Monday, July 30, 2012

Defending NBC

There has been a debate going on for the past few days about the tape delayed Olympics on NBC. I want to state my position and defend NBC for this reason:

With NBC only having one main news channel and the others business/unrelated (CNBC, MSNBC) which have preference in airing their programs, it would be unfair to focus on just one event to do live. NBC wants to have coverage of all of its events but cannot due to the limited number of channels they have on TV. In saying this, if ABC was to buy the rights to cover the games, having them tape delayed would not be in their best interests because they own more channels (ABC, ABC Family, ESPN, ESPN2, etc.)
Let’s give some credit to NBC as they are doing all they can to please their viewers, the TV coverage may not be great, but social media and the internet are two very important aspects of everyone’s lives for getting news out quickly. Quit complaining and enjoy the games. 

Jobs week and other events to watch for

Another month has passed us again, this year is flying by; and that only means that the July unemployment report is right behind the corner. Reviewing what happened this past week, from my recommendations on my last post:

-Halliburton is up nearly 10% on their earnings report, they posted a net profit of 737M or 79 cents a share, revenue also beat (7.2B v 6.96B). I will continue to reiterate buys on the big oil names as we saw a slight move up in oil this past week and on the continued growth and low p/e ratios, as well as solid dividend growth.

-Jarden is up 2.5% this week to an all-time high of $45.89. The conference call, which I reviewed, showed how Martin Franklin, CEO of Jarden, was very optimistic on growth forecasts, Record sales figures and EPS beat by 4 cents (1.14 v 1.10). Seeing that their product lines do not seem to be affected by what is going on in Europe and the US, this would be a name to be long.

-ACE Limited is up 5.25% on a solid reporting quarter helped by strong current accident year underwriting results and low catastrophe losses. Net income rose to 743 Million, up 10% in a year, but CEO Evan Greenberg warns of crop insurance in the 3rd Quarter and states the second half of the year could see lower than expected profits. Despite this, he still remains optimistic going into 2013, with Global and North American insurance businesses up 7-10%.  The stock is currently trading 5% off of its all-time high back in April of this year.

-Total SA followed same story line as Halliburton, though rocketed higher on comments from Mario Draghi to save the Euro Zone. Along with continued revenue growth, they will raise their dividend by year end 3.5%.

-Overall, markets had a pretty good week, the S&P up 1.7% Dow up 2% and Nasdaq, the lagger, up 1.1%. Apple was the tell-all story as it missed earnings expectations which dropped the stock 3% for the week, but well off its lowest levels on Wednesday morning down nearly 7%. Revenue missed by 2 billion dollars, and forecasted lower earnings numbers for the next quarter. Tim Cook mentioned reports going forward could be more volatile due to changes in the product cycle. The most talked about product right now is the iPhone 5, what the design will be like and what will its new features be. Investors were buying the dips, but going forward, I can see that the growth is slowing for Apple, Jobs is no longer there for any type of new product line.

-The thing that is puzzling to me is the big name companies that are coming in below expectations, but still people are buying after the results. On a fundamental basis, stocks are cheap and there is a ton of cash on the sidelines, but the bigger story is the overseas and domestic risks that are currently happening. I believe that as we near the presidential election, the fiscal cliff will become more apparent and will once again spin us into what could be another repeat of summer/fall ’11.

-On Friday, we got more headlines from Mario Draghi saying ECB will buy bonds and do anything to eave Euro Zone, that shot up the S&P futures 30 handles, This was a rumor and not confirmed. Saturday, the German Finance minister said these rumors were not true and pure speculation that something may be done in the near future. Again, as we see headlines continue to rip people apart on the short side. I expect next week to have a very negative reaction; the reason was mainly short covering in the EUR/USD as we have seen some pretty violent moves the past few weeks. Big moves to the downside also include big moves to the upside. We saw the Euro move up 3 cents against the US dollar this week, still continuing to maintain the 1.20 level. As more Euro Zone debt payments are due in the coming weeks and bond yields are still at record highs, the countries will run out of money and haircuts will come, it is pretty much inevitable. The amount of money needed to fully get all of the debt ridden countries in Europe back on their feet is astounding; we will continue to see rumored headlines, but the best bet is to stay long the USD against the Euro, the big move up in the Euro last week will almost for sure be all sold off and then some next week, possibly testing 1.20 again before the next European summit in the coming weeks ahead.

Along with the unemployment report Friday, we have some other key macro data points to look at:

-10:30 AM EST Dallas Fed Manufacturing
 -prev 5.8 Consensus 2.5 (range -2.0 to 6.5)
Reports this past week from the fed regions were all below consensus so I would not be surprised to see this go negative.

-8:30 AM EST Personal Income and Outlays
Personal Income prev 0.2 % consensus 0.4 % (range 0.2 % to 0.5 %)
Consumer Spending prev 0.0 % consensus 0.1 % (range 0.0 % to 0.3 %)
PCE Price Index prev   -0.2 % consensus 0.1 % (range -0.3 % to 0.1 %)
Core PCE price index prev 0.1 % consensus 0.2 % (range 0.1 % to 0.2 %)
-We expect to see slight ticks up in personal income and consumer spending this month, but still at low levels.

