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:
Monday:
-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.
Tuesday:
-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.
Wednesday:
-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.
Thur:
-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.
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.
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