• After Market Updates
    Posted by on February 21st, 2012 at 9:54 pm

    Ultimately, the stock market gave back some of its gains this afternoon. The S&P 500 closed at 1,362.21 which was just shy of the post-crash high close of 1,363.61 from May 2nd of last year.

    Today’s market was split between large-cap stocks which fared the best and small-cap stocks which fared the worst. The small-cap Russell 2000 was down 0.66% today while the S&P 500 was up 0.98 points or 0.07%. The mega-cap S&P 100 was up 0.27%.

    Interestingly, shares of Apple ($AAPL) gained $12.73 or 2.54%. That’s a market cap gain of $11.87 billion. Each point in the S&P 500 is worth $9.05 billion. That means that Apple’s gain was worth 1.31 points in the S&P 500. The index gained 0.98 points so without Apple, the index would have closed just slightly lower today.

    In Buy List news, Johnson & Johnson‘s ($JNJ) CEO resigned:

    William C. Weldon, who presided over Johnson & Johnson during one of the most tumultuous periods in its history, will step down as chief executive in April, the company announced Tuesday.

    Alex Gorsky, head of the medical device and diagnostics business, will take over as chief executive. Mr. Weldon will remain as chairman.

    The news of Mr. Weldon’s retirement comes as Johnson & Johnson has struggled to emerge from a swarm of product recalls, manufacturing lapses and government inquiries that tarnished the name of a company that was once one of the nation’s most trusted household brands. In 2010, the company recalled millions of bottles of liquid children’s Tylenol and other medications, as well as tens of thousands of artificial hips and millions of contact lenses.

    Much of the blame for Johnson & Johnson’s stumbles fell on Mr. Weldon, the son of a Broadway stagehand and seamstress who became chief executive in 2002 after spending his entire career at the company. Critics said the company’s once-vaunted attention to quality slipped under his watch. The company said in a statement that neither Mr. Weldon nor Mr. Gorsky was available for comment.

    Oracle ($ORCL) was downgraded by JMP Securities. They’re paring back their earnings estimates but they add that the stock is not unreasonably valued.

    WSJ‘s “Market Beat” notes that DirecTV ($DTV) may soon join the streaming bandwagon.

  • Here Comes Dow 13,000
    Posted by on February 21st, 2012 at 11:16 am

    The stock market is up this morning and the Dow Jones Industrial Average is a mere 10 points from cracking 13,000.

    I hope this will be different from the eight previous times we’ve broken 13,000. (That’s not an exaggeration. From April 2007 to May 2008, the Dow broke through 13,000 on eight different occasions going by the daily close.) If the Dow had merely kept pace with inflation over the last 12 years, it would be at 13,837 today.

    The S&P 500 is currently up to 1,366 which would be a post-crash high. Today could be the highest close since June 5, 2008. That was 44.5 months ago.

    On Friday, the Wilshire 5000 Total Return Index, which is about the broadest index possible, closed at its highest level since October 2007. That index includes dividends. By my math, we need a jump of 0.89% to make an all-time high. The Wilshire 5,000 is up 0.33% so far today.

  • Morning News: February 21, 2012
    Posted by on February 21st, 2012 at 6:18 am

    Greece Wins Second Bailout as Europe Picks Aid Over Default

    Draghi Stays Silent on ECB Role in Greek Bailout

    Nordic Currencies Stung in Debt Crisis

    U.S. in Accord With Mexico on Drilling

    Foreign Investors Fear Japan Banks May Hijack Olympus

    China Buys Least Iran Crude in Five Months Amid Price Talks

    Rising Gas Prices Give G.O.P. Issue to Attack Obama

    Fed Housing Blueprint Lost in Din of Politics

    Some Doubt a Settlement Will End Mortgage Ills

    Mazda Mulling Raising 170 Billion Yen, Shares Take Beating

    URS Agrees to Acquire Flint Energy Services for $1.25 Billion

    Wal-Mart Raises Stake to 51% in China Online Retailer Yihaodian

    Trademarks Take On New Importance in Internet Era

    Pinterest Introduces “NOPIN” to Counter Copyright Concerns

    Howard Lindzon: The Incredible Shrinking World…Make It Work for You!

    Phil Pearlman: Brett Steenbarger Classics A Must Follow for Young Traders

    Be sure to follow me on Twitter.

  • 50 Years Ago Today
    Posted by on February 20th, 2012 at 1:06 pm

  • The Stock Market is Closed for Washington’s Birthday
    Posted by on February 20th, 2012 at 11:11 am

    The New York Stock Exchange is closed today in honor of George Washington’s birthday. That’s right — on the NYSE, it’s not President’s Day. My apologies to Millard Fillmore but here’s the explanation from the NYSE:

    Washington’s Birthday was first declared a federal holiday by an 1879 act of Congress. The Monday Holiday Law, enacted in 1968, shifted the date of the commemoration of Washington’s Birthday from February 22 to the third Monday in February, but neither that law nor any subsequent law changed the name of the holiday from Washington’s Birthday to President’s Day. Although the third Monday in February has become popularly known as President’s Day, the NYSE’s designation of Washington’s Birthday as an Exchange holiday (Rule 51) follows the form of the federal holiday outlined above (section 6103(a) of title 5 of the United States Code).