-9:00 AM EST Case-Shiller Home Price Index
-prev 0.7% Consensus 0.5% (range 0.0% to 0.8%)
A measure of monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S. Single family homes only. We expect to see a slight decrease in home value at this read; shows housing is still dragging along the bottom.

-9:45 AM EST Chicago PMI
-prev 52.9 Consensus 52.5 (range 49.0 to 52.3)
Look for this to disappoint at have a possible print below 50 signaling contraction.

10:00 AM EST Consumer Confidence
-prev 62.0 consensus 61.5 (range 59.0 to 65.0)
This may surprise to the upside, seeing many earnings reports have been beating estimates, people may put good light into a hopeful recovery. Numbers still way off ’07 levels as shown below.


-Motor Vehicle Sales
Domestic Vehicle Sales prev 10.8 M    consensus 11.0 M (range11.0 M to 11.1 M)
Total Vehicle Sales prev 14.1 M consensus 14.0 M      (range 13.8 M to 14.4 M)
Expect little change in numbers of vehicles sold

-7:30 AM EST Challenger Job Cuts
No consensus, given at announcement, though has been trending down since ‘08

-8:15 AM ADP Employment Report
-prev 176,000 consensus 120,000 (range 75,000  to 166,000)
Expect employment to slow from the month of July for the private sector.

-10:00 AM EST ISM Manufacturing
-prev 49.7 consensus 50.1 (range 48.5 to 51.1)
Expect ISM manufacturing to continue its slow grind below 50

-10:00 AM EST Construction Spending
-prev 0.9% consensus 0.5% (range -0.2% to 0.8%)
Surprisingly, construction spending has been doing rather well the past few months, and as of now at a 4 year high, still well of best levels of ’07.


-8:30 AM EST Jobless Claims
-prev 535K consensus 370K (range 340K to 380K)
We had a couple of wild moves in claims the past 3 reads, being down 30K on a shortened week, then back up to prior levels, then back down again. Expect another big tick up as the 4 week average is around 370K, this will be the final monthly read on claims before NFP Friday.


-8:30 Non-Farm Payrolls
Nonfarm Payrolls prev 80,000  consensus 100,000  (range 70,000  to 165,000)
Unemployment Rate prev 8.2 % consensus 8.2 % (range 8.1 % to 8.3 %)
Average Hourly Earnings prev 0.3 % consensus 0.2 % (range 0.1 % to 0.3 %)
Av Workweek prev 34.5 hrs consensus 34.5 hrs (range 34.4 hrs to 34.5 hrs)
Private Payrolls prev 84,000     consensus 110,000  (range 80,000  to 180,000)

I won’t be able to get a better read on the NFP number until I see the ADP and Claims, but nevertheless I expect yet another disappointment. Just going on the fact that PMI and Fed district manufacturing are all at 3 year lows and contracting tells me that demand is not there, therefore no need for increased labor force.

The graph below shows the rate and jobs created over the past 6 years, big spike up 2 yrs ago was for census jobs, we can see that there has been little of any job growth since we have lost jobs in ’08, but every little bit helps.

Another big round of earnings this week, the ones I’m watching are:

Monday: Eastman Chemical Company, Loews, Texas Roadhouse

Tuesday: Anheuiser Busch, Coach, Frontier Communications, Goodyear Tire, Valero, US Steel, Yandex

Wednesday: Boston Beer, Dominion Resources, Exelon, Invesco Mortgage Retail, MetLife, Transocean, Allstate

Thursday: Apache, Clorox

Friday: Agrium, Dresser-Rand, New York Stock Exchange, American Water Works

I will be previewing the following below: Texas Roadhouse, Frontier Communications, Invesco Mortgage Retail, Dominion Resources, Apache, Clorox

Texas Roadhouse is an American restaurant chain with 366 restaurants owned, mainly steaks and chicken. In my opinion a bit biased I might add but they have some of the best steak I have ever had. Any chance I get I would go there to eat, great food. Only downside is people with peanut allergies, like myself, have to be careful because they serve peanuts in buckets at every table. Everytime I have gone into one to eat so far, they are ALWAYS busy, but find a way to serve those waiting within 20-25 minutes, it is well worth the wait. The food is fairly inexpensive as well, targeting the lower part of the middle class and very family oriented as well.

Looking at their fundamentals, it is no surprise that revenue and profit are both up 20% y/y. their only competitor in my mind would be Outback Steakhouse, which is not public yet, but Texas Roadhouse would blow them out of the water any day with the amount of people that I have seen eat there, Outback was not busy at all the last 3 times I went there. Their p/e is a bit high, though the 2% yield is also a bonus. There is no reason to not be long this company and believe that they will miss the quarter. The demand for this type of food is still here, regardless of the tough times; people will continue to eat out.

Frontier Communications, one of my personal holdings, which is still hard to believe I still own after I have lost nearly $400 on the company since investing in it at $7.00, is due to report this week. They are a rural telephone and internet company, providing service mainly to customers in rural West Virginia. My investment thesis on this company was pretty bad; I thought it looked like the perfect takeover target for Verizon or AT&T at the time because they were doing well financially. They announced the summer after I bought them to acquire landlines from Verizon costing a few billion, so all of their cash would basically be done and their debts would also be on the rise. Listening to Maggie Wilderotter, she was sure that this would mean long term capital gains; I stuck with it. As of today the stock is roughly 50% lower than where I bought it, and the yield, which was why I bought in the first place, is down 40%.

