not all of our companies have said when earnings will come out yet.

    Expect an Earnings Beat at JPMorgan

    On Friday, JPMorgan Chase ($JPM) will be our first Buy List stock to report earnings. With a 34.86% year-to-date gain, the bank is our top-performing stock this year. That’s not bad for a little over three months’ work. (It’s always a surprise to me who the #1 stock will be.) What’s remarkable is that even with as well as the stock has done, the shares are still going for less than 10 times this year’s earnings estimate.

    Wall Street currently expects JPM to report earnings of $1.14 per share for Q1. That’s down a little from one year ago. That estimate, however, has been climbing in recent weeks while estimates for many other companies have been pared back. I’ve looked at the numbers and I expect a small earnings beat from JPM. But I’ll be curious to hear what CEO Jamie Dimon has to say about the bank’s business.

    Not only is JPM a big report for us, but it’s also a bellwether for the entire financial sector. Jamie Dimon likes to see himself as the unofficial spokesman for the banking world and a lot of investors want to hear what he has to say. JPM even moved up their earnings call so Jamie could hit the stage before Wells Fargo ($WFC).

    I agree with Dimon’s assessment that the last earnings report was “modestly disappointing.” One of the concerns this time around is investment banking, but Jamie has been clear that the division will rebound. For Q1, trading profits will probably be down from a year ago but better than Q4. This is a solid bank and I was particularly impressed by the 20% dividend increase. Bottom line: I’m sticking with Jamie, and I’m raising my buy price on JPMorgan Chase from $45 to $50 per share.

    Johnson & Johnson: 50 Straight Years of Dividend Increases

    Next Tuesday, we’ll get two more earnings reports—Johnson & Johnson ($JNJ) and Stryker ($SYK). I’m afraid that J&J has been a weak performer this year. In January, the healthcare giant said that earnings-per-share for 2012 will range between $5.05 and $5.15. Wall Street had been expecting $5.21.

    J&J has been dogged by a series of quality control problems, and the stock has lagged. Later this month, Alex Gorsky will take over as the new CEO. I think that’s a good choice particularly since he helped the company tackle its internal problems. Wall Street’s consensus for Q1 is for $1.35 per share which is exactly what Johnson & Johnson made one year ago. The stock usually beats by about three cents per share, but I’m not going to get worked up by a result that’s within a few pennies of $1.35. What I want to see is solid proof of a turnaround, although I realize it may take some time.

    The best part about J&J is the rich dividend. Going by Thursday’s close, the stock yields 3.55%. But the yield to investors is probably even higher. Later this month, I expect the company to announce its 50th-straight dividend increase. But coming after January’s lower guidance, the quarterly dividend will probably rise from 57 cents to 60 cents per share. If that’s right, J&J now yields 3.74%. I’m keeping my buy price at $70.

    Stryker Is a Good Buy Up to $60

    Shares of Stryker ($SYK) haven’t done much for the past several weeks which is puzzling because the business has been strong. Stryker has said that it sees “double digit” earnings growth for 2012. I doubt they’ll have trouble hitting that forecast. In fact Stryker is probably low-balling us, but that’s understandable since the year is still so young.

    For Q1, the Street expects earnings of 99 cents per share which sounds about right. Stryker rallied last earnings season after they met expectations. The business tends to be very stable. I think the stock is a good value here and I’m raising my buy price to $60 per share.

    Before I go, I want to highlight some other good values on the Buy List. Among the financials, AFLAC ($AFL), Nicholas Financial ($NICK) and Hudson City ($HCBK) are all going for a good price. I also think that Ford ($F) has drifted down to bargain territory as well.

    That’s all for now. 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