Tuesday
Jul222014

The Closer Commentary 7/22/14 - Don't Drink The Diet Shakes

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.

Earnings season is really in full swing now.  As mentioned earlier, AAPL and MSFT both reported tonight, joining a healthy number of reports this morning.  Thus far there have been a few notable trends.  Firstly, financials have exceeded expectations.  Bank revenue has hurdled expectations that were weighed down by Department of Justice settlements, low interest rates, and shoddy mortgage production.  Our view is that this has been a) a case of extremely low expectations and b) a minor sign of improved credit conditions, allowing some loan growth.  The second point is reinforced by the recent growth of commercial and industrial loans evidenced in the weekly H.8 releases from the Federal Reserve.

A second theme has been slow revenue growth for consumer-facing stocks.  Mattel (MAT), YUM! Brands (YUM), Six Flags (SIX), Hasbro (HAS) and McDonalds (MCD) have all had very underwhelming reports.  While the figures haven’t been anything panic-inducing, many consumer names are clearly struggling at the moment, and it’s not clear what the implications there are for the broader economy.  Wage growth has absolutely been positive this year with hourly earnings for non-supervisory employees less CPI (real wage growth) in positive territory since the beginning of 2013.  This has taken place at a time when employment has expanded significantly (in terms of non-farm payrolls expanding and the unemployment rate falling) so the decline in consumer appetite is curious indeed.

Finally, we are seeing extremely resilient profit margins.  As of this afternoon, the EPS beat rate for the season was standing at 63% versus 57% on revenues.  In other words, while revenue growth has been lackluster, companies are still making their money.  How long this can continue is an important question, but we continue to be surprised at the resilience of corporate America’s profitability.

To continue reading, subscribers can click here.  Non-subscribers can gain access by signing up for a five day free trial.

Tuesday
Jul222014

CPI Attribution By Sector

Today's CPI report for the month of June showed that overall price levels increased 0.3% relative to May.  While the fractional increases we typically see in each month's CPI report seem like small moves, over time they add up.  For example, over the last eight years the overall level of consumer prices has increased by nearly 18%.  And that's just the official government figures.  Talk to some people and they'll tell you the actual rate of inflation is much higher.

Using the official figures from the CPI, the table to the right breaks out the change in prices for each of the eight major sectors in the report.  For each sector, we also include the sector's weight in the overall CPI, its percentage change since June 2006, and its contribution to the total increase in CPI.  As shown , the sector that has seen the largest increase in prices has been Medical Care, which has seen an increase of 29.6%, and is responsible for just under 9% of the total overall increase in the CPI.  While one of the promises of the Affordable Care Act was that it would lower the cost of health care, as of now those benefits have yet to materialize.  Even more than four years after the bill was signed into law and more than two years after the Supreme Court upheld the law, the 2.61% increase in the cost of Medical Care over the last year is higher than any other sector. 

In order to get a better view of what areas of the economy have been driving the overall level of prices higher, the chart below shows how each sector has cumulatively accounted for the overall increase in CPI.  While there are eight sectors shown, the chart clearly shows that the main drivers of inflation in the CPI are Housing, Transportation, Food & Beverages, and Medical Care.  Together, these four sectors account for more than 85% of the total increase in the CPI over the last eight years.

Tuesday
Jul222014

Bespoke's New Model Dividend Income Portfolio

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Yields on Treasuries in the US and around the world are at or not far from their lowest levels in what for many investors amounts to more than their entire lifetimes.  As yields have dropped, investors looking for yield have been forced to move increasingly further down the capital structure to get it.  Now, with corporate bond and high yield debt trading near record low yields on both an absolute basis and relative to Treasuries, investors are increasingly turning to the equity market in their search for yield.