FTR looks like it is trying for an upward trend; analysts have a $5 price target long term, which would leave me at breakeven from the dividends I have acquired from its ownership, and I’m feeling pretty positive on this report after the last half a dozen or so were pretty dismal, mainly due to losses from acquisitions, at the last report, Wilderotter assured shareholders that acquisition losses were coming to an end and they should be more profitable going forward. Their revenue has been relatively flat throughout the past year, but the problem has been their costs keeping them from being profitable. Unless something catastrophic happens and they report a loss, I may or may not sell the entire position, have been debating that for some time now, but I would rather leave with half than leave with none.

Another one of my long holdings is Invesco Mortgage Retail, they are a real estate investment trust (REIT), financing residential mortgage backed securities through the government (Fannie Mae). I bought shares in this company last August at 19.75, and as of Friday’s close, I am finally in the black. It only took a year, but I’m finally there. Along the way I have acquired over $100 in dividends, which is another positive as to why this is a great company. Seeing how they got hit nearly 40% in 3 months due to the US debt crisis last summer, I know that come next year something like this will probably happen again. I agree that cuts in spending and tax increases need to be made, but cuts to the mortgage guarantee program will likely never happen seeing as this is what caused the whole crisis.

Net income and revenue continue to grow, and as this does, the dividend will be back to near $1.00. The dividend cut was a good idea, in my opinion, though I did not make as much money as I wanted through dividends, this will preserve more capital for them to grow their stock for the long term, which is what is slowly, but surely has been happening.

Above, a chart of IVR, notice confirmed uptrend since last October and golden cross from a few months ago. Full disclosure, no plans on exiting position.

Next, Dominion Resources, which I covered in October of last year, is up 10% since then. I will reiterate saying I would continue to be long, but careful of the earnings reports, which they tend to sell off a few percentage points, then recover back to the highs. This is another great company to own, with continued growth in all 4 sectors which are important to me as a long-term investor: revenue, profit, capital appreciation, and dividends. The estimate is for a profit of 60 cents/share, a rise of 1.7% from their actual earnings for the same quarter a year ago. For the year, analysts are projecting net income of $3.19 per share, a rise of 4.6% from last year.

Net Income nearly doubled q/q and their dividend is up nearly 20% from the fall of ’08 with a yield of 3.84%. The stock is up over 80% from March ’09 lows, proving it is a great long term investment, and still is. As the stock begins to get more expensive, I would assume that they will plan a stock split. Below, 3 year chart of Dominion and its manin competitor Sempra, Dominion is clearly the outperformer.

Last, looking at Apache, which I analyzed last in March of this year when oil was near its peak of 110 a barrel. Apache at that time was just over 105 and I thought it would be a great long term investment on seeing the price of oil continuing to rise. Though the stock has gotten hit badly this year, almost down to 30% lower than where I originally recommended it, I believe that it is inevitable for oil to continue to stay at these levels, demand will begin to pick back up again and take all of these cash-rich oil companies with it. Apache is making about $8.00 a share and is trading at a currently very cheap $87.57 as of Friday. I expect it to make it to $100 in the near term, but would need help from oil to continue its climb higher.

Uptrend in APA began at the end of May

Follow of twitter @peter_eller10, I will be analyzing these all week, it is also unlikely I will post next week due to summer final exams. Have a good week everyone.

Monday, July 23, 2012

What to look out for this week besides Apple

I would first like to start off by saying my sincere condolences, thoughts, and prayers for all those out in Colorado from this past week, what a tragic event that we hope will never happen again.

The days in Oxford are flying by, already halfway through my time here, and it has been pretty good, can’t complain too much (except for the fact that I have to take a biology and Shakespeare studies class…yea) other than that, trying to get out and experience a bit.

Despite all of the earnings action we have seen this past week, the broader markets remained pretty quiet. Light volume took over once again and the S&P moved up nearly .5%. Jobless claims moved back up to prior levels before the last print on the holiday shortened week showing that unemployment is still a problem, Philly Fed had a weaker than expected print as well, continuing what I have been saying for a while now about slow growth in manufacturing.

What got my attention this week are the intraday charts on Thursday of MCD, IBM, and KO. Notice the sawtooth pattern, algo trade take place. The continuous cosine curve buy on the hour sell on the half hour. If you spotted this early, congrats on making a few bucks, but this is totally destroying our capital markets. Machines cannot make logical decisions. During the afternoon, people on twitter started to take notice, but I believe it was looked over for most of the day, volume was normal and even though these were 1% moves up and down at times, there was other news to focus on.

We also saw a big move up on continued growth from PKG which I highlighted last week, along with slowing growth of coal transportation revenue from CSX.

The big report this week will be Apple on Tuesday after market close. Reading through several reports from analysts and doing my own research, this could be another lousy quarter for Apple. iPhone sales could be the problem here as the Samsung Galaxy has been eating away market share, along with unemployment continuing to be an issue, and my theory of Google continuing to slowly take market share from their Android platform (proud Android user, never bought an Apple product). I believe that we are nearing the point where it does not matter how many new versions of the phone or tablet pc they put out, everyone will have one and will be satisfied with what they have.

