Sunday, October 15, 2017

TLH Market Review 10/15/17

Well I'm sure the pundits will be out in full force this week calling for a crash as we commemorate the 30th anniversary of the greatest stock market crash in history. That day the Dow Jones fell an astounding 22.61%, which would be equivalent to 5,171 points today. Wait, you mean the biggest crash wasn't when stocks fell at the onset of the Great Depression in 1929? Nope. Although that day comes in at a distant 2nd with a 12.82% decline.  It was October 19, 1987 when markets fell a whopping 508 points, and I think it's likely to keep that record forever as modern day circuit breakers shut down the exchanges when large moves occur.

The markets have been unstoppable, all at new highs, and it's sinister cousin volatility seems to have been whooped into the woodshed.  For how much longer we don't know, but let's enjoy this ride while it lasts.  It makes digesting dinner much easier.  It does however make finding good stocks at even better prices that much more difficult. Tis the flip side of a bull market.  For the year the S&P 500 is up 14.04%.

I've been looking at stocks to add for next years portfolio, and it's been extremely difficult.  I'll release a list of names I'm targeting this week so people can get an idea of what I'm after. Hint: expect a big dose of long standing names with great track records!

Economic indicators have been coming in steady too.  Here is the latest JOLTS report that shows more than 6 million jobs are available. I've also added in quits, and layoffs which come in at 3.1, and 1.7 million respectively. The spread between the two in comparison to openings is still a healthy 1.22 million jobs.  That shows there is enough demand within the employment sector, it just needs to find the right workers.  On the back of that, last weeks initial claims for unemployment came in at 243k, which is still a respectable number.  It seems there's a lot of stability in the labor market, but if we could only stoke the growth rate higher.

CPI had a decent reading as it was up 2.2% from September 2016.  Looking back those low days of inflation in 2015 seem to be a distant memory.  This is good enough for the Fed, and markets are now predicting an 82% probability that rates will be raised.  I think that's correct.  At one point the markets didn't really think the Fed would raise rates despite the fact it was continuously hinted another was coming.

The portfolio saw earnings from Costco(COST), which I have yet to address.  The company reported their Q4 earnings with EPS of $2.08 on revenues of $41.3 billion. For the 53 week fiscal year 2017 the company reported EPS of $6.08 on revenues of $126.1 billion.  The company had net income of $2.6 billion for the year.  Also the company paid a total of $8.90 in dividends for the year to shareholders, a large portion of which was the special $7 dividend paid in Q3. This was an important year, and quarter for the company as the industry is seeing a lot of shifts.  

The stock reacted poorly to the results as they took a hit from $167 to $157. The stock is struggling as investors take some wind out of the sales as online competition heats up.  I'm not particularly concerned yet as the company is showing stable growth on the top and bottom line. Additionally the company saw its own online sales increase 13% for the year. The company has a lot of changes coming at it.  But I'm apt to think that changes will come slowly as they continue to test out different concepts, and watch industry data. The company has a relationship with InstaCart and Google Express for those unwilling to make the trip to a store themselves, nor wanting to wait for an online delivery of 2-3 days.  The company is aware of the changes within the industry at least, and are willing to adapt.  That's encouraging to see as they don't just say "Hey this is our model, and this is what we do, and there is no deviating from it".  I do want to see the company make better inroads with the 25-40 year old group though.  That will be key.

If you follow me on Twitter you'll notice that I visit Costco myself. What I love about it most is you never have to worry if you are getting a great price.  It's one of the few places I shop feeling easy that I'll never get ripped off. Also their Visa(V) credit card partnership offers huge benefits to members that are getting much harder to find in the rewards industry.  Visa is also a member of our portfolio, and is up 40% YTD.

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