With a yield of just under 2.5% for the 10-year US Treasury, the S&P 500's 1.91% yield doesn't look too bad to some investors who like the option of a similar yield and the potential for some capital appreciation as well (albeit with more risk).  Outside of the US, the yields of some equity markets look even more attractive relative to yields on their respective 10-year sovereign debt.  In Spain, the IBEX 35 has a yield of 4.75% compared to a yield of 2.57% on 10-year Spanish sovereign debt.  In more economically stable countries, we see a similar scenario. The FTSE-100 has a yield of 4.66% compared to a yield of just 2.57% on 10-Year British Gilts, and in Germany the DAX has a yield of 2.76%, which is more than twice the yield in 10-year Bunds!  No matter where you look, if you are an investor looking for yield, the fixed income market just doesn't seem to be cutting it, and that has caused some to turn to equities.

As a result of the lack of income in fixed income investments, we have seen an increase in interest from clients regarding dividend paying stocks.  For example, in a recent survey of Bespoke clients, there was a lot of feedback from readers looking for more information and coverage of dividend paying stocks.  To that end, we have launched our Bespoke Dividend Income Model Portfolio.  This portfolio is meant to be a diversified list of mid to large cap equities across the spectrum of market sectors.  While the names included are not necessarily the highest payers, they have above average payouts relative to other dividend payers in their sector, and have a history of consistently not only maintaining -- but also increasing -- their dividends.  Also, the percentage of earnings that they pay out in the form of dividends has typically been low or at a reasonable level (less than two-thirds of earnings).  Finally, in an attempt to avoid stocks that have high yields because of falling stock prices, we also incorporated a filter to weed out stocks that have been poor performers relative to the overall market.

As is always the case with any stocks we highlight, we do not recommend that investors go out and blindly buy the stocks included in our Dividend Income Model Portfolio.  Instead, we suggest that you research each name accordingly to make sure it fits in with your overall investment objectives.  Additionally, while dividend paying stocks have seen their popularity grow inversely to the decline in interest rates, we would remind investors that equities are at the bottom of a company's capital structure.  Therefore, if a company does run into liquidity problems, anyone holding the common stock of the company is at the very back of the line behind holders of senior debt, subordinated debt, convertible debt, and preferred equity among others.  No one ever said there was a free lunch.

The Bespoke Model Dividend Portfolio is available to all Bespoke subscribers (Newsletter, Premium and Institutional).  Please click on the thumbnail image above to see the layout of the Bespoke Dividend Income Portfolio.  To view the portfolio, click on the button below to sign up for a 5-day free trial today!

instantaccess

Tuesday
Jul222014

The Bespoke Morning Lineup: 7/22/14 Commentary

The below commentary excerpt is an example of what Bespoke Premium subscribers receive every morning in The Morning Lineup in addition to three pages of key headlines, charts, trends, and technical indicators.  We will be posting a sample of our commentary here each morning for the next several weeks.  If you're interested in receiving this report and our many others via email, try a 5 day free trial to Bespoke Premium today!

Risk assets are near their highs on the day as the EUR sells off, European equities rally, and US yields fall. The cross-asset set up this morning is one of the stranger ones we’ve seen in quite some time, but for the time being it is supporting US equity futures, which are about ~25 bps higher on the day, with slight outperformance from Nasdaq 100 futures.

...The Russian ruble is also rallying, with the USDRUB cross moving from 35.15 to 34.90 (-72 bps in the cross; RUB 72 bps stronger than USD) since the London open. Putin is also on the tapes this morning (~7:45 AM) with relatively sane comments that should serve to alleviate some tension, at the margin.

Elsewhere in currency markets, the EURUSD cross got smoked this morning just after 6:15 AM in a strikingly similar move to Friday’s morning dive below 1.35 in the cross, which we mentioned on Twitter (@bespokeinvest) at the time. While that move was short lived and widely blamed on summer Friday liquidity (EURUSD recovered to its pre trade level around 1.3525 almost immediately) today’s leg downward has been larger and for the time being is proving more resilient; there’s been some chatter that the move was driven by a large flow in CHFUSD, which has also moved lower on the day notably, leading the EUR down intraday. While none of these developments are earth-shattering, they’re notable in advance of US CPI data, which can have a large impact on all of the USD crosses.

In addition to the CPI at 8:30 AM which was in-line with forecasts on the headline (0.3%) and weaker than expected on a core basis (0.1% vs. 0.2%), we also get FHFA Housing Prices at 9:00 AM (0.3% month-over-month expected versus 0.0% prior), Existing Home Sales at 10:00 AM (4.99 million seasonally adjusted annual rate expected versus 4.89 million prior) and also at 10:00 AM the Richmond Fed Manufacturing index (5.5 expected versus 3 prior).

Subscribers, please click the thumbnail below to access the full Morning Lineup. 

Monday
Jul212014

The Closer Commentary 7/21/14 - Just Dip It

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole

One headwind for US equity prices recently has been the underperformance of high yield credit, whose performance can be captured via ETF.  Both major high yield ETFs have been underperforming significantly versus stocks recently: while the S&P 500 is up 60 bps over the last month both the iShares iBoxx High Yield Corporate Bond ETF (HYG) and the SPDR Barclays High Yield Bond ETF (JNK) are off over 1.5%.  High yield credit spreads have also risen since their lows on June 22nd of 335 basis points versus Treasuries, as measured by the Bank of America Merrill Lynch High Yield Master II Index.  Friday’s reading of 378 basis points is elevated relative to June, but still historically low; the move upwards represents an adjustment but may not yet be a bottom for spreads.  A sustained increased back towards the levels that prevailed last year would be a concern, and a weight on equity prices; the current move upwards certainly hasn’t helped as stocks have been hard-pressed to hold gains during the spread widening.  It’s also important to note that investment grade credit spreads have not moved appreciably in the same period, so the recent developments in credit should be viewed as a headwind for equities rather than a hallmark of financial system stress.

In earnings news this morning, the reports prior to open were mixed, although tilted towards EPS beats (8 of 14 firms).  Allergan (AGN) performed well in a down tape today after releasing better-than-expected EPS and stronger revenues.  Halliburton (HAL) reported inline EPS and higher than expected revenues.  Shares popped at the open, but sold off consistently through the day as the market digested the oil services firm’s report, finishing the day up just 10 bps.

After hours, we got reports from momentum darlings Chipotle (CMG, -0.42% today, +7.94% after-hours) and Netflix (NFLX, +1.75% today, +1.59% after-hours).  Chipotle is probably the single stand out report of the earnings season: profits and revenues surged (beating street estimates) despite a 1.5% increase in food costs, as customers were willing to stomach price increases along with pricier burrito tickets.  Revenues, profits, and the share price are now at an all-time high for the name (assuming after-hour prices follow through at all tomorrow), blowing past its previous all-time high of $611.12 in March.  NFLX reported a more restrained quarter, but still beat revenue expectations slightly.  Streaming subscriber growth was higher than expected, as was international subscriber growth.  Other major reports this evening included a beat on EPS/miss on revenue from Canadian National Rail (CNI, -0.15% today, +2.02% after-hours) and top/bottom line beat with inline guidance from Texas Instruments (TXN, +0.72% today, -0.63% after-hours). 

Economic data tomorrow includes CPI at 8:30 AM (headline month-over-month change 0.3% expected versus 0.4% prior; less food & energy 0.3% versus 0.2% prior), the FHFA Housing Price index at 9:00 AM (0.3% month-over-month expected versus 0.0% prior), Existing Home Sales at 10:00 AM (4.99 million seasonally adjusted annual rate expected versus 4.89 million prior) and finally, also at 10:00 AM, the Richmond Fed Manufacturing index (5.5 expected versus 3 prior). 

To continue reading, subscribers can click here.  Non-subscribers can gain access by signing up for a five day free trial.

Monday
Jul212014

Best and Worst Performers on Earnings this Season

The market has moved sideways since earnings season began on July 8th, but so far, the average stock that has reported earnings has fallen 0.43% on the first trading day following its report.  (For companies that report before the open, we look at that day's change.  For companies that report after the close, we use its next day's change.)

While the average stock that has reported earnings has fallen in reaction to its report, some companies have hit it out of the park with earnings, and others have struck out.

Below is a list of the 25 best performing stocks on earnings so far this season.  As shown, NeoGenomics (NEO) has had the best one-day response with a gain of 20.09% on its report day.  Resources Connect (RECN) has done the second best with a one-day gain of 15.31%, and then Skyworks (SWKS), AeroVironment (AVAV) and AAR Corp (AIR) rank third through fifth with gains of 9% or more.  A few blue-chips are on the list of earnings season winners as well.  These include the likes of Intel (INTC), Alcoa (AA), Google (GOOG) and JP Morgan (JPM).  Of the large cap stocks that have reported, Intel (INTC) has been the big winner so far this season with a one-day gain of 9.27% on its report day.

Below is a list of the 25 worst performing stocks on their earnings report days so far this season.  Advanced Micro (AMD) has been the biggest loser with a 16.19% decline on its report day.  First Republic (FRC) ranks second with a decline of 15.09%, while SanDisk (SNDK) ranks third with a drop of 13.56%.  Other notables on the list of losers include YUM! Brands (YUM) with a fall of 6.89%, Mattel (MAT) with a fall of 6.58%, and Yahoo! (YHOO) with a fall of 5.11%.  

Earnings season really heats up this week with more than 500 reports.  For detailed coverage, sign up for a 5-day free trial to Bespoke Premium today!  Be sure to use "earnings" in the coupon code section of our Subscribe page to receive a 10% discount on the life of your membership.

Start your day with our Morning Lineup, and end it with The Closer -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

Monday
Jul212014

Gas Prices Picking Up Steam to the Downside

If you're like most Americans, you tend to drive more in the summer.  With the increase in travelling, you still may be spending more at the pump (because you're filling up your car more often), but the price per gallon has actually been declining for the last three months.  Since its high for the year of $3.70 on 4/27, the national average price of a gallon of gasoline has declined by just under 4% to its current level of $3.57.  

Looking at the chart below, there are two trends that stand out.  First of all, since its all-time high of $4.11 in 2008, the national average price of a gallon of gas has been steadily trending lower.  With each rally we have seen, prices have peaked at lower levels.  Additionally, the subsequent decline has ended at consistently lower prices.  Gasoline prices may still remain high compared to levels we saw a decade ago, but in recent years they haven't really been going anywhere.  This is further reinforced by the fact that in the last four years, gas prices have either been higher or right around current levels at this time of year (red dots).

Now, if we compare the change in gasoline's average price per gallon this year to its average change in prior years, you can see how muted this year's rally has been.  Looking at prior years since 2005, gasoline prices usually rally over 20% leading up to Memorial Day, level off, and then begin to drift lower after Labor Day.  This year, we saw the typically rally early on in the year, but the magnitude of the move was considerably less and the price has already started drifting lower.

Start your day with our Morning Lineup, and end it with The Closer -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

Monday
Jul212014

"Old Tech" Making Big Moves in 2014

Intel (INTC) is up yet again today, putting it up 31.25% year-to-date.  Along with Intel, "old Tech" stocks that were once speculative names like Microsoft (MSFT), Hewlett-Packard (HPQ), Adobe (ADBE), Cisco (CSCO) and Applied Materials (AMAT) are having stellar years.  Earlier in the year, investors began flocking to these now-stable Tech companies when the "new Tech" momentum-trade took a tumble.  While the speculative names have certainly found a bottom since the March-May pullback period, the old Tech stocks have continued to act well. 

Have a look at the table below of current S&P 500 Tech sector names that were also in the index at the end of 1999.  While some of the stocks in the index back then are now well above their 1999 levels (AAPL, ADSK, ADBE), there are plenty that are still below their Dot-Com bubble highs.  That being said, this year's rally has allowed many old Tech names to creep closer and closer to their pre-2000 crash highs.

Below is a good look at the long-term chart patterns for eight blue-chip Tech names.  Two that are starting to get very close to their Dot Com bubble highs are Oracle (ORCL) and Microsoft (MSFT).  A few years ago, Microsoft (MSFT) was being written off for dead, but a resurgence since the start of 2013 actually has it approaching all-time highs again.  Keep in mind that Microsoft is a much different company than it was at its prior highs.  Back then it had a high valuation and paid no dividend.  Now the stock has a P/E of 16 and pays a dividend of 2.5%.

While other stocks like Intel (INTC), Cisco (CSCO) and Hewlett-Packard (HPQ) have had good 2014s so far, as you can see in the charts, unlike MSFT, they're still a LONG way away from their Dot Com bubble highs.  Intel is now up 181% from its 2009 lows, but it still needs to gain 120% to reach its all-time high of $74.87.  How long will it take to get back there?

Start your day with our Morning Lineup, and end it with The Closer -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

Monday
Jul212014

Economic Data Week of 7/21/14 - 7/25/14

This week is a light economic data week but we do get some important releases.  CPI, two rounds of housing data, and durable goods orders are all on tap, but other than those and the weekly indicators there isn't much to see.  There are also no Fed speakers scheduled and no Treasury note auctions (although there are bills being issued today and tomorrow).  That means the market will have increased reason to focus on both geopolitical headlines and earnings.  There are a total of 560 companies reporting this week.

All Bespoke Subscribers get a weekly economic calendar and commentary on recent data each week in The Bespoke Report. Sign up for a five day free trial now to receive this week for free!

Monday
Jul212014

Bespoke Market Poll Still Bullish

As shown below, 58% of participants in our Bespoke Market Poll run this weekend are bullish on the market over the next month.  This is down from the 64% bullish reading we saw in our last poll two weekends ago, but it's still well into bullish territory compared to this historical average bullish reading of 50.6% since we began running the poll at the start of 2012.

Monday
Jul212014

The Bespoke Morning Lineup: 7/21/14 Commentary

The below commentary excerpt is an example of what Bespoke Premium subscribers receive every morning in The Morning Lineup in addition to three pages of key headlines, charts, trends, and technical indicators.  We will be posting a sample of our commentary here each morning for the next several weeks.  If you're interested in receiving this report and our many others via email, try a 5 day free trial to Bespoke Premium today!

Markets are once again opening down but have moved off their lows of the day, with no significant change in geopolitical events over the weekend. US Secretary of State John Kerry made a rare five-for-five effort in Sunday morning talk show appearances, with no significant revelations on US policy coming from any of those five trips in front of the camera. Rhetoric on every side has been terse and longer on spin than fact, with Israel increasingly hardening in its stance against Hamas and the operations in Gaza. In Ukraine, Russia has sought to cast aspersions but none more serious than last week. At this point, escalation in that quarter has been entirely verbal, and non-concrete, in line with our expectations. Whether that trend changes remains to be seen but markets are currently holding their water.

Futures are down slightly (less than three index points in spoos, 24 points in the Dow contracts), pointing to a lower open than Friday’s close. Earnings are continuing apace with reports from 560 companies this week. Major names include Verizon (VZ), Coca-Cola (KO), McDonald’s (MCD), Apple (AAPL), Microsoft (MSFT), Facebook (FB), Visa (V) and Amazon (AMZN). For a full list, please consult the Bespoke Earnings Calendar (http://bspke.com/09ps8agc). This week’s economic calendar is a bit lighter than last week, as is the slate of Fed speakers. The biggest releases include CPI at 8:30 AM and Existing Home Sales at 10:00 AM (both tomorrow), Flash PMI (9:45 AM Thursday) and Durable Goods Orders (8:30 AM Friday). There are no Fed speakers or Treasury note auctions scheduled; various tenors of bills are auctioned today and tomorrow.

In earnings news this morning Allergan (AGN, +0.95% Friday, +0.11% pre-market) beat EPS and revenue estimates soundly, and although still entangled with Valeant (VRX, +0.37%Friday, flat pre-market), it is cutting 13% of its workforce as it restructures and the company. Also reporting this morning was Halliburton (HAL +0.82% Friday, +0.79% pre-market), beating revenue expectations and SunTrust (STI, +1.66% Friday, +1.33% pre-market), continuing better-than-expected top and bottom line figures for banks.

