Monday, August 27, 2012

Preview of Macro and Earnings 8/27-8/31

It is getting to be that time of the year again; yes the school year is approaching once again. I have been enjoying the last week of summer with my cross country team here at school and it has been great despite not yet being able to run. I am feeling very optimistic that soon enough I will be back out on the trails, but for now, just a lot of strength training and cross training.

The past two weeks the markets have been drifting up on low volume no news, which seems to be the normal pattern for an upward trend. We are pretty much unchanged in 2 weeks with a very narrow trading range between 1404-1424 in the S&P futures .This past Tuesday into Wednesday, we started to see Europe headlines appearing back on the wires. This brought futures below a key support 1400, though quickly recovered as the day continued. Long-term (10 years out) I believe we will be higher, though near term we will continue to see troubles from Europe as they will widdle their way back into the news. Massive amounts of monetary policy cannot fix bad ficsal policy.

We have a lot of macro data out this week, mainly manufacturing and housing, following a very light past couple of weeks, so this should be one to pay attention to, seeing as the slight bull run we have had in the past 3 weeks seems to be coming to an end.

10:30 AM EST Dallas Fed Survey
Prev -13.2 Consensus -6.0 (range -10 to -5)
Survey of about 100 manufacturers in Texas. US Flash PMI last week gave us a read higher than consensus, which has been the 1st time that has happened  in a few months. This tells me that even though global manufacturing growth is slowing, US manufacturing is growing, but stagnant. I still expect a read below consensus on Dallas fed.


9:00 AM EST Case Shiller Home Price Index
Seasonally adjusted M/M
Prev 0.9 %
Consensus 0.4 %
Range 0.2 % to 1.0 %
Non-Seasonally adjusted M/M
Prev 2.2 %
Consensus 1.4 %
Range 0.9 % to 1.5 %
Non-Seasonally adjusted Y/Y
Prev -0.7 %
Consensus 0.0 %
Range -1.5 % to 1.0 %
After 3 previous months of increased home prices (.9% in May and modest gains in March + April), we still expect to see an increase, but at a slower pace, seasonally adjusted. Housing will continue to be a difficult market to gain traction as supply is still flooding the market.

10:00 AM EST Consumer Confidence
Consumer Confidence 
Prev 65.9 
Consensus 65.8 
Range 63.0  to 68.0 
Expect there to be little change in consumer confidence for the month of August. We can see from the chart below of Retail Sales and Consumer Confidence that they generally move in tandem, and Retail Sales have been slowing for the past year.

 10:00 AM EST Richmond Fed Manufacturing Survey
Prev -17 
Consensus -10 
Range -12  to -7 
Looking to be the same picture as Dallas Fed, look for continued slow growth


Prev 1.5 %
Consensus 1.7 %
Range 1.4 % to 2.0 %
The second read of Q2 GDP we expect to see a slight uptick, but still below Q1 '12 levels of 2.0%

 10:00 AM EST Pending Home Sales
Prev -1.4 %  Consensus 1.0 % (Range -1.5 % to 3.5 %)
After last months read was revised down due to a shortage of supply (odd),  expect to see a tick up.


8:30 AM EST Jobless Claims
Prev 372 K
Consensus 370 K
Range 365 K to 375 K
Expect to see little change in unemployment claims this week as we get toward the end of the month

8:30 AM EST Personal Income and Outlays
Personal Income
Prev 0.5 %
Consensus 0.3 %
Range 0.2 % to 0.4 %
Consumer Spending 
Prev 0.0 %
Consensus 0.4 %
Range 0.2 % to 0.6 %
new motor vehicle sales were down 2.0 percent in July while retail sales excluding autos jumped 0.8 percent, so expect to see a slight jump in consumer spending for this months read.

10:00 AM EST Kansas City Fed
Prev 5 
Consensus 5 
Range -5  to 6 
There was improvement in July, rising to 5 from 3 in June, showing a slightly stronger growth rate, though details were mixed. The production index went  to 2 from 12 in June. New orders did improve, but remained in negative territory, rising to -4 from -7. Expect to see the slow growth continue.

9:45 AM EST Chicago PMI
Prev 53.7 
Consensus 53.0 
Range 51.0  to 54.5 
 Expect this to follow suit with ISM manufacturing, which is also getting close to contraction, although a preliminary look at PMI last week showed a slight sign of hope.

9:55 AM EST Consumer Sentiment
Prev 73.6 
Consensus 73.5 
Range 73.0  to 75.0 
A small survey done in Michigan with 500 households participating on feelings of economic conditions. Any read above 80 is considered positive sentiment.

10:00 AM EST Factory Orders
Prev -0.5 %
Consensus 2.0 %
Range -0.4 % to 2.6 %
 New factory orders have been down in the past few months due largely to the decline in orders in natural gas and coal, where we see too much supply and problems with clean energy respectively. Y/Y we have seen new orders and shipments come back down from highs reached 2.5 yrs ago to about the unchanged level, signaling some tough times are yet to come.

Earnings for the 2nd Quarter are starting to dwindle down as we near the beginning of September, more than 2/3 of the S&P 500 have reported this quarter, mostly a mixed picture with the consumer names (ones I am bullish on) continually beating and raising guidance, while the manufacturing names continue to slow. We are also seeing a big push into the high yield corporate bond market, especially the  HYG and LQD, which have had stellar performances this quarter.

This week, most of the Canadian banks report their earnings, so we will get a peek at how our neighbors north are fairing the slowing global economic conditions.

Monday: PVH Corp.
Tuesday: Bank of Montréal, Bank of Nova Scotia
Wednesday: Brown-Forman, Heinz, Joy Global, Pandora, Vera Bradley, Zale Corp.
Thursday: Royal Bank of Canada, Toronto-Dominion Bank
Friday: Cubic Corp, Frontline

I will be previewing Heinz, Joy Global, and Frontline

Heinz is the maker of ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant nutrition and other food products. They do their business globally, but since they are a consumer staple, a company like this would be little affected by a global slowdown or any sort. Heinz just hit an all-time closing high Friday just above 56.00 with a p/e of about 20. They continue to see record revenue growth, though were hit by higher operating expenses last quarter which drove profit margin from 10% to 6%. I don't see any real concern here, seeing as they are probably onetime expense items.

In an uncertain environment as a long term investor, I generally look for growing companies with a safe dividend yield, and no better company than Heinz can fit that picture with a 3.66% dividend. They have also increased their divided by nearly 10% every year for the past 9 years, not suspending or decreasing it during '08. Even though this company continues to make all-time highs, the revenue growth is there, so this would be a great company to be buying long-term.

Above, a chart of Heinz with 50 and 100 SMA and MACD both looking bullish long term.

Next, Joy Global, which is a servicer of mining equipment for the extraction of coal and other minerals and ores. The Company's equipment is used in mining regions throughout the world to mine coal, copper, iron ore, oil sands, and other minerals. Seeing what has happened with coal stocks and this sector for the past year, this is not a name I would want to own. Although its P/E ratio is very low (about 8) I don't expect them to keep up with their earnings in the coming quarters. If Obama gets re-elected, which in my mind looks like it will happen, he will do anything possible to get consumers to use clean energy, limiting the amount of coal extraction needed for energy purposes. Although coal is not all they extract, so they are a very economically sensitive name, and seeing how manufacturing growth is slowing at a substantial rate, Joy is being hit with a double whammy.

Their revenues and income have been fairly stagnant for the past 4 reporting quarters, but the slowing is definitely there. Share prices are down almost 50% from the highs this March, don't be fooled into thinking this is a value trap because I believe we are going to be seeing some rough times ahead for this company.

Above, a chart of JOY, notice Death cross in April at the 2nd sell signal, then gapped down 20+ dollars from there, some momentum has picked up in August as the overall market has had a good far.

Finally, Frontline, which is the owner of large crude tankers, has seen its share of dark days in the past year and a half, down 85%. This company is basically dead in the water, barely edging out a gain in their last reporting quarter. The problem here is a flooded supply of vessels, with slowing demand for oil. I was reading an article this past week on how future drilling techniques could extract oil at a faster rate. Putting this into perspective, that could flood the oil supply market when demand would still be the same, and still put pressure on the tankers.

They have lost a ton of money in one year and their equity positions are just about dried up, on enough they will have to sell off assets and some sort of bankruptcy will take place. I see no light at the end of the tunnel for Frontline, and for those of you who like to catch falling knives, good luck and wear some thick gloves.

Above is a 2 year chart of Frontline, long term investors have been hit pretty hard here.

Have a great week everyone, as for me, I will be focusing most of my time to looking at our schools stock portfolio, follow them on twitter @bonasimm we are a long-only equity money management team, with roughly $200K AUM.

No comments:

Post a Comment