This week in macro news we will look at:

-8:30 AM EST Chicago Fed National Activity Index
 -Prev -0.45 Consensus -0.33 (range -0.60 to -0.10)
A lesser used gauge for economic and inflationary activity. A weighted average of 85 existing monthly indicators.

-8:58AM EST PMI Manufacturing Flash Index
Prev. 52.9 Consensus 52.6 (range 51.5 to 53.0)
Flash PMI is released a week before regular PMI to give a preliminary reading.

-10:00 AM EST FHFA House Price Index
Prev. 0.8% Consensus 0.3% (range 0.0% to 0.7%)
Transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac, using single family homes. We can see this has recovered drastically from the ’08 lows, but nowhere close to reaching the peak highs 6 years ago.

-10:00 AM EST Richmond Fed Manufacturing
Prev. -3.0 Consensus 0.0 (range -6.0 to 1.0)
With reads on this being as high as 20 earlier this year with an expected print of 0, we can see how manufacturing growth throughout the US has slowed. The last 2 reads came in well below consensus and nothing is telling me we cannot do it again. I expect a negative number out of the consensus range.

-10:00 AM EST New Home Sales
Prev 369K Consensus 370K (range 358K to 389K)
Measure of the number of newly constructed homes with a committed sale during the month. We continue to see numbers come in 25% of what they were before the housing collapse with no real pick-up in sight.

-8:30 AM EST Jobless Claims
Prev 386K Consensus 380K (range 375K to 400K)
With a consensus range all the way up toward 400K, this would be the highest reading in jobless claims since last October, more evidence that jobs still are not back on the market.

-8:30 AM EST Durable Goods
New Orders prev 1.1 % Consensus 0.6 % (range -1.4 % to 2.1 %)
Ex-transportation prev 0.4 %    Consensus 0.2 % (range-0.7 % to 1.7 %)
As growth continues to slow, the Durable goods orders will slow as well, we are in danger of breaking below 0% yearly change in orders, something not seen in almost 3 years when the supposed recovery was beginning.

-10:00 AM EST Pending Home Sales Index
Prev 5.9% Consensus 0.9% (range -2.9% to 4.0%)
Leading indicator of existing home sales, specifically pending homes where the contract is signed, but not yet closed. Takes 4-6 weeks to close a contract sale.

-11:00AM EST Kansas City Fed Manufacturing Index
Prev 3 Consensus 4 (range 0 to 5)
We already saw weakened from Philly Fed as mentioned before last week, I expect this to come in below consensus and be another disappointment.

-8:30 AM EST GDP 2nd quarter 1st read
1st quarter final: 1.9% 2nd quarter 1st read consensus: 1.2% (range 0.9% to 2.4%)
We can see continued slowing of growth as we get the 1st read on Q2 GDP. Many large Investment banks continue to lower their estimates as manufacturing growth and earnings for companies are drastically slowing. 

-9:55 AM EST University of Michigan Consumer Sentiment
Prev 72.0 Consensus 72.0 (range 71.0 to 75.0)
Survey of 500 households each month on their financial conditions and attitudes about the economy. In my opinion does not track economy as well as consumer confidence, levels still a bit elevated from where I would expect.

Earnings for this week besides Apple:

Halliburton, Hasbro, VM Ware

AK Steel, Buffalo Wild Wings, Dominos Pizza, Jarden, Leximark, NetFlix, Ryder, Spirit Airways

Las Vegas Sands, ACE Limited, Panera, Weatherford

Unilever, 3M, Deckers

Chevron, First Niagara, Total S.A.

I will be observing all of these for the upcoming week, five of them more in particular I want to highlight: Halliburton, Jarden, Unilever, ACE Limited, Total S.A.

Halliburton Company is an “oilfield services company. The Company is provider of services and products to the energy industry related to the exploration, development, and production of oil and natural gas. It serves national, and independent oil and natural gas companies worldwide and operates in two segments: Completion and Production segment and Drilling and Evaluation segment. The Company conducts business worldwide in approximately 80 countries. 55% of its revenue is from the US.” (per google) Looking at oil and natural gas prices, I remain long term bullish on the energy sector as a whole on eventual increase in demand as population increases globally and industry gets back up to ’07 levels. June 6th we had an announcement on earnings concerns for the 2nd quarter. For the first quarter profits were drastically lower than previous, almost 70% below (1.1B v 2.8B), this was due to low oil prices, and costs being up 1.5B over the previous quarter but since then we have seen oil slowly but steadily make its way toward 85-88 a barrel in the last few weeks, along with natural gas more than 50% off its lows in a short amount of time. The way I see it is that Iraqi and Middle East tensions can spark at any time and drive oil up, and nat gas continues to be in contango signaling increase in demand for the future (maybe those nat gas cars). A look at the chart below is also short term bullish as well:

We can see an inverse H&S formation with the low being put in at 26.70, now we are more than 20% off of this low. Look for further upside as the report comes out.

Next, Jarden which is a global consumer products company. The Company operates in three segments through a range of brands, including: Outdoor Solutions: Abu Garcia, Aero, Berkley, Campingaz, Coleman, ExOfficio, Fenwick, Gulp!, K2, Marker, Marmot, Mitchell, Penn, Rawlings, Shakespeare, Stearns, Stren, Trilene, Volkl and Zoot; Consumer Solutions: Bionaire, Crock-Pot, FoodSaver, Health o meter, Holmes, Mr. Coffee, Oster, Patton, Rival, Seal-a-Meal, Sunbeam, VillaWare and White Mountain, and Branded Consumables: Ball, Bee, Bernardin, Bicycle, Billy Boy, Crawford, Diamond, Dicon, Fiona, First Alert, First Essentials, Hoyle, Kerr, Lehigh, Lillo, Loew-Cornell, Mapa, NUK, Pine Mountain, Quickie, Spontex and Tigex.

All of their products are made in the US, and they have done quite well so far this year, up nearly 50% on continued income growth of their products. Even though I expect them to deliver well, watch for some profit taking as this has hit some key selling technicals, but I would be a buyer and get right back in after a couple days of profit taking.

Next, Unilever which is a maker of personal care, home care, foods and refreshments. It recovered all of its losses from’08 in less than a year and since then has been up 10% and stabilized, but has been increasing its dividend since income has continued to grow. The yield is 3.64% and it is up 3.7% in a year. Though this is not my top consumer staple in personal care items (Colgate and Clorox are doing much better in comparison) the growth and yield are still there to be long.

ACE Limited is a Swiss based global insurance company serving customers in 170 countries. They operate in nearly all lines of insurance from personal accident to professional liability. Since 2008, the company has more than doubled in value along with nearly doubling its dividend. Net income has been stable to growing from going from a net loss in Q3 ’11 to a 973M profit. Travelers its main competitor is comparable on all aspects and is slightly an outperformer in ’12 but the charts are relatively the same on a 1yr basis. Both names look good to own, but for now ACE is the one that can rally a bit on lower P/E and it being more than 10% off its all-time highs.

Last, looking at one of the most fundamentally cheap oil names out there right now is Total. The French based oil and gas company has been hit hard by the decrease in oil demand, price and the price of the Euro. With revenue growing at 15% per year and net income up 30% in a year as well, as we start to see oil recover, we will see Total recover as well. I believe that this has taken an unnecessary leg down this year and is one of the best bargains you can buy today. The stock price is at a 9 year low, but held on to key support so far this year at $40.00. With EPS projected at 6.51 on a fy basis and the price of the stock at $44 this gives us a p/e of 6 and change. Along with a near 7% dividend yield, you will get income appreciation while waiting for capital appreciation.

Above is a 1 year chart of XOM, CVX, BP and TOT (in blue) notice TOT is the underperformer by far here, but in  my opinion has the biggest upside potential within the coming months. On a long term investment basis though, these are all great names to own.

I will also be reviewing anything else that comes up newsworthy on twitter @peter_eller10 so you can catch me there, have a great trading week everyone. 

Sunday, July 15, 2012

Preview of the week ahead 7/16-7/20

Another week has gone by, some important events happened, so let’s rundown:

-S&P 500 looked like it was going for red this week until Friday when we saw a lather large 1.5% move up to close us out flat.
-Volume was a concern as it was one of the lightest trading days of the year, they do tend to be on the up days.
-Ended the longest losing streak since mid-May. We lost 40 points in that time and regained 22 of them in just one day Friday, no panic buying but lack of sellers, the “go home long on a Friday” type of thing.
-Earnings did not do much to move us this week, Alcoa had a slight beat, equity price fizzled out quickly, as I expected last week. Alcoa experienced a triple bottom closing low of 8.30 so far this year, which is now a key pivot level for a potential bounce toward 9.00 which is long term resistance. Would not be trading this, highly volatile, and I don’t see aluminum prices returning to levels where they were in ’07 when we had growth and global GDP was industrially expanding.
-Bank earnings (JP Morgan) surprised, the trading loss on IG9 will likely be less than expected, and they will exit the position slowly in the coming months. Bruno Iksil (Whale) and CIO office are basically all gone as of now, Dimon does want to tarnish image any more. Problem is that arm of their business made roughly 25% of the profits for their quarterly reports, may be a problem going forward (via ZeroHedge).
-For the week ahead as we delve into the meat of Q2 earnings, be careful of what you pla on trading, I still am pretty bearish overall with the global contraction we are facing, along with Europe still not solving its problems which continues to be a ticking time bomb.

Above the S&P 500

Above Alcoa

Key macro data this week includes:

-8:30 AM EST Retail Sales
Retail Sales M/M change Prev -0.2 % Consensus 0.2 % (range -0.2 % to 0.4 %)
Retail Sales less autos M/M change Prev -0.4 % Consensus 0.1 % (range -0.3 % to 0.2%)
Less Autos & Gas - M/M Change Prev -0.1 % Consensus 0.3 % (range 0.3 % to 0.5 %)
We are looking for a bit of a pickup in monthly retail sales figures ffrom the month of June, for the beginning of the summer shopping season, this will give retailers a scale of what they need to do come end of the summer and back to school into the fall. The average over the past few years has been about 1% so we still continue to drag along the bottom. 

-8:30AM EST Empire State Mfg. Survey prev 2.29  Consensus 4.50 (range-8.00  to 6.00)
175 manufacturing executives from New York report the change in an assortment of indicators from the previous month. We are looking for a slight increase.

-10:00AM EST Business Inventories prev 0.4 % Consensus 0.3 % (range0.0 % to 0.5 %)
We generally would like to see this as low as possible, business turning over inventory more quickly leads tomore sales and higher revenue, notice how high it was during ‘08-’09. We are expecting a slight tick up.

-8:30AM EST Consumer Price Index
CPI  M/M change Prev -0.3 % Consensus 0.0 % (range -0.4 % to 0.1 %)
CPI less food & energy Prev 0.2 % Consensus 0.2 % (range 0.1 % to 0.2 %)
After last read on CPI showed signs of deflation, we expect levels to tick back up to unch.

-9:15AM EST Industrial Production
Production M/M change prev -0.1 %    Consensus 0.3 % (range -0.1 % to 0.5 %)
Capacity Utilization Rate prev 79.0 % Consensus 79.2 % (range 78.9 % to 79.4 %)
Manufacturing M/M prev 0.4 % Consensus 0.2 % (range 0.1 % to 0.5 %)
-Monthly index of industrial production and the related capacity indexes and capacity utilization rates cover manufacturing, mining, and electric and gas utilities. We are looking for an increase in production, but a continued slowdown in manufacturing.

-10:00AM EST Housing Market Index
Prev 29 Consensus 30 (range 29 to 32)
-National Association of Home Builders produces a housing market index based on a survey in which respondents from this organization are asked to rate the general economy and housing market conditions. Not used as much as other indicators, but still nonetheless important to look out for. Levels strangely enough near ’07 highs and have been on the move up in the past few months.

-8:30 AM EST Housing Starts
Starts prev 0.708 M consensus 0.745 M (range 0.720 M to 0.800 M)
Permits prev 0.780 M   consensus 0.775 M (range 0.750 M to 0.850 M)
Beginning of excavation of the foundation for the building. We continue to bump along the bottom not gaining any real traction, so look for continued weakness.

-10:00 AM EST Ben Bernanke speaks

-2:00PM EST Beige Book
-Released 8x a year, Fed district banks compile economic conditions from each of the 12 Federal Reserve districts, comes out about every 6 weeks and usually 2 weeks before FOMC interest rate decisions.

-8:30 AM EST Jobless Claims
Prev 350 K consensus 365 K   (range 360 K to 375 K)
-Expect claims to tick back up after a shortened holiday week print that gave us the lowest in about 4 years.

-10:00AM EST Existing Home Sales
Prev 4.55 M consensus 4.650 M (range 4.600 M to 4.730 M)
-Look for numbers to hold steady under 5 million for a while now.

-10:00AM EST Philly Fed
-prev -16.6  consensus -8.0  (range -15.0  to -2.0)
After last months worse than expected print which we were threatening to break to lows from last year, consensus expects to be up 50%, though still contraction under 0. Measures manufacturing activity from Philadelphia area, usually a market mover.

-10:00AM EST Leading Indicators
Prev 0.3 % consensus -0.1 %   (range -0.2 % to 0.2 %)

Tons of earnings coming out this week, nearly 300 if I’m not mistaken, but here are some key ones to watch:
Monday: Manpower, Morgan Stanley, Packaging Corp, Peabody Energy,
Tuesday: Coca-Cola, Comerica, CSX, Goldman Sachs, Intel, Johnson&Johnson, Kansas City Southern, Mosaic
Wednesday: Abbot, Altria, American Express, Bank of America, BlackRock, F5 Networks, IBM, PNC Financial, Stanley Black&Decker, Bank of New York Mellon
Thursday: BB&T, Blackstone, Capital One Financial, Diamond Offshore, Fifth Third Bancorp, Freeport McMoRan, Microsoft
Friday: Cemex

About half listed above are banks/financials, but I will mostly be reviewing consumer names since banks aren’t something I like to put forth capital in (explained in previous blogs)

Let’s take a look at CSX, they are a rail-based transportation service, including traditional rail service and the transport of intermodal containers and trailers. Rail names have been on a tear since the ’09 recovery, but with the slowdown we have been experiencing I don’t forsee great things happening to the rails this year. CSX in particular, is the largest transporter of coal in this sector, and with low oil and nat gas prices, the move out of coal to nat gas and cleaner energy is currently taking place. We can see from this what happened to Patriot Coal last week filing for bankruptcy and the rest of the coal sector taking huge hits, most at all-time lows. CSX has been on the decline now for a year or so, net income is down 10% and the stock has underperformed its peers by 30% in that same time. The outperformers such as Union Pacific (UNP) do more consumer and consumer discretionary means of transportation, so they will continue to do well. I expect a not so good report from CSX and would not be long the name, but other rails with less exposure to coal and more to consumer names look strong.

Above, comparison of CSX to Union Pacific, Kansas City Southern, Norfolk Southern

I do want to highlight one of my long positions (no I did not buy this, was given as a gift many many years ago) Fifth Third Bancorp. They are one of the mid cap size regional banks, do most of their business in the northeast US. They do business in the lines of  Commercial Banking, Branch Banking, Consumer Lending and Investment Advisors. Regional banks have had substantial outperformance to the larger banks due to less exposure to CDO’s and more day-to-day transactions (no large trading CIO units that we know of) so less risky. Net income, revenue has been recovering slowly, along with long-term debt decreasing.

