JT’s DAILY (WEEKLY as of 12/9/2013) BLOG for Month Of July 2014
Note: All previous month's posts are available in the archives, as noted above.
All postings for the month are available here, sorted in descending order - i.e. most recent at the top.
All times are Eastern Time - same as the NYSE
1st Posting for Week Beginning Monday 07/28/2014 08:30 AM
Stocks lost ground four out of five days last week, ending with declines on all the major averages. It seems to me that a combination of factors finally weighed on the market: geopolitical events, mostly uninspiring earnings reports, equally uninspiring economic data releases, and perhaps a sense of unease that nothing ever gets done about anything. Adding to that is a realization by most market followers that stocks are extended and due for a pullback. I have thought that for some time, and thus far have been waiting in vain for an opportunity to acquire some quality stocks at a reasonable price.
The week ahead will see the usual economic releases, culminating in the Payroll numbers to be released Friday. Last week saw a very disappointing reading on new home sales, which no doubt contributed to the market’s foul mood. If the Payroll data fails to meet expectations, the long-awaited correction very well may begin.
The one thing that can cheer me up, just as it did (so legend has it) John D. Rockefeller, is to contemplate upcoming dividends scheduled to be paid by stocks I own. For the week beginning today, that would be as follows:
Alliant Energy (LNT), yield 3.47%.
Enterprise Products Partners LP (EPD), yield 3.65%.
Kinder Morgan Inc. (KMI), yield 4.54%.
Kinder Morgan Energy Partners LP (KMP), yield 6.59%.
El Paso Pipeline Partners LP (EPB), yield 7.24%.
Prospect Capital (PSEC), yield 12.05%. PSEC pays monthly.
Paychex (PAYX), yield 3.59%.
Pfizer (PFE), yield 3.44%.
Norfolk Southern (NSC), yield 2.12%.
Plains All American Pipeline LP (PAA), yield 4.34%.
Williams Partners LP (WPZ), yield 6.91%.
Realty Income (O), yield 4.91%. As you would expect from a firm that bills itself as “The Monthly Dividend Company”, O pays monthly.
Eaton (ETN), yield 2.53%.
Energy Transfer Equity LP (ETE), yield 2.54%.
Energy Transfer Partners LP (ETP), yield 6.47%.
Southern Company (SO), yield 4.69%.
ONEOK Partners LP (OKS), yield 5.27%.
Calumet Specialty Products Partners LP (CLMT), yield 8.30%.
Enerplus (ERF), yield 4.55%, give or take a fraction of a percentage point. ERF pays nine cents Canadian monthly, so yield is slightly affected by exchange rates.
It was a fairly active week for upgrades / downgrades on my stocks. Don’t you wish those analysts would issue their downgrades before the companies report a disappointing quarter, not to mention perhaps an upgrade or two prior to a positive earnings surprise?
Dr Pepper Snapple (DPS) was initiated at Neutral at ISI Group.
Exelon (EXC) was upgraded from Neutral to OutPerform at Macquarie.
Digital Realty (DLR) was upgraded from Hold to Buy at Deutsche Bank.
McDonald’s (MCD) was downgraded from OutPerform to Neutral at Robert W. Baird.
Health Care REIT (HCN) was initiated at Neutral at Mizuho.
HCP Inc. (HCP) was initiated at Buy at Mizuho.
Ventas (VTR) was initiated at Buy at Mizuho.
McDonald’s (MCD) was downgraded from OverWeight to Equal Weight at Stephens & Co.
McDonald’s (MCD) was downgraded from Positive to Neutral at Susquehanna.
McDonald’s (MCD) was downgraded from Buy to Neutral at Sterne Agee.
MicroSoft (MSFT) was upgraded from UnderPerform to Neutral at BAC.
Raytheon (RTN) was downgraded from OutPerform to Market Perform at Bernstein.
Freeport-McMoran (FCX) was downgraded from Buy to Neutral at BAC.
Magellan Midstream Partners LP (MMP) was downgraded from Buy to Neutral at Goldman. This has to be valuation, as this stellar MLP has run so far up in price, the yield is at risk of going below 3%.
Potlatch (PCH) was downgraded from Buy to Neutral at DA Davidson.
Pepsico (PEP) was upgraded from Hold to Buy at Stifel.
Exxon Mobil (XOM) was Downgraded from Equal Weight to UnderWeight at Barclays.