  • Morning News: February 20, 2012
    Posted by on February 20th, 2012 at 6:46 am

    Iron Lady Merkel Bucks German Street on Greek Aid

    Greek Rescue Close as Ministers Meet to Resolve Disputes

    Greece Eyes Bailout Deal

    Pressure, Chinese and Foreign, Drives Changes at Foxconn

    China Cuts Reserve-Ratio for Growth as Inflation Deters Interest-Rate Move

    In China Movie Pact, More 3-D, Less Reality

    Japan’s Trade Deficit Widens to a Record as Export Slump Deepens

    Thailand GDP Shrinks 10.7%

    Israel Safest for Investors in Past Decade

    EU Says It Has Enough Oil Stocks as Nations Cut Iran Imports

    Wal-Mart Ups Stake in China E-Commerce

    Deals to Split EMI Spur Scrutiny and Criticism

    TNT Express Faces Investor Pressure for Better UPS Deal

    Lloyds Banking Group Said to Demand Repayment of Bonuses

    Epicurean Dealmaker: The Standard Model

    Stone Street: My First Forbes Column – So What if Apple Has A Chinese Labor Problem?

    Be sure to follow me on Twitter.

  • “How Your Cat Is Making You Crazy”
    Posted by on February 18th, 2012 at 3:58 pm

    I don’t know much about this subject matter but I found Kathleen McAuliffe’s article in The Atlantic to be spellbinding. It’s long, but I highly recommend it.

  • $6 Trillion in Phony Treasuries Found
    Posted by on February 17th, 2012 at 1:08 pm

    Scary story from Italy:

    Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt.

    The bonds were found hidden in makeshift compartments of three safety deposit boxes in Zurich, the prosecutors from the southern city of Potenza said in an e-mailed statement. The Italian authorities arrested eight people in connection with the probe, dubbed “Operation Vulcanica,” the prosecutors said.

    The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. “Thanks to Italian authorities for the seizure of fictitious bonds for $6 trillion,” the embassy said in a message on Twitter.

    The saddest part is that even after they were found to be phony, Bernanke still offered to buy them for $10 trillion.

  • The Lizard People Are Coming
    Posted by on February 17th, 2012 at 12:45 pm

    I don’t think people realize how much garbage advertising is on CNBC. But in the field of wretchedness, one commercial manages to stand out.

    If you’re a regular viewer of CNBC you may have seen an ad voiced by Alex Jones, the noted conspiracy nut. Jones regularly does us the favor of warning Americans about the New World Order. He is, quite naturally, a 9/11 Truther.

    This story actually gets even more insane. The CNBC ad touts a video made by a character named Porter Stansberry. The title of the video is, “The End of America.” One of the experts referred to in this video is David Icke. Mr. Icke believes that the earth is run by a secret cabal of…lizard people.

    I swear, I’m not making this up.

    At the heart of his theories lies the idea that the world is becoming a global fascist state, that a secret group of reptilian humanoids called the Babylonian Brotherhood controls humanity, and that many prominent figures are reptilian, including George H. W. Bush, Queen Elizabeth II, Kris Kristofferson, and Boxcar Willie.

  • CWS Market Review – February 17, 2012
    Posted by on February 17th, 2012 at 9:41 am

    Despite repeated death notices, the most-hated stock market rally in history continues to march on. On Thursday, the S&P 500 closed at 1,358.05 which is its highest level since May 2nd. The index is already up 8% this year and we’re only halfway through the first quarter. The S&P 500 has almost exactly doubled from its March 9, 2009 low close—and we’re just a small push away from a new post-crash high.

    In this issue of CWS Market Review, I want to take a step back and discuss what’s in store for the market going forward. The Q4 earnings season has passed and we rallied despite unimpressive results. That most likely won’t happen again. The problem for investors is that much of the easy gains have already been made. This, of course, is the unfortunate benefit of panicked investors having sent the stock market to generational lows. In 17 months (from October 2007 to March 2009), the S&P 500 shed 57%.

    The good news is that the end of the world didn’t come. At least not for the non-Greece part of the world. Much of the three-year rally has been investors realizing that the worst has passed and that Earth is still here. Now, however, the lack of bad news is no longer enough; we’ll need to see actual growth. Companies can’t rely on current consumers to spend more money. Those folks are tapped out. Instead, we need more consumers.

    One outcome of this new market focus is that investors will start paying much more attention to the jobs market. We already saw that on Thursday with the market rallying on the news of the lowest jobless claims in nearly four years. The equation is quite simple: More profits will have to come from more revenue, and that needs to come from more consumers, and that means more jobs. Lots more jobs.

