CA Technologies Up 6% After Hours
Posted by Eddy Elfenbein on January 11th, 2012 at 11:38 pm

Shares of one of our newbies, CA Technologies ($CA), got a nice boost after the close when Taconic Capital said they took a 5% stake in the company.

According to a filing with the Securities and Exchange Commission, Taconic owns 5.14 percent, or about 25.4 million shares, of CA as of Jan 6, which it acquired for about $563.5 million.

Taconic said the company needed to increase margins in its enterprise business segment and implement a senior management compensation structure that is based mainly on total shareholder returns rather than on absolute growth metrics.

“The Reporting Persons recognize management’s recent efforts to begin addressing these issues, but they emphasize the importance of taking substantial and timely action in pursuit of these objectives,” Taconic said.

The stock was up about 6% after hours.

Oh….one more thing, Taconic is absolutely right.

The Buy List Is Beating the Market
Posted by Eddy Elfenbein on January 11th, 2012 at 5:37 pm

It’s very early. Or really, it’s very VERY early, but our Buy List already has a lead over the S&P 500.

Through seven days of trading in 2012, the S&P 500 is up 2.77% while our Buy List is up by 3.38%.

Here’s a look at how the Buy List is doing:

The Cyclicals Strike Back
Posted by Eddy Elfenbein on January 11th, 2012 at 1:38 pm

In last week’s CWS Market Review, I wrote that the underperformance of cyclical stocks is probably over.

The Morgan Stanley Cyclical Index (^CYC) is well on its way to beating the S&P 500 for the ninth day in a row. It’s not even close today. The CYC is up by more than 1% while the S&P 500 is slightly negative.

Check out the 10-day view:

Stock Market Quietly Sneaks Up on All-Time High
Posted by Eddy Elfenbein on January 11th, 2012 at 12:23 pm

The total return version of the broadest measure of the stock market, the Wilshire 5000 Total Return Index, is quietly approaching an all-time high. “Total return” means it includes dividends.

We have to remember that small-cap stocks have done much better than the large-cap indexes over the past nine years. That’s why the Wilshire 5000 Total Return Index is nearing its high while the S&P 500 is still far away.

Yesterday, the Wilshire 5000 Total Return Index closed at 52.95 which is the highest level since July 28th. If we get another 5% rally, we’ll eclipse the post-crash high which was 55.54 on April 29, 2011. And we need another 8.4% rally to break the all-time peak of 57.39 from October 9, 2007.

Of course, these aren’t very good returns — but they are positive!

Stryker Gives 2012 Guidance
Posted by Eddy Elfenbein on January 11th, 2012 at 11:40 am

It’s a fairly quiet morning on Wall Street. The major indexes are down but only slightly.

I’m happy to see DirecTV ($DTV) up about 3% thanks to an upgrade from Bernstein. The firm now rates DTV as “outperform” and they raised their target price from $48 to $52. The stock is currently at $44.

Hudson City ($HCBK) is pulling back some today but that’s after its big day yesterday.

Stryker ($SYK) won’t report its Q4 earnings until January 24th, but yesterday the company released some early details. The company said that quarterly sales rose by 11% to $2.2 billion.

Stryker also narrowed its full-year forecast from $3.70 – $3.74 per share to $3.72 – $3.74 per share. Remember that for much of last year, Stryker said that they would earn between $3.65 and $3.73 per share, so they were certainly on track.

The company isn’t hiding much here since we already know that they earned $2.70 per share for the first three quarters. That means they expect to report between $1.02 and $1.04 for Q4.

For 2012, the company said that it expects “double digit” earnings growth over 2011. If we assume that means 10% on the nose and we take the midpoint of their range, $3.73 per share, as our guide, that gives us 2012 earnings of $4.10 per share. Wall Street had been expecting $4.11 per share but this can hardly be called lower guidance.

Also, last month Stryker raised their dividend by 18%.