Now that the preliminaries are concluded, let’s move on to earnings. First, reporting last week, by date, were the following:
Altria (MO) reported Q2 EPS of $0.65, missing by a penny. Revenue of $4.57B, up 0.9% Y/Y, missed by $30M.
Coca-Cola (KO) reported Q2 EPS of $0.64, beating by a penny. Revenue of $12.57B, down 1.4% Y/Y, missed by $250M.
Kimberly-Clark (KMB) reported Q2 EPS of $1.49, missing by a penny. Revenue of $5.34B, up 1.3% Y/Y, beat by $20M.
McDonald's (MCD) reported Q2 EPS of $1.40, missing by four cents. Revenue of $7.18B, up 1.4% Y/Y, missed by $100M.
Verizon (VZ) reported Q2 EPS of $0.91, beating by a penny. Revenue of $31.48B, up 5.7% Y/Y, beat by $380M.
Microsoft Corporation (MSFT) reported FQ4 EPS of $0.55, missing by six cents. Revenue of $23.38B, up 17.3% Y/Y, beat by $270M.
Freeport-McMoRan (FCX) reported Q2 EPS of $0.46, missing by three cents. Revenue of $5.52B, up 28.7% Y/Y, beat by $280M.
General Dynamics (GD) reported Q2 EPS of $1.88, beating by eleven cents. Revenue of $7.47B, down 4.6% Y/Y, missed by $60M.
Norfolk Southern (NSC) reported Q2 EPS of $1.79, beating by five cents. Revenue of $3.04B, up 8.6% Y/Y, beat by $40M.
Northrop Grumman (NOC) reported Q2 EPS of $2.04, missed by eighteen cents. Revenue of $6.04B, down 4% Y/Y, beat by $80M.
PepsiCo (PEP) reported Q2 EPS of $1.32, beating by nine cents. Revenue of $16.89B, up 0.5% Y/Y, beat by $100M.
AT&T (T) reported Q2 EPS of $0.62, missing by a penny. Revenue of $32.57B, up 1.5% Y/Y, missed by $840M.
Potlatch (PCH) reported Q2 EPS of $0.40, in-line. Revenue of $143.9M, up 8.0% Y/Y, beat by $3.97M.
Unilever (UL) reported first half EPS of €0.78. Revenue was €24.1B, down 5.5% Y/Y.
3M (MMM) reported Q2 EPS of $1.91, in-line. Revenue of $8.13B, up 4.9% Y/Y, beat by $40M.
Dr Pepper Snapple (DPS) reported Q2 EPS of $1.06, beating by sixteen cents. Revenue of $1.63B, up 1.2% Y/Y, beat by $10M.
Nucor (NUE) reported Q2 EPS of $0.46, beating by six cents. Revenue of $5.29B, up 13.3% Y/Y, beat by $80M.
Raytheon (RTN) reported Q2 EPS of $1.41, missing by eighteen cents. Revenue of $5.7B, down 6.9% Y/Y, beat by $120M.
Realty Income (O) reported Q2 AFFO of $0.64, in-line. Revenue of $228.6M, up 24.0% Y/Y, beat by $4.42M.
NuStar (NS) reported Q2 EPS of $0.58, beating by thirteen cents. Revenue of $749.74M, down 16.9% Y/Y, missed by $93.3M. Notably, NS announced with the release that DCF was adequate to cover the distribution, which has not been the case since 3rd QTR 2011.
American Electric Power (AEP) reported Q2 EPS of $0.80, beating by five cents. Revenue of $4B, up 11.7% Y/Y, beat by $80M.
Statoil (STO) reported Q2 EPS of NOK3.74, and revenue of NOK142.6B, down 3.0% Y/Y. Further, Q2 earnings before interest and taxes totaled NOK32B, missing analyst expectations of NOK37.7B, and oil and gas production fell 9% Y/Y.
Now, as the flood of earnings reports approaches the zenith, we have the following reports scheduled, by date. Note that earnings will be released before the start of trade on the indicated date, unless otherwise noted.
Exelon (EXC), RPM International (RPM), Gladstone Investment (GAIN), American Capital Agency (AGNC), and MFA Financial (MFA). AGNC will report after the close, and GAIN had no time specified.
Eaton (ETN), Merck (MRK), NextEra Energy (NEE), Pfizer (PFE), United Parcel Service (UPS), Waste Management (WM), Amerigas Partners LP (APU), Digital Realty (DLR), Entergy (ETR), Kimco Realty (KIM), Reynolds American (RAI), and Newmont Mining (NEM). APU, DLR, KIM, and NEM all report after the close.
