Saturday, May 7, 2016

The Long Haul Weekly Review

"Struggling Gives You Strength" - Ray Dalio 

The markets had a hard time finding traction this week. A nice start on Monday was followed by a few rough days during the week. Then we got a decent recovery at the end. Nonetheless the S&P saw a drop of 0.4% for the week, which makes two down weeks in a row. As Ray Dalio said sometimes we need to struggle to get some strength.  Maybe next week will bring better fortunes.

 This week also saw ISM manufacturing and services data. Manufacturing came in with a number above 50. That was good to see since between October'15-February'16 it was under 50. The strong dollar has a big impact on manufacturing as foreign companies move orders to overseas competitors as American made goods are less price competitive. Since the dollar has moved down lately it seems manufacturing has responded as expected. Services have actually held up pretty well.  We'll have to keep an eye out for any weakness there as it's a much bigger part of the economy. 

Additionally we saw April NFP come in at 160k which was less than the 200k estimated.  That's a weak number. Although the internals showed some strong growth in professional services and finance jobs. That's important and it helps reinforce why we must keep an eye on the services index to make sure the economy still chugs along.  I know a lot of people feel the recession never ended for them. Yet overall as a country we are still growing. It's important to keep that in mind.

For the week the portfolio had 5 picks report earnings. AB InBev, Church & Dwight, Cummin;s, Cognizant Technology, Emerson Electric, and Hain Celestial all reported pretty good results overall.

AB Inbev saw a rather large sales decline of which some is from currency, and the rest from declining volumes.  The American business is becoming very tough. Craft brewers are slowly nipping at the edges. Fortunately BUD has been one of the bigger buyers of craft brewers. Of course they don't make a purchase until the company gets to a size where an acquisition makes sense. I'm not to concerned. The company is a dividend machine. Remember that nice big pay hike a few months ago? I do.

Church & Dwight reported numbers that were pretty good. It's obvious that the company has been a major reason big player Procter & Gamble and Colgate Palmolive have seen much slower than normal sales growth. CHD's steady growth in their detergent business, which is big money at both PG and CL, has been taking up market share. I'm not to concerned with owning both PG and CHD. The idea with both is to get a nice steady dividend with consistent increases, and lower volatility.

The numbers at Cummin's reflected what the company had started to warn about in 2015. Heavy duty trucks in both North American and Asia have really slowed down.  Overall there has been a slowdown in just about ever segment, but not nearly as bad as I thought it was going to be. The preemptive cost cutting measures from last fall are really helping the company maintain good earnings. That's what a well managed company does.

Emerson Electric also posted numbers that weren't really up to its normal self. The company has decent exposure to the energy industry through its Process Management, and Industrial Automation division. The Climate Technology and Commercial/Residential Solutions benefited from underlying trends. None the less post earnings the company slid the remainder of the week. I'm still keeping my eye out for another add.

Hain Celestial saw a big jump after their earnings report. Honestly the company was beaten down.  It's been one of the few food companies around to keep posting healthy revenue gains. Also the company is targeting some cost cutting efforts($100 million), and is even going to sell off some brands that no longer fit within it's strategy.  The company has a long history of making acquisitions.  That's actually good to see as I think the company might have over extended itself with all the SKU's on its books.

Cognizant Technology reported pretty good numbers. Growth continues to come in strong as the company even had to hire 11,000 plus workers during the quarter.  That bodes well for the future. The company lowered it's Q2 guidance, cut its yearly top line just a hair, but then re-affirmed the full fiscal year EPS. I think that made some people scratch their heads at first likely accounting for the early drop in shares. Cooler heads prevailed and the stock ended up very strong.  I'm expecting CTSH to right the ship in a good way this year.

That's all for now. Enjoy the weekend!

Cheers,
The Long Haul Investor.

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