Saturday, October 1, 2016

TLH Weekly Review 10/1/2016

Well it's the end of another quarter. Crazy to think this year is 3/4 done, and in a few days this site turns 1 year old. I'm busy getting everything together for the portfolio results which I'll put out on Monday morning.

The week was filled with some important economic reports, bank talk, and rate hike expectations. Let's start with the latter. Rate hike expectations for December actually rose this week(mostly Friday) to 61.7% up from last weeks 54.2%. That's really solid odds right now especially compared to the historical odds we've seen for most meetings.  There was even some rumbling about the Fed looking to buy stocks like the BOJ is.
Yellen was asked on Capitol Hill about the issue, but the Fed currently can't buy stocks since Congress sets it mandates. We'll see if anything changes in the future.

Deutsche Bank and Wells Fargo were in the spotlight all week. What can we say. The big banks are just full of never ending problems it seems. There is a reason why I don't any of them. Not to say there aren't good banks out there, I just am not keen on allocating any funds to one right now.

The Economy Hums Along

We received New and Pending Home sales, Durable Goods, 3rd Q2 GDP Estimate, Personal Income/Spending, and 2 Consumer Sentiment reports.

New and Pending home sales came in mixed as new home sales beat expectations, and pending sales dropped more than expected. Overall the housing sector continues to come off it's lows. I don't think it's a full blow recovery still, but it's better than it has been years. That's good for the economy.

Then Durable Goods came in at 0%. Underneath there were some bright spots, and this number can swing pretty wide depending a few industries. Let's see if the next one comes in better.

Then Q2 GDP came in stronger at 1.4% vs the last 1.1% estimate. That's a welcome sign. Considering other countries are struggling to get past 1% right now we will take it. The growth is still lower than it should be. Maybe a new administration can breath some life into this number.

Then Initial Claims for unemployment came in really low, again. Only 254k people were seeking unemployment benefits in the last report, below expectations for 257k. This number has been so low for so long it's not even news anymore. Companies are simply not laying off workers right now. Yet there is a lot of discontent amongst people. Definitely sounds like a structural problem more than anything else. When I keep hearing of companies clamoring for engineers, and other advanced positions it's odd to think people are mad there is no work for them.

Then we got personal income and spending. Incomes were up 0.2%, but spending was flat at 0%. People are not spending their rising incomes. Although a lot of that income gain was eaten up by Core PCE prices up 0.2% there is a broader trend of saving versus spending in the country. Probably part of the reason why the Fed is having a tough time reaching it's inflation target.

For those not aware there are actually two sentiment reports that are released. The Conference Boards Consumer Confidence, and the University of Michigan's Consumer Sentiment. The Confidence Index hit 104.1, a post recession high, while the UM Consumer Sentiment languishes.

I understand they measure things slightly differently, and they generally flow in the same direction yet I wonder why one is at a new high right now while the other took a dip.

The S&P 500 actually ended the weak up 0.2% after wobbling around for a bit. The strong end to the week is a good sign. I think the market will continue to be choppy with elections coming up, and the rate hike decision in December. 

 The Portfolio

As I said before I'll have Q3 results out on Monday! Get Pumped!

We had earnings from 2 names this week, and bad news from one(frown).

Costco(COST) reported fiscal year 2016 Q4 numbers that sent the stock higher. Revenues were $36.5 billion and EPS came in at 1.77. For the year revenues were up 2% vs 2015, but EPS came in 4 cents lower. I'm not too concerned. While listening to the conference call management sounded vigilant about taking stock of all competitive threats. They mentioned there will be an upgrade to their online sales system soon. That's a welcome sign. I was surprised to hear the CEO admit he had an Amazon Prime account for his family. I guess we are all individuals just looking out for our own best interest.

Either way the company said they will continue to focus on providing good value and competitive prices on bulk goods. They mentioned food deflation is a bit of a concern right now too. Also they are looking to expand their organic offerings. The company is already one of the countries top organic retailers.

McCormick(MKC) reported Q3 results that are steady, and dependable. EPS came in at $1.00 and revenues were $1.09 billion. The company has seen nice contributions from recent acquisitions including the Stubbs brand.  Also their CCI program continues to unlock savings that are re-invested into the company.

They are planning a big advertisement campaign for the fall/winter with plenty of holidays, and playoff football coming later.  I'm very pleased with their results and look forward to continued 8-10% EPS growth the next few years. This is one of my favorite companies.

Cognizant Technology Solutions(CTSH) dropped a bomb. The company unearthed improper payments in India and dutifully notified the DOJ and SEC. I think a fine will be coming, and business will slow a bit from this. I still see them as one of the best IT and business solution companies out there.  The price drop was large, and disheartening. I think the company can bounce back from this though.

I'm going to keep my eye on it to see if this looks to be a bigger problem than anticipated. I'd hate to have to cut shares in another company this year. But I don't take mis-management lightly.  There are plenty of other well run companies that would appreciate my hard earned dollars.

Have a great weekend!

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