Subscribers, please click the thumbnail below to access the full Morning Lineup. 

Saturday
Jul192014

S&P 500 Higher or Lower from Here?

After a rough day on Thursday, the S&P 500 ended the week on a positive note with a 1% move higher.  So which way will the market head from here?  Please take part in our Bespoke Market Poll below by letting us know whether you think the S&P 500 will be higher or lower one month from now.  We'll report back with the results on Monday before the open.  Thanks for participating, and have a great weekend!

Be sure to sign up for a 5-day free trial to any of our subscription services to check out our just-published Bespoke Report newsletter.  Lots of earnings and economic indicator analysis in this week's report.  Use "summer" in the coupon code section of the sign-up page to get a 10% discount on your membership.

Will the S&P 500 be higher or lower than its current level one month from now?
Higher
Lower
  
Free polls from Pollhost.com

Friday
Jul182014

The Closer Commentary 7/18/14 - End of Week Comment and Economic Calendar

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole

Fed Chair Yellen was on Capitol Hill, Malaysian Airlines Flight 17 was tragically shot down, yields fell and the market ended up higher after a day of higher volatility and big equity losses on Thursday.  The dollar moved higher, most commodities couldn’t recover from a brutal day Monday to end the week higher,  and high yield credit spreads moved higher by 25 bps amid widespread concerns over risk assets.  Investment grade spreads also moved higher, but only marginally.

Earnings are now in full swing and some winners (INTC, JPM, GOOGL) have emerged.  But there have been losers too: SanDisk (SNDK), Advanced Micro Devices (AMD), and YUM! Brands (YUM) all got crushed on their reports.  Stay tuned for hundreds of reports next week as the season swings into its busiest period.

In the economy, housing data was better and worse than expected while other data was mixed.  Have a great weekend!

To continue reading, subscribers can click here.  Non-subscribers can gain access by signing up for a five day free trial.

Friday
Jul182014

Earnings and Revenue Beat Rates

Below is our first look at the earnings and revenue beat rates for the second quarter reporting period that began earlier this month.  Last earnings season, the earnings beat rate hit its lowest level of the current bull market with a reading below 60%.  So far this season, 64.2% of companies have beaten estimates.  Keep in mind that only 10% of companies have reported so far this season, so it's still very early.

The top-line revenue beat rate is a bit weaker than the earnings beat rate, coming in at 57% so far this season.  This is slightly better than the final reading of 56% that was registered last season.

Friday
Jul182014

Key Earnings Reports Next Week (7/21/14-7/25/14)

Next week will be the busiest yet in terms of earnings reports, with more than 550 companies set to release quarterly numbers.  As shown below, earnings peak on Thursday with 254 reports due.

Below is a list of the 40 largest companies set to release next week.  For each stock, we highlight its historical earnings and revenue beat rate that we collected from our Interactive Earnings Report Database, which is available to Bespoke Institutional members.  We also highlight the average one-day percentage change that each stock has historically experienced in reaction to its quarterly reports going back ten years.

The week starts off slow but picks up quickly on Tuesday with earnings from blue chips like Verizon (VZ), Coca-Cola (KO), United Tech (UTX) and McDonald's (MCD) in the morning.  Apple (AAPL) and Microsoft (MSFT) will obviously dominate the headlines with reports out after the close on Tuesday.  On Wednesday morning we'll hear from Boeing (BA) and Biogen (BIIB), and then Facebook (FB), AT&T (T) and Qualcomm (QCOM) will post results after the close.  3M (MMM), Ford (F), Caterpillar (CAT), General Motors (GM) and Celgene (CELG) report on Thursday morning, followed by Visa (V), Amazon.com (AMZN), Starbucks (SBUX) and Baidu (BIDU) on Thursday evening.  AbbVie (ABBV) and LyondellBasell (LYB) round out the week with reports on Friday morning.

Head on over to Bespoke Premium for more in-depth earnings season analysis.