Morning News: January 11, 2012
Posted by Eddy Elfenbein on January 11th, 2012 at 5:18 am

Monti Warns of Italy Protests as He Meets With Merkel in Berlin

EU Banks Resist Draghi Bid to Avert Credit Crunch

German Growth Slowed From Record in 2011

Google Wins Biggest Enterprise Deal in Spain

Europe’s $39 Trillion Pension Threat Grows as Economy Sputters

India Lets Starbucks, Ikea Open Stores

Nigeria Shuts Down as Unions Defy Jonathan Over Fuel Subsidy

NYSE-Deutsche Boerse Hangs in Balance

Materials Companies Lift Indexes to 5-Month High

Oil Trades Near a One-Week High as Iran Tension Counters European Economy

Fed Turns Over $77 Billion in Profits to the Treasury

Treasury Secretary Appeals to China Over Iran

As Romney Advances, Private Equity Becomes Part of the Debate

Urban Outfitters CEO Resigns, Stock Falls 15%

Twinkies Maker Preparing for Chapter 11 Filing

Jeff Miller: My Bespoke Roundtable Answers

Stone Street: A Few Coincident Indicators

Be sure to follow me on Twitter.

Correction on the Mankiw Model
Posted by Eddy Elfenbein on January 10th, 2012 at 1:53 pm

I have to apologize. I made a mistake in a post from last week in calculating the interest rate based on Professor Greg Mankiw’s interest rate model.

His model for where the Fed funds rate ought to be is:

Federal funds rate = 8.5 + 1.4 (Core inflation – Unemployment)

In my original post, I said that the model finally indicated that the Fed should have positive interest rates. A reader caught my error. The corrected model is below and it shows that interest rates according to the Mankiw model are still negative, although they’ve risen considerably in the past few months.

The model is the blue line and the actual rate from the Fed is the red line. At the current inflation rate, the unemployment rate needs to drop to 8.3% from the current 8.5% for the model to signal positive rates. We’re getting close.

Ford Drops on False News
Posted by Eddy Elfenbein on January 10th, 2012 at 12:19 pm

Earlier today, CNBC incorrectly reported that Ford ($F) was going to post a loss for 2011.

The stock plunged about 35 cents in a matter of minutes. As you can see in the video, the reporter corrects himself and notes that Ford is only reporting in its Asia-Pacific and Africa region. The company also said that it expects to report earnings of 26 cents per share for Q4.

This is yet another reason why I steer clear of day-trading. Shares of Ford are currently off their lows of the day.

HCBK = $7.28
Posted by Eddy Elfenbein on January 10th, 2012 at 11:23 am

Shares of Hudson City ($HCBK) got as high as $7.28 today. The stock is up 16% so far for the year. Our Buy List is up more than 3% for the year and we’re currently about 20 basis points ahead of the S&P 500.

S&P 500 At Five-Month High
Posted by Eddy Elfenbein on January 10th, 2012 at 10:01 am

Thanks to a decent earnings report from Alcoa ($AA), the stock market is riding higher this morning. The S&P 500 just broke above 1,290 and is now at its highest point since August 1.

Earnings season starts this week, and JPMorgan Chase ($JPM) will be our first Buy List stock to report. JPM reports earnings on Friday. This report will be closely watched by a lot of traders to get an idea of how well the banking sector did in Q4.

Many of the large banks have seen their earnings estimates slashed over the past several weeks. Goldman Sachs ($GS), for example, was expected to earn $2.86 per share for the fourth quarter two months ago. Today that estimate is down to $1.69. Wall Street has cut Morgan Stanley’s ($MS) earnings estimate from a profit of 30 cents per share to a loss of 56 cents per share.

JPMorgan has mostly side-stepped the downgrade party. Over the past two months, Wall Street has cut its Q4 forecast from 98 cents per share to 91 cents per share. That’s unpleasant but it’s not nearly as bad as some others.

Again, we need to add some context. Even if JPM’s earnings came in on the low side, the stock is still going for about eight times what it will make in 2011. That’s pretty darn cheap. Plus, I hope to see the bank raise its dividend again.