Kraft Foods (KRFT), Public Service Enterprise Group (PEG), Southern Company (SO), Total SA (TOT), Williams Partners LP (WPZ), and Martin Midstream Partners LP (MMLP). KRFT reports after the close. Neither TOT nor MMLP specified a time. TOT will be reporting from Paris, France.
ConocoPhillips (COP), Colgate Palmolive (CL), Kellogg (K), Royal Dutch Shell (RDS.B), SCANA (SCG), Exxon Mobile (XOM), Enterprise Products Partners LP (EPD), BlackRock Kelso (BKCC), Consolidated Communications (CNSL), and Ensco PLC (ESV). ESV will report after the close, while no time was specified for RDS,B, reporting from The Hague, Netherlands.
Chevron (CVX), Procter & Gamble (PG), and Health Care REIT (HCN).
It will be a busy week, with earnings season at the peak, a monthly Jobs report on tap, and multiple geopolitical crises continuing to rage on. It may afford a buy opportunity here and there. There haven’t been many lately.
1st Posting for Week Beginning Monday 07/21/2014 08:30 AM
Stocks managed to eke out a slight gain on the week last week, in spite of a major down day on Thursday, which was a reaction to geopolitical events. Disregarding the fact that nothing had really improved, a relief rally ensued on Friday, recovering much of the Thursday decline. I suppose it was in relief that nothing new that was even worse occurred on Friday. The economic news continues to indicate a slow but measurable recovery, earnings thus far haven’t been too bad, and stock prices continue to make new highs, largely because there really is no place else to go for a return.
Stocks on my lists going ex-dividend this week are Gladstone Investment (GAIN), on 7/23/2014, which pays monthly, and yields 9.73%, and ConAgra Foods (CAG), on 7/24/2014, which yields 3.26%.
Several upgrades / downgrades came out last week on stocks I follow:
Alliant Energy (LNT) was downgraded from OutPerform to Neutral at Robert W. Baird.
NextEra Energy (NEE) was also downgraded from OutPerform to Neutral at Robert W. Baird.
Reynolds American was upgraded from Sector Perform to OutPerform at RBC Capital.
Kellogg (K) was downgraded from Neutral to Sell at Goldman.
Transocean (RIG) was upgraded from UnderPerform to Market Perform at BMO Capital.
Seadrill (SDRL) was likewise upgraded from UnderPerform to Market Perform at BMO Capital.
Intel (INTC) was initiated at OutPerform at Imperial Capital.
Statoil (STO) was downgraded from OverWeight to Equal Weight at Morgan Stanley.
Ensco PLC (ESV) was upgraded from UnderPerform to Market Perform at BMO Capital.
Public Service Enterprise Group (PEG) was upgraded from Hold to Buy at Argus.
Ensco PLC (ESV) was downgraded from Buy to Neutral at Guggenheim Securities.
Intel (INTC) was upgraded from Neutral to Buy at UBS, and also at B Riley.
Kayne Anderson Energy (KED) was upgraded from Hold to Buy at Stifel Nicolaus.
Earnings season shifted into gear last week, with the following stocks on my lists reporting:
Johnson & Johnson (JNJ) reported Q2 EPS of $1.66, beating by eleven cents. Revenue of $19.49B, up 9.0% Y/Y, beat by $550M.
Intel (INTC) reported Q2 EPS of $0.55, beating by two cents. Revenue of $13.83B, up 8.0% Y/Y, beat by $140M.
Kinder Morgan (KMI) reported Q2 EPS of $0.27, missing by a penny. Revenue of $3.93B, up 16.3% Y/Y, beat by $150M.
Kinder Morgan Energy Partners L.P (KMP) reported Q4 EPS of $0.43, missing by fifteen cents. Revenue of $3.58B, up 18.5% Y/Y, beat by $230M.
El Paso Pipeline Partners (EPB) reported Q2 EPS of $0.32, missing by six cents. Revenue of $353M, down 1.7% Y/Y, missed by $23.64M.
Novartis (NVS) reported Q2 EPS of $1.34, in-line with estimates. Revenue of $14.63B, up 1.0% Y/Y, missed by $180M.
Philip Morris (PM) reported Q2 EPS of $1.41, beating by seventeen cents. Revenue of $7.8B, down 1.5% Y/Y, beat by $280M.
General Electric (GE) reported Q2 EPS of $0.39, in-line with estimates. Revenue of $36.2B, up 3.1% Y/Y, missed by $110M.
Earnings will shift into high gear this coming week. Reports expected, by date, are listed below. Reporting will be before market hours, unless otherwise indicated.
Coca Cola (KO), Kimberly Clark (KMB), McDonalds (MCD), Verizon (VZ), and then after the close, MicroSoft (MSFT).
Freeport McMoran (FCX), General Dynamics (GD), Norfolk Southern (NSC), Northrop Grumman (NOC), Pepsico (PEP), Potlatch (POT), and then after the close, AT&T (T).
3M Co (MMM), DrPepper Snapple (DPS), Nucor (NUE), Raytheon (RTN), and Realty Income (O).
American Electric Power (AEP), NuStar Energy LP (NS), Statoil (STO), and Kayne Anderson Energy (KED). No time specified for STO (reporting from Norway), nor for KED.
Stocks just keep going higher, regardless of what seems to be more negative geopolitical news than usual, not to mention wildfires, floods, and a border crisis at home, and perhaps a true political crisis in the making. At some point a fragile market will look down and see how high up it is, and come crashing down, but apparently it is going to require a more severe shock than what we have seen thus far, even as bad as it has been. I’m holding steady at a higher than usual cash percentage, as I refuse to pay beyond a certain level of reasonableness, no matter how great the company behind the stock.
1st Posting for Week Beginning Monday 07/14/2014 08:30 AM
After closing above 17000 (on the Dow Industrials Index) the prior week, stocks declined four days out of five last week, although only one day (Tuesday) saw as much as a triple-digit decline. Keeping in mind that the Tuesday decline of 118 Dow points represents only a .69% drop, it would be a stretch at this point to claim that a meaningful correction has begun or is imminent. You will not, however, get that perspective from the headlines on MarketWatch, with several articles coming out this week predicting a decline. At any rate, earnings season is once again at hand, and the market will mostly be reacting to the results as reported by the various bellwether stocks over the next few weeks, barring some dramatic geopolitical development.
Changing my usual order of presentation of relevant items regarding the stocks I track, let’s first consider this week’s earnings reporting lineup, which includes several big names:
Johnson & Johnson (JNJ), 7/15/2014, before the open.
Intel (INTC), 7/15/2014, after the close.
All three of the Kinder Morgan family entities on 7/16/2014, after the close – Kinder Morgan Inc. (KMI), Kinder Morgan Energy Partners LP (KMP), and El Paso Pipeline Partners LP (EPB).
Novartis (NVS), 7/17/2014. Reporting from Switzerland, where the firm is headquartered, the earnings news should be known before the market opens here on that date.
Phillip Morris (PM), 7/17/2014, before the open.
General Electric (GE), 7/18/2014, before the open.
These names will get things started for this round, as far as earnings are concerned. As usual, a number of firms have warned investors not to expect dazzling results, so as to avoid undue disappointment, and related stock sell-offs.
Backing up to the usual first order of business in my weekly recap regarding my stocks, companies on my lists scheduled to go ex-dividend this week are as follows:
Colgate Palmolive (CL), 7/16/2014, yield 2.07%.
Procter & Gamble (PG), 7/16/2014, yield 3.17%.
ConocoPhillips (COP), 7/17/2014, yield 3.26%.
Main Street Capital (MAIN), 7/17/2014, yield 6.15%. MAIN pays out monthly.
That’s it. There aren’t many names on this week’s list, and the ones that are there have underwhelming yields, to state the obvious. Even MAIN, one of the stronger BDCs, has a yield under the norm for a BDC.
With last week being the first full week after a holiday, the analysts, at least some of them, have returned to work. Stocks on my lists receiving favor, or otherwise noted, are as follows:
Exterran Partners LP (EXLP) was initiated at Neutral by Goldman.
Freeport-McMoran Copper and Gold (FCX) was initiated at OverWeight at HSBC.
3M Co (MMM) was upgraded from Hold to Buy at Argus. No doubt MMM is one of the bluest of blue chips, but with a PE above 20, price at an all-time high over $144, and a yield barely above 2%, I cannot concur with the recommendation to buy it here.
Altria (MO) was initiated at OutPerform at Cowen.
Phillip Morris (PM) was initiated at Market Perform at Cowen.
Procter & Gamble was downgraded from OutPerform to Market Perform at Wells Fargo.
Reynolds American (RAI) was initiated at Market Perform at Cowen. RAI has been reported to be considering an acquisition of Lorillard (LO), a competitor. I had always considered LO as the riskiest tobacco stock and one to avoid, since an adverse regulatory action affecting menthol-flavored cigarettes, which once seemed likely, would have devastated the company. Sadly, anyone taking my advice, which includes myself, would have missed out on a 50% gain since January of 2013. If I owned it, I would definitely sell now.
Vodafone Group (VOD) was downgraded from Neutral to Sell at Espirito Santo.
Emerson Electric (EMR) was upgraded from Hold to Buy at Deutsche Bank.
Even though we are into another earnings season, the period from July Fourth to September is the “summer doldrums” time, with many market participants on vacation, most schools not in session, sports news (at least anything I care about) minimal, and generally just a time to be endured until things get more interesting. Endured is a good word for it if residing in Texas, with triple-digit days describing the thermometer rather than the Dow Industrials Index. On the other hand, it can be a good time to buy a stock or two, if a quality firm encounters a speed bump of some sort, and an inordinate reaction in the stock price occurs, perhaps exacerbated by the low summer trading volume.
1st Posting for Week Beginning Monday 07/07/2014 08:30 AM
Stocks continued to edge ever higher last week, with the venerable Dow Industrials stock average making news by closing above 17000 for the first time Thursday, the end of the trading week, due to Friday being July Fourth. While the Dow only contains 30 stocks, and is dismissed by most professionals as not being nearly as significant as the S & P 500, it is still the most well-known stock index, as far as the general public is concerned. As can be implied by the preceding, buy opportunities remain elusive, as nearly all stocks are now richly valued. With cash yielding zip, the temptation is to pay up, to get at least some type of return. The case for NOT doing so is delivered as a quote from the most recent weekly newsletter from John Mauldin, posted at the end of this blog.
Stocks on my lists going ex-dividend this week are:
Enerplus (ERF), yield 4.30% (roughly). ERF pays nine cents Canadian monthly. The actual yield in U.S. Dollar terms depends upon exchange rates.
General Mills (GIS), yield 3.09%.
AT&T (T), yield 5.13%.
Verizon (VZ), yield 4.26%.
Darden Restaurants (DRI), yield 4.75%. Note that the sustainability of DRI’s dividend is becoming a concern, as performance continues to decline.
Kraft Foods (KRFT), yield 3.46%.
RPM International (RPM), yield 2.09%.
Kayne Anderson Energy (KED), yield 6.18%.
Universal (UVV), yield 3.63%.
Fifth Street Finance (FSC), yield 10.05%. FSC pays monthly.
Consolidated Communications (CNSL), yield 6.89%. I have owned CNSL since 2006. In just the past week or so, I had my first opportunity since then to sell CNSL without taking a loss. With another dividend looming, I held off. The case for selling is that CNSL has not increased the dividend during the entire time I have owned it, doing well to avoid a cut. The company has held up very well considering it is in the doomed rural telecom sector, but who knows for how long? If I can still sell after this dividend without incurring a loss, I may have to pull the trigger. Stay tuned.
Freeport-McMoran (FCX), yield 3.25%.
As would be expected for a holiday week, there was minimal activity regarding upgrades / downgrades on my stocks last week. The few that came out are listed below:
Norfolk Southern (NSC) was upgraded from Equal Weight to OverWeight at Barclays.
Williams Partners LP (WPZ) was initiated at Neutral at UBS.
El Paso Pipeline Partners LP (EPB) was downgraded from Neutral to Sell at Goldman.
Paychex (PAYX) reported last Tuesday (July 1st) that FQ4 EPS was $0.40, beating by a penny. Revenue of $628.8M, up 7.4% Y/Y, beat by 11.45M.
None of my stocks will be reporting this week. However, with Alcoa (AA), always the first Dow stock to report, scheduled to release earnings on July 8th, we are reminded that earnings season will soon be at hand. Even though AA is no longer a Dow stock, it is still considered to be the “lead-off hitter” for each earnings season.
Now, on to that promised quote from John Mauldin. The case for holding cash, which effectively yields nothing, was stated as clearly as I have ever seen in Mauldin’s most recent weekly “Thoughts from the Frontline” economic newsletter, as quoted below:
“You should be thinking of cash not as cash per se, but as an option on future deep-value trades. There are few truisms in the investment world that are really valid, but one of them is that you make your money when you buy. That you sold at a profit is just another way of saying that you were smart to buy when you did. There is going to come a time when buying opportunities are once again going to be all around you.”
That certainly represents thinking an investor in stocks should seriously ponder.