Above, comparing FITB with the basket of Regional banks the KBW Index, FTIB has outperformed them this past year, though stable since recovering from shares dipping below a dollar in March ’09, FITB in my opinion will continue to have slow but steady revenue growth, while increasing their dividend (Dividend went from 1 cent to 8 cents from ’10 to ’12, share price relatively unaffected, yield is somewhat favorable at 2.3%)

Next, looking at Altria, this stock has been smoking hot (pun intended) for quite some time, and why not? Marlboro is one of the best brands of cigarettes out there today, and no matter the price or tax hike added to the pack, people will continue to smoke. This is good for the states; there has been very little effect on smokers to stop because of prices on packs of cigarettes, the addiction is too strong. Looking at Altria’s net income, it has nearly doubled since Q2 ’11. Don’t be put back by the share price or the high p/e ratio, this is a defensive name to own, dividend is a solid 4.6% yield and has been increasing its dividend payout 10% a year since ’09.

The only problem I see is that there has not been a pullback in share prices for some time now, if the report comes in a bit light, that is when you buy. With a 20% run up already this year, I’m not saying it is due for a pullback, but watch out if something substantial does happen and be ready to buy or reload more positions.

Last, looking at Packaging Corp. They are a producer of containerboard and corrugated cardboard products in the US. On a consumer related business, along with basic essential needed goods and healthcare, they package about anything you can think of that comes in a cardboard box. Last quarter’s results were overall very good with revenue continuing to grow at a moderate pace. Net income was substantially lower due to a net non-operating gain (one time) which was taxed very heavily, nothing of major concern. They have outperformed their main competitor Rock-Tenn by 10% in a year as well as paying a nice 3.45% dividend. Even in a global slowdown, this is a key name to own, you can see by a chart from ’08 that PKG rebounded and more in about a year’s time.

That’s all for this week, stay tuned on twitter: @peter_eller10 for more updates.

Sunday, July 8, 2012

Previewing 1st wk of earnings

Welcome all from rainy and cool Oxford, England where I will spend the next 5 weeks taking a couple core classes for college (Biology and Shakespeare studies), whenever able I will update, but the wifi here is spotty, and time is precious.

Lets review from the last 2 weeks..

End of the month/quarter for June was a big one, upside volume came in the strongest I have seen it in months, but I was cautious. Big up and down moves like this, especially on that day signaled fund managers wanted in, something big was happening. I look at unemployment and manufacturing indexes and the data we have seen these past few weeks has been more than disappointing. The European summit showed once again signs of hope, which was bought into, but fizzled out quickly.

On Thursday, we saw more central bank action by the BoE, ECB and PBC. More rate cutting for all 3, negative deposit rates for the ECB (!!) and 70B pounds of QEasing for the BoE. In my opinion, people are tired of this. We have been cutting; lowering rates for the past 4 years and it has synthetically driven up equities, while weakening the US dollar. This was a chance to sell off on the news, we know these are all temporary solutions, and someone needs to step forward with a real solution. Until that time, I remain skeptical on this so called “recovery” we have witnessed since March ’09. The growth is there in SOME places (cons. Staples, biotech, healthcare). Those three sectors are going to be the most important going forward in the coming years. As less people are needed to do jobs and more machines; robots can take over we will see a large shift. Still, people need to eat, new drugs will continue to come out on the market, along with people getting older, healthcare and basic medicines will be needed.  Some of the biggest and most important sectors who have lost thousands, if not hundreds of thousands of jobs are yet nowhere close to a recovery (infrastructure, manufacturing, construction, and finance). As I previously mentioned, it is likely in the near future, people will not be needed for these kinds of jobs, machines are more accurate, efficient, and you don’t have to pay them!

There was bullish sentiment surrounding the unemployment number which was released this past Friday, jobless claims were holding steady, with a sharp decline on Thursday and a better than expected ADP number. Some banks, like Goldman Sachs, even increased their estimate almost 50% on this news. The ADP can be an indicator, but it does not ALWAYS tell the NFP (majority of the time ADP higher than NFP). The report showed a growth of only 80,000 jobs in June, 20% less than consensus of 100,000. The largest job gains coming from healthcare fields and least from fabricated metals and autos (notice as I mentioned above). The headline unemployment rate was unchanged at 8.2%, but the actual unemployment (U-6 rate which counts discouraged workers) tick up 0.1% from 14.8% to 14.9%. 15% is a key level, and if above there, things will start to unravel and become very unstable. The birth/death added +124,000 which gives us a net -44,000 jobs for the month of June, very disappointing, indeed.

Equities had a strong downward reaction, as expected, but what was much more noted was the Euro/dollar. This past week the US dollar had its best week in at least 4 years against the Euro going from 1.27 on Friday (6/29) to Friday (7/7), most of the gain off of the cutting of rates I previously mentioned and worse than expected data. The NFP # was the cherry on top. Euro was in total disconnect with equities this week, but long-term, I am still a believer in how tightly correlated these are.

Above is a comparison chart of the EUR/USD and the ES, the correlation is still somewhat there, not as tight as it has been in the past few months, but notice this past week the drop-off, and the ES basically muted on  this. I am eyeing 1,300 as 1.24 in the EUR, meaning if we see a big drop off next week, say 70 handles, don’t be surprised. I may be positioned for this, not sure yet.

Since last week we saw the granddaddy of macro data, this upcoming week will be relatively quiet:

-3:00PM EST Consumer Credit prev $6.5B Consensus $8.5B (range $5B to $15.6B)
This will let us know how he individual consumer is controlling their finances and spending. The chart below shows it has been pretty much flat this year.

