Friday, February 26, 2016

Weekly Market Review 2/26/16

It appears February might be the month that goes nowhere. The S&P started the month in the 1940 area, and it appears as of this writing that it will end somewhere close to that number. I'm sure for most people who check their portfolio regularly it wouldn't have seemed like it went nowhere all month. Either way we are putting another month behind us only to find that our companies are still doing business and the world isn't ending yet! Things could be a lot worse though. You could own shares of Fitbit. The shares reached another 52 week low. We received a lot of earnings reports the last 10 days and I'll highlight a few in a bit.

The talk all week has been about THE BREXIT. While the vote isn't until June there is a lot of posturing going on politically. Listen, no one wants to admit mistakes on this one. Whether it be on the British or EU side. The fact of the matter is Britain is going to be better off without them.  They should be just fine. The real issue is when a power like Britain leaves it swings the door wide open for Greece and the rest of the PIGS. That would be a fatal blow to the EU and the Euro. I really think it's only a matter of time before the whole thing falls apart.  The whole system is just flawed. It just isn't working to have a monetary union with laws that allow sovereign debt issuance from countries with varying economic capacity under a single currency to function properly. Also I think the decline in Sterling is just showing risk off by many parties. It's not an endorsement of either side. People with real money on the line want out until they know what the future holds. Yet the media spins it in totally idiotic ways. We should all apply for those jobs. We'd never have to worry about being wrong!

The bond market has continued to see safe haven seeking, and gold has finally perked up.  I'm still not sure why you'd want to lend the USA money for 10 years at 1.75% when you could buy a solid company like CMI, MO, MKC, or EMR in our portfolio. All yielding more than a T-Bill I might add. Gold I think is still a bit of short covering here, and some initial fear/government hedging. I think the metal moves lower before it works out a base for a sustained uptrend. How long this all takes is beyond me though.

Lastly the weekly MBA report was kind of a dud. It was not good overall showing YoY declines for January and falling home prices in many areas. While there are plenty of areas that still show strength it appears there are some cracks in the armor despite record low rates again. I'm a personal investor in real estate and I'd like to start talking about this area more since it affects all of us directly. Either way it bodes watching to see how the area plays out the next 2 years. To see how resilient the sector will be we need to see how it acts in the next recession.

Recently we received earnings reports from BUD, BTI, SAM, and WAB.

BUD reported FY 2015 results that rose from 2014 by 6.3%, and basic EPS came in at 5.05(USD) for the year.  However the final dividend was raised 20% to 3.60EUR per share. That's a generous increase. Although for US investors the increase will fluctuate depending on the prevailing exchange rate. Volumes declined in North America. It's a competitive landscape here and a lot of smaller players are nipping around the edges. No worries though as they will not put BUD out of business.

BTI reported FY15 adjusted diluted EPS of 2.08(GPB) per share which is basically flat from the prior year. The final dividend was raised too which represented a 4% increase from 2014 to 1.54(GBP) per share. Make no mistake here with the tobacco companies. They've been dealing with declining volumes for years, but still find ways to increase the dividend. Margins are still very attractive at these companies.

SAM  reported FY 2015 results of $7.25 per share which was up 8% from 2014. The company guided 2016 between 7.60-8.00. That's a  4.8%-10.3% increase from 2015. My guess is they come in around $7.80.  This is going to be a bumpy year according to management, but I think the company is trading at a reasonable level under $200. Plus they have one of the industries best balance sheets.

WAB  had quite the reaction after it's earnings release. The stock was up as much as 7% but has since settled back down to the mid 60's. FY15 diluted EPS came in at 4.10. The company guided 2016 at 4.30-4.50. I think they are being conservative and will hit the high end of that range. This is a real good company and at this price I should buy more shares, but I already have a level in my personal portfolio that I'm comfortable with. I'll have to keep on eye on this one.

I also want to quickly mention CHD earnings at the beginning of the month. The results were solid for this type of company, and what you can expect from a consumer staple. What I'd really like to note is the 6% dividend increase. CHD has been paying a dividend for over 100 years, and this year is the 20th increase in a row. This is an often overlooked company.

Have a good weekend everyone!




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