Friday, October 30, 2020

The Morning Call--Value investing waves the white flag again

 

The Morning Call

 

10/30/20

 

The Market

         

    Technical

 

            Thursday in the charts.

            https://www.zerohedge.com/markets/stocks-dollar-bitcoin-jump-bonds-black-gold-dump-ahead-earnings-palooza

 

            Are investor expectations a contrary signal?

            https://www.marketwatch.com/story/most-investors-now-expect-the-us-stock-market-to-crash-like-it-did-in-october-1987-why-thats-good-news-2020-10-27?mod=home-page

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          September pending home sales fell 2.2% versus consensus of +3.4%.

 

September personal income rose 0.9% versus projections of +0.4%; personal spending was up 1.4% versus +1.0%; the PCE price index was up 0.2% versus +0.3%; core PCE was +0.2%, in line.

 

                        International

 

The September Japanese unemployment rate was 3.0% versus estimates on 2.9%; preliminary industrial production was up 1.0% versus +2.5%; YoY housing starts fell 9.8% versus -8.6%.

 

September German retail sales were down 2.2% versus forecasts of -0.8%; Q3 GDP growth came in at +8.2% versus +7.3%.

 

The September EU unemployment rate was 8.3%, in line; Q3 GDP growth was 12.7% versus 9.4%; CPI was +0.2%, in line.

 

                        Other

 

                          Debt to income ratios are worse than they appear.

                          https://www.advisorperspectives.com/commentaries/2020/10/29/why-debt-to-income-ratios-are-worse-than-they-appear

 

Consumers are gloomy about Christmas spending but retailers are ramping up for a blockbuster season.

https://www.zerohedge.com/markets/americans-are-super-gloomy-about-holiday-spending-industry-ramps-blockbuster-christmas

 

            The coronavirus

 

              Overnight update.

              https://www.zerohedge.com/geopolitical/uk-accelerates-vaccine-trials-us-reports-nearly-90k-new-covid-19-cases-latest-record

                       

                          WHO official cautions against lockdowns.

              https://www.zerohedge.com/medical/who-special-envoy-covid-reiterates-caution-against-lockdowns-primary-virus-plan

 

            Bottom line.  Value investing waves the white flag---again.

              https://alephblog.com/2020/10/28/value-investing-waves-the-white-flag-again/

 

              Multiple fears gripping the Market.

              https://www.zerohedge.com/markets/fears-another-february-are-gripping-market

 

    News on Stocks in Our Portfolios

 

T. Rowe Price (NASDAQ:TROW): Q3 Non-GAAP EPS of $2.55 beats by $0.12; GAAP EPS of $2.73 beats by $0.21.

Revenue of $1.6B (+11.9% Y/Y) beats by $30M.

 

T. Rowe Price (NASDAQ:TROW) declares $0.90/share quarterly dividend, in line with previous.

 

Mastercard (NYSE:MA): Q3 Non-GAAP EPS of $1.60 misses by $0.06; GAAP EPS of $1.51 misses by $0.14.

Revenue of $3.84B (-13.7% Y/Y) misses by $110M.

 

General Dynamics (NYSE:GD): Q3 GAAP EPS of $2.90 beats by $0.04.

Revenue of $9.43B (-3.4% Y/Y) misses by $220M.

 

Automatic Data Processing (NASDAQ:ADP): FQ1 Non-GAAP EPS of $1.41 beats by $0.43; GAAP EPS of $1.40 beats by $0.44.

Revenue of $3.5B (flat Y/Y) beats by $230M.

 

United Parcel Service (NYSE:UPS): Q3 Non-GAAP EPS of $2.28 beats by $0.39; GAAP EPS of $2.24 beats by $0.40.

Revenue of $21.24B (+15.9% Y/Y) beats by $980M.

 

C.H. Robinson Worldwide (NASDAQ:CHRW): Q3 GAAP EPS of $1.00 beats by $0.03.

Revenue of $4.22B (+9.3% Y/Y) beats by $270M.

 

Microsoft (NASDAQ:MSFT): FQ1 GAAP EPS of $1.82 beats by $0.28.

Revenue of $37.2B (+12.4% Y/Y) beats by $1.42B.

 

Franklin Resources (NYSE:BEN): Q4 Non-GAAP EPS of $0.56 misses by $0.12; GAAP EPS of $0.15 misses by $0.45.

Revenue of $1.71B (+20.4% Y/Y) beats by $240M.