No big events

-8:30 AM EST International Trade prev ($50.1B) Consensus ($48.7B) range ($51.5B) to ($42.5B)
International Trade is another important indicator to look at, to see how imports/exports are faring. The last report was clearly not good, exports falling to ’09 lows along with Imports, meaning demand is going down. From the picture below, you can see the peak was reached in May of ’10.

-10:00 AM EST Wholesale Trade inv. prev 0.6% Consensus 0.3% (range -0.2% to 0.5%)
This will give us a read on wholesale, places like Costco, Sam’s Club who tend to do well with cheaper prices as American consumers love big things, especially bulk.

-8:30 AM EST Jobless Claims prev. 374K Consensus 375K (range 355K to 395K)
We saw a slight tick down in jobless claims last Thursday which got some hopes up for a better than expected NFP#, but the pattern is showing an upward bias, at least since the end of March ’12 when we began to see growth slowing in the US.

-8:30 AM EST Import & Export Prices
- Export Prices prev -0.4 % consensus -0.2 % (range -0.7 % to 0.2 %)
- Import Prices prev -1.0 % consensus -1.9 % (range   -2.8 % to -0.1 %)
We are expecting a big drop in import prices, which could bring us to the lowest level in 2.5 yrs. With the dollar continuing to strengthen, look for this to keep declining.

-2:00 PM EST Treasury Budget prev. ($124.6B) Consensus ($75.0B) range ($80.0B) to ($75.0B)
Monthly account of surplus and deficit, a deficit of 75 Billion would be the best read since this January.

-8:30 AM EST Producer Price Index
Prev -1.0 % Consensus -0.4 % (range -1.2 % to 0.2 %)
Less food & energy prev 0.2 % Consensus 0.2 % (range -0.2 % to 0.3 %)
Average prices of domestic products and goods. This year we have seen the PPI lost a lot of its momentum, heading toward -0.4%, levels not seen in 3 years.

-9:55 AM EST University of Michigan Consumer Sentiment
-prev. 73.2 Consensus 73.5 (range 70.0 to 76.5)
Measure of peoples financial conditions and attitudes about the economy, 500 households, done by U of Mich. A good indicator, but Consumer confidence better with a wider range of people surveyed. We are expecting little change, but watch for levels to continue to be subdued for the time being.

This week kicks off the start of Q2 ’12 earnings reporting, we get to see how companies faired through the slow growth from the end of March, so it will be important, in looking at who cuts estimates.

Monday: Alcoa, WD-40, YUM! Brands
Tuesday: Shaw Industries
Wednesday: Marriot, Texas Industries
Thursday: Bank of the Ozarks, Fastanel
Fri: JP Morgan, Wells Fargo

Looking at Alcoa, they have been one to disappoint. Currently trading at 8.73 a share as of close Friday, do not get in the mindset that this is a cheap stock because it is under $10. Forward P/E is close to 20, so in my opinion it is fairly priced to a bit expensive. As I have been harping on before, Alcoa’s earnings are all about demand and price of Aluminum. Since the PMI and ISM numbers in the coming months have been disappointments and prices of commodities have lagged substantially since May, I would not be surprised for a disappointing report out of Alcoa Monday after the close. Even though we have seen Alcoa drop 9.3% in the last 3 months, relative to the overall market only down 3%, there are better places to put your money where there is more aggressive growth.

Fundamentally, their profit margin has gone from positive to negative in a matter of two quarters, so you can see how volatile they are and how they definitely rely on a strong economy to make their profits.

Next, I want to look at Fastanel; this is an industrial and construction supplies store sold in a wholesale and retail fashion. There are approximately 2,600 stores in North America. Seeing that basically all of their profits come from the US, long term this looks like a buy (5-10 yr investment). There was a death cross technical breakdown back on May 22nd which in turn signaled the drop below 40 on June 5th. They are pretty much flatline y/y as far as earnings and are down 6% relative to its closest competitor W.W. Grainger which is flat on year. I would be more of a buyer of Grainger on cheaper fundamentals and higher growth potential, but both long term look good. Mind you that this could be a bleak report we could quickly shoot down 10%+ to the mid 30’s. This is more of a stock to own for home/maintenance repairs.

Last, I’m looking at both Wells Fargo and JP Morgan. We should all know by now the JP Morgan IG9 account scandal which was found out about 2 months ago. Since then, their stock has taken quite the beating. We are not sure how much money has been lost, but estimates have been all the way up in the neighborhood of 8-10 Billion. JPM has lost about 18 Billion in shareholders’ equity since the announcement, could be a bit overdone, but investors want out because they are expecting the worst to happen with this IG9 position. I have been weary of banks for a very long time now and never want to put my money there (expect savings acct) when I know gov’t regulation (re. BASEL requirements) is keeping them from making large profits.

Banks were known back before ’08 as the “safe haven” solid profits and solid dividends. I believe that has now been reallocated to the consumer staples and dividends. The new safety trade is being long XLU and XLP

Above a 1yr chart of JPM and WFC, clearly WFC the outperformer for ’12, but going forward, I don’t see any more growth than there already is (which is slow) happening for the big banks.

Catch me @peter_eller10 for daily updates.