Saturday, November 12, 2016

TLH Market Review - 11/12/16

Crazy. That about sums it up so far this year, and this election.  Turns out both Democrats and Republicans enjoy protesting and being violent.  Although at this point protesting solves nothing. Your vote is what really would have mattered. Protesting our Democratic process shows to others that you think it's your way or the highway. Un-Democratic.  Hillary needs to come out and condemn this type of behavior, and Obama should put more effort into calming everyone down. Off my soap box now.

OK so it looks like we have all this mess because everyone is so shocked. Not surprised. I think even Donald Trump himself was a little shocked. I feel like you could just tell a little bit by the expressions on his face.  I really think he thought he was going to lose.  He did claim he felt the election could possibly be rigged, aided by the media, so I'm sure he felt the odds were overwhelming against him.

The markets sure didn't like everything at first. HFT's and big market makers at one point sent the Dow Jones futures down over 800 points Tuesday night. By Wednesday though everything was, well, GREEN!

Even more shocking was the Dow Jones hit a new ALL TIME HIGH! Holy Cow! I don't think anyone saw that coming for this week.  It's really hard to make out but if you look closely at the right side of the chart you can barely see when the market head straight up after the election :)

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Almost going unnoticed is the fact small caps have rallied 10.1% for the week. That's why it's important to stay invested. You never know when a huge rally will hit. Even for the S&P 500 and Dow they added most of their YTD gains back in this single week!

For the small retail investor there's no way they would have caught that move. Why? They've proven to professionals and researchers time and time again they are horrible at timing the market.

The bond market saw yields surge, and the probability of a Fed rate hike for December is coming at 81%. Yeah I'd say that's a lock. Finally.

Gold at first had a decent pop, only to see selling into the end of the week. I guess the yellow metal is just that, yella! I think that move has more to do with the fact there's less fear and anxiety now that people know what the future will bring. Add in the stronger dollar and the gold train seems to have a lot more going against it than for it right now.

Portfolio Adds
I did make a couple adds this week. McCormick and Phillip Morris both sold down to the $90's level and I felt this made sense for a buy at this price.  The rest of the market might be going for High Beta names, but I want more stability.  I'll be doing some much needed updating on the spreadsheet this weekend.

We had earnings from 3 portfolio members.  Cognizant Technology Solutions, Universal Corp, and WhiteWave Foods. I won't be highlighting WWAV since their merge is less than 7 weeks away with Danone.  It looks like it will go off without a hitch.

Cognizant(CTSH) reported a great quarter which was really needed considering how controversial this quarter has been for them.  The company reported EPS of $0.73(up 12.3%) on revenues of $3.45 billion which was up 8.4% from a year ago.  Also they gave solid guidance which shows they are still on track to keep growing.  Non GAAP EPS was guided at $3.38 and $3.41. That’s an increase from their previous guidance range of $3.32 to $3.44 per share.

“Third-quarter revenue was within, and non-GAAP EPS was slightly above, our guided range, indicating that we continue to execute well on our stated strategy,” said Karen McLoughlin, Chief Financial Officer. “Our solid performance was also reflected in another strong quarter of cash flow generation as cash and investments, net of debt, increased by $390 million.”
I highlighted that I felt the big reason for the spike up was the fact their improper payments disclosure in the 10-Q didn't show much of a financial impact. The company has so far highlighted only $5 million in improper payments. That' doesn't mean a fine won't be large, but I think how they've handled it so far means this really won't be a huge financial issue going forward. Of course any ding to earnings is real, but this is a small one in the grand scheme of things. Helping companies integrate their digital platforms and become more efficient isn't going away anytime soon.  In fact the company has been on a hiring binge to help keep up with demand.

Universal Corp(UVV) reported earnings that initially sent the shares 4 points higher, but then the California tax increase sent all those great gains right back to the toilet. Sigh.

Still the company reported nice earnings report with EPS of $0.90 on revenues of $456 million.  The company is so stable it's sickening. So sickening we got an even sicker 46th annual consecutive dividend raise! Not many other companies can claim such a feat. The dividend was increased by one penny to $0.54/share. Not huge but a raise is a raise.

The California tax increase will no doubt affect the company. I think the pain will be well managed. The company does a great job at managing it's inventory. In fact I think this will continue to push all the tobacco companies into reduced risk products.  UVV has positioned itself as a supplier of liquid nicotine for vaping products.  That should help offset any losses from it's traditional business as this new area grows.


The Long Haul Investor

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