 

Cummins (NYSE:CMI): Q3 GAAP EPS of $3.36 beats by $0.88.

Revenue of $5.12B (-11.3% Y/Y) beats by $620M.

 

Sherwin-Williams (NYSE:SHW): Q3 Non-GAAP EPS of $8.29 beats by $0.49; GAAP EPS of $7.66 beats by $0.39.

 

MSC Industrial Direct (NYSE:MSM): FQ4 Non-GAAP EPS of $1.09 beats by $0.15; GAAP EPS of $0.94 misses by $0.02.

Revenue of $747.7M (-11.3% Y/Y) in-line.

 

3M (NYSE:MMM): Q3 Non-GAAP EPS of $2.43 beats by $0.16; GAAP EPS of $2.43 beats by $0.18.

Revenue of $8.4B (+5.1% Y/Y) beats by $20M.

 

Apple (NASDAQ:AAPL): Q4 GAAP EPS of $0.73 beats by $0.03.

Revenue of $64.69B (+1.0% Y/Y) beats by $1.36B.

 

Altria (NYSE:MO): Q3 Non-GAAP EPS of $1.19 beats by $0.03; GAAP EPS of -$0.51 misses by $1.66.

Revenue of $5.67B (+4.8% Y/Y) beats by $140M.

 

AbbVie (NYSE:ABBV): Q3 Non-GAAP EPS of $2.83 beats by $0.06; GAAP EPS of $1.29 misses by $0.13.

Revenue of $12.9B (+52.1% Y/Y) beats by $190M.

 

AbbVie (NYSE:ABBV) declares $1.30/share quarterly dividend, 10.2% increase from prior dividend of $1.18.

 

Exxon Mobil (NYSE:XOM): Q3 Non-GAAP EPS of -$0.18 beats by $0.06; GAAP EPS of -$0.15 beats by $0.11.

Revenue of $46.2B (-29.0% Y/Y) misses by $2.16

 

Exxon Mobil (NYSE:XOM) declares $0.87/share quarterly dividend, in line with previous.

 

Exxon laying off 15% of its work force.

https://www.zerohedge.com/markets/exxon-firing-15-its-workers-keep-dividend

 

W.W. Grainger (NYSE:GWW) declares $1.53/share quarterly dividend, in line with previous.

 

What I am reading today

 

            Three easy ways to retire wealthier.

            https://www.usatoday.com/story/money/2020/10/28/3-ridiculously-easy-ways-to-retire-wealthier/114485518/

 

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Thursday, October 29, 2020

Catch Up

 

The Morning Call

 

10/29/20

 

The Market

         

    Technical

 

            Our daughter went into the hospital and we have been taking care of the grandchildren, so pardon my absence.  As always happens when I take off, the Market goes bananas one way or the other. 

 

            Below is an updated S&P chart showing three technical points: (1) the S&P made a lower high on October 12th, raising the possibility of a double top [clearly not good on a long term basis], (2) it successfully challenged its 100 DMA; if it remains there through the close on Friday, it will revert to resistance [clearly not good on a short term basis] and (3) it opened a major gap down yesterday---which as you know, I believe creates a magnetic pull to be filled [clearly good on a short term basis]. 

 

Thinking forward technically, the S&P could fill that gap open which would also take it back above its 100 DMA.  For that action to be anything other than a short term rally, it would have to then break the newly created downtrend of lower highs and then challenge its all time high.  If not, we could be witnessing either (1) the start of another correction similar to last March or  (2) a double top which would mark the end of this long bull market.  However, the latter would be getting ahead of ourselves.  I still believe the underlying trend is up and will remain so as long as the Fed keeps the liquidity gates open.

 



 

            On the fundamental side, none of this weakness is surprising given the proximity of the most highly contentious election in my memory and what appears to be the ‘second wave’ of the coronavirus.

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Weekly jobless claims rose 751,000 versus expectations of up 775,000.

                          https://www.zerohedge.com/personal-finance/pandemic-emergency-jobless-claims-soar-record-high

 

                          Q3 GDP came in at +33.1% versus estimates of +31.0%.

                          https://www.zerohedge.com/markets/us-gdp-soars-record-331-q3-smashing-expectations

 

                        International

 

                        Other

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

           

 

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Wednesday, October 21, 2020

The Morning Call--Just because you are too young to remember a crash doesn't mean it won't happen

 

The Morning Call

 

10/21/20

 

The Market

         

    Technical

 

            Tuesday in the charts.

            https://www.zerohedge.com/markets/stocks-bitcoin-bullion-jump-dollar-bonds-dump

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications fell 0.6% while purchase application were down 2.1%.

 

                        International

 

September UK CPI was up 0.4% versus estimates of up 0.5%; core CPI was up 0.6%, in line.

 

                        Other

 

                          To whom does the US Government owe money?

                          https://politicalcalculations.blogspot.com/2020/10/to-whom-does-us-government-owe-money.html#.X48plNBKiM8

 

                          OPEC on the brink of crisis.

                          https://www.zerohedge.com/energy/opec-brink-crisis

 

Here is a fairly balanced analysis of the economic impact of either a Trump or Biden win.

                          https://www.zerohedge.com/markets/trump-vs-biden-economy-fed-markets

 

            The Fed

 

              What is the purpose of the Fed?---------ab—soo--lutely nothin’. Huh.

              https://www.zerohedge.com/economics/what-purpose-fed

 

            The coronavirus

 

              More on Sweden’s success in combating the virus.

              https://www.zerohedge.com/medical/google-mobility-data-suggests-sweden-socially-distanced-less-other-countries

 

            China

 

               The continuing battle in technology with China.

               https://www.zerohedge.com/geopolitical/former-mi6-spy-alastair-crooke-two-undersides-geo-politics

 

 

            Bottom line.  Just because you are too young to remember a crash doesn’t mean that it won’t happen.

              https://www.marketwatch.com/story/many-stock-investors-are-too-young-to-remember-the-october-1987-market-crash-why-thats-a-problem-2020-10-19

 

            I have been in this business since 1968.  So, I have seen a wide variety of crashes: the long drawn out crash (1970’s), the one day crashes (1987), the gut wrenching 60% plus crashes (2008) along with your everyday variety of 10-20% selloffs.  As the above article points out, to assume none of these will happen again is fatally na├»ve.  Especially at a time when equity valuations are stretched to the upside and the economic backdrop is worrisome at the least.

 

            So, what is an investor to do.  As a contrary opinionist, my solution is to always go to the stocks that are in the tank.  Of course, they are there for a reason; but many have been beaten down more than they should.  In addition, many also pay handsome dividends that can provide attractive income during periods of Market malaise.  Among my holdings, I would point out (all ratings are from Value Line): ATT (7.7% yield, A++ rated), Altria (8.5% yield, B++ rated), AbbVie (5.9% yield, A rated), BEN (4.8% yield, A++ rated), Bank of Nova Scotia (6.4% yield, B++ rated), MSM (4.4% yield, A rated), XLE (energy sector ETF 7.2% yield).

 

            Here is more (conventional) advice on dealing with today’s richly valued Market:

 

            What high valuations mean for your retirement plan.

            https://www.morningstar.com/articles/1004634/what-highish-equity-valuations-mean-for-your-retirement-plan

 

                Where to find yield today.

            http://www.capitalspectator.com/desperately-seeking-yield-20-october-2020-edition/#more-14916

 

Here is a thought for those that do not want to assume the risk of holding individual stocks and would prefer an ETF/mutual fund.

https://seekingalpha.com/article/4379755-vym-one-of-better-choices-for-passive-investor-today?utm_medium=email&utm_source=seeking_alpha&mail_subject=vym-one-of-the-better-choices-for-the-passive-investor-today&utm_campaign=nl-etf-daily&utm_content=link-0

 

    News on Stocks in Our Portfolios

 

MSC Industrial Direct (NYSE:MSM) declares $0.75/shar quarterly dividend, in line with previous.

 

Canadian National Railway (NYSE:CNI): Q3 Non-GAAP EPS of C$1.38 misses by C$0.08; GAAP EPS of C$1.38 misses by C$0.06.

Revenue of C$3.41B (-11.0% Y/Y) misses by C$80M.

 

Canadian National Railway (NYSE:CNI) declares CAD 0.575/share quarterly dividend, in line with previous.

 

What I am reading today

 

            A great must read article on the current political scene from a liberal author.

            https://johnhcochrane.blogspot.com/2020/10/understanding-left.html

 

            Yeah, this is going to help America be more competitive.

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

 

 

 

Tuesday, October 20, 2020

The Morning Call--More debt equals less growth

 

The Morning Call

 

10/20/20

 

The Market

         

    Technical

 

            Beware of the impact of target date funds.

            https://blog.evergreengavekal.com/swimming-with-the-target-date-whale/

 

            Monday in the charts.

            https://www.zerohedge.com/markets/black-ish-monday-stimulus-stumble-sparks-big-techs-worst-streak-14-months

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Month  to date retail chain store sales grew faster than in the prior week.

 

September housing starts rose 1.9% versus expectations of up 4.9%; building permits were up 5.2% versus +2.9%.

                          https://www.zerohedge.com/personal-finance/single-family-housing-startspermits-soar-highest-2007

 

                          The October housing index came in at 85 versus consensus of 83.

                          https://www.calculatedriskblog.com/2020/10/nahb-builder-confidence-increased-to-85.html

 

                        International

                           

                            September German PPI was up 0.4% versus estimates of -0.1%.

 

                        Other

 

              Recessions are a good thing.

              https://www.advisorperspectives.com/commentaries/2020/10/19/recessions-are-a-good-thing-let-them-happen

 

              Vehicle miles driven decreased 12.3% YoY in August.

              https://www.calculatedriskblog.com/2020/10/dot-vehicle-miles-driven-decreased-123.html

           

Fiscal Policy

 

  Fiscal cliffication looms if no stimulus deal.

  https://www.nakedcapitalism.com/2020/10/fiscal-cliffication-continues-as-the-election-looms.html

 

            The coronavirus

 

Last week, I went to California.  The plane, both ways, was completely full.  So, it appears that Americans are paying attention to the stats and are deciding to resume life to the extent possible.  More evidence:

              https://www.zerohedge.com/personal-finance/tsa-passenger-traffic-tops-million-sunday-return-normalcy-continues

 

            Bottom line.  As you know, one of my key economic/investment thesis is that the rising level of debt (government, corporate, individual) will stymie economic growth.  Rogoff and Reinhart produced a major study showing that when government debt exceeds 90% of GDP, it became a barrier to growth---the reason being that servicing that debt consumed so much investment capital that what was left was insufficient to fund normal economic growth.  That thesis has played out over the last decade as the long term secular growth rate of the US economy has been subpar.  Looking ahead, this problem is only going to get worse as our political class is adding trillions of dollars of new debt annually.  So, those of you thinking that the US long term secular economic growth (and hence, corporate profit growth) is going to accelerate as the US emerges from the coronavirus crisis, you may want to reconsider.

 

            Here are a couple of articles addressing this issue on more detail.

 

The problem with debt.

https://alephblog.com/2020/10/15/the-rules-part-lxvii/

 

More problems with debt.

https://www.ft.com/content/87efe5a9-4cb6-493b-a31a-f9efd5ddd242

 

Five easily avoidable investment mistakes.

              https://www.usatoday.com/story/money/investing/2020/10/17/5-easily-avoidable-investing-mistakes-beginners-dont-have-to-make/114275778/

 

 

    News on Stocks in Our Portfolios

 

Procter & Gamble (NYSE:PG): FQ1 GAAP EPS of $1.63 beats by $0.20.

Revenue of $19.32B (+8.5% Y/Y) beats by $930M.

 

ATT---a bond substitute.

https://seekingalpha.com/article/4379868-t-stock-bond-alternative?utm_medium=email&utm_source=seeking_alpha&mail_subject=t-at-t-stock-the-bond-alternative&utm_campaign=rta-stock-article&utm_content=link-0

 

What I am reading today

 

            A generation of constitutional illiterates.

            https://www.nationalreview.com/2020/10/congress-v-the-constitution/?utm_source=recirc-desktop&utm_medium=article&utm_campaign=river&utm_content=top-bar-latest&utm_term=fifth

 

            The dysfunctional media.

            https://www.epsilontheory.com/knowledge-takes-the-sword-away/

            How to make this winter not totally suck.

            https://www.vox.com/future-perfect/2020/10/14/21508422/winter-dread-covid-19-pandemic-happiness-psychology

            Once again, only the gophers go to jail while the big boys walk.

                        https://www.zerohedge.com/markets/crime-pays-goldman-strikes-2bn-deal-doj-avoid-all-charges-banks-role-1mdb-scandal

 

                        At last, the French seem to get it.  Follow through?

            https://www.zerohedge.com/geopolitical/fear-changing-sides-france-launches-unprecedented-crackdown-islamic-terror

 

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