    Job Growth Is Desperately Needed for Profit Growth

    The January jobs report was pretty good: a net gain of 243,000 jobs. The difficult task before us is that, going by that rate, it will take several years for the economy to get back to anything resembling normal. Over the last two years, 3.1 million jobs have been created. That’s pretty good, but we need to put it into larger context. In the two years prior to that, 8.7 million jobs were lost. Plus, we’re not even counting the natural growth of the population. This shows that the big obstacle for companies is a dearth of shoppers: folks who could be out there buying stuff but can’t because they have no income.

    Think of it this way: When a recession hits, companies go into survival mode (I’m generalizing). This means they stop hiring, and they stop making new stuff. Next, they dump their current inventory for any price they can get. They don’t care about the price; just get some bucks in the door. This means that profit margins drop to the floor.

    This is the key point I want to get across: It’s profit margins that are really a killer for investors. This is why a 5% drop in GDP can lead to a market drop of 50% or more. Stock prices don’t follow the economy; they follow profits which are just one facet of the economy. One of the early signs of a company running into trouble is lower profit margins. Conversely, rising margins are almost always a sign of a company’s strength. Higher margins tell us that a company has pricing power in the market; this is a fancy way of saying that people really want what they’re selling.

    As the economy slowly woke up from the Great Recession, it was easy for companies to increase margins. That’s not hard to do when companies cut back on a major part of their overhead: compensation. As a result, profits soared while jobs didn’t improve that much.

    For the economy as a whole, profit margins have risen about as far as they can go. It’s possible that margins can go still higher, but we play it safe around here so it’s more prudent for us to assume that profit margins will revert to their long-term mean. Floyd Norris recently wrote in the New York Times: “In the eight decades before the recent recession, there was never a period when as much as 9 percent of American gross domestic product went to companies in the form of after-tax profits. Now the figure is over 10 percent.” Think of “profits as a percent of GDP” as a national profit margin.

    As a whole, I think overall profit growth will be pretty meager this year. The S&P 500 will probably earn somewhere between $100 and $105 which is a modest increase over the $97 for 2011. Of course that’s just an estimate, but I doubt we’ll see a major plunge. In fact, I think the odds of a big downturn in profits in 2012 are about as low as we can reasonably expect. As long as interest rates are still low, this environment is very favorable to equities.

    DirecTV Tops Estimates By Ten Cents Per Share

    The only recent Buy List earnings report was from DirecTV ($DTV) on Thursday morning. The company crushed estimates. For the fourth quarter, DirecTV earned $1.02 per share which was ten cents ahead of Wall Street’s consensus.

    DirecTV continues to do very, very well. One problem for them, and it’s not major, is that the cost of getting new subscribers is getting higher. We always want to view a company as being like a machine: Dollar bills go in and dollar bills come out. That, in essence, is what it’s all about.

    Before, it was very inexpensive for DTV to get those dollar bills to roll in. All they had to tell people is that cable is terrible, and that was enough. Now it’s getting harder. Infrastructure costs are rising and those costs will have to be eaten or passed along. Again, this is not a major problem for DirecTV but it is something on their radar.

    DirecTV is raking in profits. For Q4, earnings-per-share rose by 38%. That’s outstanding. On the company’s earnings call, they said, “We expect to grow earnings per share to well over $4 this year, on pace to achieve our EPS target of at least $5 in 2013.”

    The stock closed Thursday at $45.38 per share, which means it’s going for about 11 times this year’s earnings, and nine times 2013’s estimate. That’s a good bargain. It’s no wonder some value investors have taken notice. I rate DirecTV an excellent buy up to $48 per share.

    Earnings Due Next Week from Medtronic

    The only Buy List earnings report coming up is from Medtronic ($MDT). The medical supply company is due to report before the opening bell on Tuesday, February 21st. Medtronic has had a surprisingly good run since its last earnings report. Wall Street currently expects quarterly earnings of 84 cents per share which is probably a penny or two too low. Medtronic has previously told us to expect earnings for this fiscal year (ending in April) of $3.43 to $3.50 per share.

    The stock closed Thursday at $39.58, so that’s a decent valuation based on the earnings estimate. In December, I raised my buy price to $40 per share. I want to keep it there until I see what Medtronic has to say about their guidance. I think it’s very likely that they will narrow their profit range with this earnings report. Medtronic remains a good buy below $40 per share.

    Before I go, I want to highlight some other stocks from our Buy List. CA Technologies ($CA) just hit a fresh 52-week high. The stock is up 34.7% for the year. Quiet little Harris Corp. ($HRS) is at a six-month high. The company just reported earnings above Wall Street’s consensus for the 14th quarter in a row. Jos. A. Bank Clothiers ($JOSB) has woken up from its slumber and has now rallied for seven of the last eight trading days. Finally, Oracle ($ORCL) looks like it’s ready for a breakout above $30 per share.

    That’s all for now. Be sure to keep checking the blog for daily updates. The stock market will be closed on Monday in honor of President’s Day. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy