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December 23, 2019
THE FREE BULL MARKET REPORT for December 23, 2019

THE FREE BULL MARKET REPORT for December 23, 2019

The Weekly Summary

 

December was chaotic last year, keeping investors glued to their screens as we watched a miserable season turn into one of the biggest rebounds in recent memory. This time around, conditions are unusually quiet as a late Thanksgiving turns into a compressed holiday season. Wall Street is already looking toward the Christmas and New Year breaks. So are we.

 

After all, Santa came early and often this year. The market as a whole has rebounded 28% YTD, handily recovering all ground lost in the 4Q18 rout and then continuing to push into record territory. The S&P 500 has now rallied a healthy 12% past last year's peak, with more than half of that surge coming in the last four months. Whether the motive is relief that we've skirted another year without a recession or more straightforward optimism, the mood is as good as it gets.

 

If anything, we're inclined to urge a little caution here. When a full 44% of investors are actively bullish and the so-called "greed index" flashing at extreme levels, this is as good a time as ever to take a little profit and rotate the returns back into stocks that haven't flown as far as the rest of your holdings or offer a comparable return for lower risk. The perfect time to buy was a year ago when everyone but us was terrified that the trade war and the Fed had triggered the end of the world. While today this is not an awful entry point, a selective approach can be your friend here . . . we would definitely not pour money into index funds right now.

 

After all, while the active BMR universe is up 42% so far this year, our stocks have tangible growth on their side. Earnings for the S&P 500, on the other hand, have spent the entire year in a stall, so there's no compelling mathematical reason for the index to keep moving up without straining historical multiples to the bubble point. Right now the market as a whole carries an 18X earnings multiple, well above the 15-16X that investors have normally been willing to pay.

 

In exchange for those inflated fundamentals, investors are getting negative growth. Those companies are actually tracking lower earnings than they did a year ago, and are likely to keep deteriorating at least into the 4Q19 reporting season. After that, we'll simply have to see if the combination of lower interest rates and a truce in the global trade war shakes a little growth free. If not, stocks will look increasingly vulnerable to any external shock to sentiment . . . the higher the multiples get, the more precipitous the fall from grace becomes.

 

However, there's a lot to be said for a sympathetic Federal Reserve and any relief from the trade war. The White House estimates that even Phase One in a deal with China coupled with a new NAFTA accord will boost GDP growth 0.5% in the coming year, which is enough to drive a so-so economic expansion into something approaching spectacular. It's definitely far from the recession zone that everyone was worried about a few months ago.

 

You need growth to decline in order to realistically talk about recession ahead. No decline means no recession. And no recession means people who retreated to the market sidelines are now having a hard time resisting the urge to get back in before they miss out completely.

 

Remember, while earnings haven't moved up in the past year, they haven't dropped a lot either. The trade war has delayed a lot of new corporate investment initiatives without driving executives to pull the plug on any established cost centers. We haven't seen mass layoffs. No sprawling Financial conglomerates or prominent hedge funds have imploded the last time the Treasury yield curve briefly inverted.

 

And that curve is healthier than a few months ago. Barring a lot of dread around the coming election, the rate environment once again reflects lower risk in the short term and higher uncertainty farther out into the future, exactly as it should. The Fed has done its work well. Investors have a reason to cheer.

 

So what can go wrong? While we are always quick to accentuate the positive, we also acknowledge that other investors make errors when the mood swings too far in either direction. Expectations can get stretched to unsustainable levels, setting up the next inevitable round of disappointment, second guessing and nervous selling. That's ultimately a good thing for those of us who have been watching and waiting for a chance to buy great stocks on the dip. Throughout our career (collectively well past a half century actively in the market) the long-term trend always points up and the dip is always worth buying.

 

There’s always a bull market here at The Bull Market Report! Gary Jefferson has the week off and with the holiday approaching, we decided to use his absence to try something new with an in-depth review of Todd's Stocks For Success. We hope that you come away from this issue with deeper understanding of why our founder likes Berkshire Hathaway so much. He would buy any of these stocks on weakness.

 

Finally, a scheduling note ahead of the Christmas holiday. The market will close early on Tuesday and stay shut until Thursday morning, so news will be light and our News Flashes will probably taper off a bit. We'll use the time to reflect on the year that's gone and cement our thinking on the year ahead. Ideally we'll also be able to update the site a little and perform other housekeeping as we get the portfolios in position for 2020.  We'll be in touch either way, but as always, we wish you a happy holiday and the best possible experience as an investor.

 

Key Market Indicators

 

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BMR Companies and Commentary

 

The Big Picture: Big Rally, Narrow Bench

 

 

While the last few months have been great for the S&P 500 and our stocks as well, the gains remain restricted to a narrow field of relatively safe bets. Investors simply aren't thinking outside the box right now. They're content to park their money in a few big stocks that don't require a lot of patience or even conviction. While we'd love a little of that capital to flow immediately to a few of our smaller and more neglected recommendations, we don't mind in the slightest.

 

For one thing, we already recommend many of the leaders. Just seven BMR stocks account for 40% of the S&P 500's gains for the past quarter, and Apple (AAPL: $279, up 2%) alone contributed almost half of that upside. If you weren't bullish on Apple in the last few months, you missed the boat. We were right to keep the giant in our sights, and it gave us everything we hoped to see. Apple has surged a full 77% this year, recovering $700 billion in market capitalization along the way.

 

Microsoft, Alphabet and to some extent Facebook, Berkshire Hathaway, Johnson & Johnson and Visa also contributed a significant amount to the market's gains in the last few months . . . not to mention the year as a whole. Big stocks got big because the enterprises driving them were some of the most dynamic companies around. This year, they got even bigger. All are hitting all-time highs. How far can they go before taking a break? We'll simply have to see, but as long as earnings keep outperforming everyone else around, the stocks have all the room they need.

 

Then there's Amazon (AMZN: $1,787, up 1%), which is as dynamic as ever but the stock hasn't gone anywhere in the last quarter. It's also down 12% from its peak, so there's no sense of straining any kind of historical limit. When investors come back, this can once again be a $2,000 stock and a trillion-dollar company. And in that scenario, the S&P 500 gets enough of a boost to break another record. No other stock has to do any work. Amazon can do it on its own.

 

We see that story play out again and again. A full 3 in 5 S&P 500 constituents are actively lagging the market and the lower you go on the market food chain, the rarer true leadership gets. A staggering 85% of the stocks on Wall Street have underperformed the S&P 500 this quarter. Most are doing okay. True losses are limited. They're simply getting left out.

 

But the market will never tolerate an imbalance for long. Sooner or later, one or more giants will hit a wall and the money that's flowing to them now will rotate into smaller stocks. When that happens, we'll have a reason to cheer. On average, our recommendations are still down 12% from their 52-week highs, let alone lifetime peak levels. We've come a long way back in the last few months without even clearing what are still formally correction conditions from late in the summer, when Technology took a huge step back. There's money to be made here.

 

Look at Roku (ROKU: $137, up 3%). It's up close to 350% YTD but is 22% off its peak. That's an opportunity. Even though a handful of giant companies are doing most of Wall Street's work, plenty of smaller names keep breaking records as well. Splunk (SPLK: $151, up 5% this week), for example, is once again within sight of an all-time high, set in early December, capping a year that's literally run rings around the market as a whole. This stock has gained 44% YTD but the ride has been wild. We've seen it plunge from above $140 to below $110 twice this year, so the moral here is to hold on tight through the retreats.

 

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Berkshire Hathaway (BRK-B: $226, flat last week but setting an all-time high)

 

This stock is a must-own. If you believe in America, then Berkshire is the place to put your money where your mouth is. The stock is worth $553 billion, making it one of the top 10 largest companies in the world.  Do you want to know what they do?  Well, here it is, straight from Yahoo Finance. Breathe it all in:

 

Berkshire Hathaway Inc., through its subsidiaries engages in insurance, freight rail transportation, and utility businesses. It provides property and casualty insurance and reinsurance, as well as life, accident, and health reinsurance; and operates railroad systems in North America. The company also generates, transmits, stores, and distributes electricity from natural gas, coal, wind, solar, hydro, nuclear, and geothermal sources; operates natural gas distribution and storage facilities, interstate pipelines, and compressor and meter stations; and holds interest in coal mining assets. In addition, it offers real estate brokerage services; and leases transportation equipment and furniture. Further, the company manufactures boxed chocolates and other confectionery products; specialty chemicals, metal cutting tools, and components for aerospace and power generation applications; flooring, insulation, roofing and engineered, building and engineered components, paints and coatings, and bricks and masonry products, as well as offers homebuilding and manufactured housing finance; recreational vehicles, apparel products, jewelry, and custom picture framing products; and alkaline batteries. Additionally, it manufactures castings, forgings, fasteners/fastener systems, and aerostructures; titanium, steel, and nickel; and seamless pipes and fittings. The company distributes newspapers, televisions, and information; franchises and services quick service restaurants; distributes electronic components; and offers logistics services, grocery and foodservice distribution services, professional aviation training programs, and fractional aircraft ownership programs. In addition, it retails automobiles; furniture, bedding, and accessories; household appliances, electronics, and computers; jewelry, watches, crystal, china, stemware, flatware, gifts, and collectibles; kitchenware; and motorcycle accessories. 

Here are the company’s top five holdings:

 

Apple 

Comprising 24% of the Berkshire Hathaway portfolio, Apple represents Buffett's largest holding, with a whopping 250 million shares in the tech giant, as of November 2019. Currently worth approximately $65 billion, in 2018, Apple surpassed Wells Fargo to capture the #1 spot after Berkshire Hathaway purchased additional shares of the Steve Jobs-founded company in February of that year.

 

Bank of America

Warren Buffett's second-largest holding is in Bank of America, valued at $27 billion and comprising 13% of his portfolio. Buffett's interest in this company began in 2011 when he helped solidify the firm's finances, following the 2008 economic collapse. Investing in Bank of America, which is the nation's second-largest bank by assets, falls in line with Buffett's attraction to financial stocks, including Wells Fargo & Company and American Express (see below).

 

The Coca-Cola Company

Buffett once claimed to consume at least five cans of Coca-Cola per day, which may explain why the Coca-Cola stock is his third-largest holding. But one thing is for certain: Buffett appreciates the durability of the company’s core product, which has remained virtually unchanged over time, with the exception of the ill-fated "New Coke" formula rebranding, in the mid-1980s. This makes sense, given that Buffett started buying Coca-Cola shares in the late 1980s, following the stock market crash of 1987. Presently with 400,000,000 shares, valued at $22,000,,000,000, Coca-Cola accounts for 10% of the portfolio.

 

Wells Fargo

At 9% of his portfolio, Buffett currently holds shares valued at over $19 billion. Although this is Buffett's fourth-largest position, Wells Fargo previously occupied the top slot for many years. A series of scandals that began in 2016, including the creation of millions of dummy bank accounts, unauthorized modifications to mortgage plans, and the fraudulent sale of unnecessary car insurance, has hurt the bank's reputation.

 

American Express

This company is the third financial services company to make Buffett's top five list, occupying 8% of the portfolio. Valued at nearly $18 billion, Buffett acquired his initial stake in the credit card company in 1963, when it sorely needed capital to expand its operations. Buffett has since been a savior to the company, many times over, including during the 2008 financial crisis. With 12.5% average annual return over the past quarter-century, American Express has proven to be a valuable asset. 

 

We’d like to say THEY COVER IT ALL.  Again, if you believe in America and free enterprise, you might just want to buy one share of the A series – it’s only $340,000 per share!  (A good friend of ours used to call us up at the office back in our Morgan Stanley days in the 1990s and would leave a message: “I just called to place an order for 100 shares.” That’s when the stock sold for $35,000 a share, so 100 shares was worth $3.5 million. He thought this was hilarious!  Well, how about now? 100 shares is worth $34 million! HAHA.

 

What’s the point about all of this hilarity?  Get a piece of this company. 10 shares. 100 shares. 1000 shares. Whatever you can afford. You’ll never regret it. Our Target of $230 is about to be breached. We hereby raise it to $255. Our Sell Price remains the same:  We would not sell Berkshire Hathaway.

 

 

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Good Investing,
Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998

July 22, 2019

Earnings Preview, Week Of July 22: Amazon And More

Netflix (NFLX: $362, down 3% earlier this week) disappointed last night and the stock's precipitous overnight decline provides us with a different kind of wake-up call. Whether you're in Netflix or not, you're going to want to read this flash.

On the surface, Netflix delivered a quarter almost entirely in line with what investors told themselves they wanted to see. Revenue of $4.92 billion was only 0.1% below guidance and reflects healthy 26% year-over-year improvement. Even quarter-to-quarter, the company squeezed 9% more cash out of its subscribers than it did three months ago.

Furthermore, despite profit being a lower priority while management invests vast amounts in original content, it was nice to see that Netflix carried $0.60 per share across the bottom line, $0.04 better than we expected.

But the market found fault as Netflix missed its subscriber growth target, losing 126,000 paid U.S. accounts and only adding 2.83 million new viewers overseas. Management told us to expect the audience to grow by an even 5 million accounts, so it's a clear disappointment.

There are some compensating factors like the way revenue hit guidance. Netflix raised prices in many markets and this is apparently where the pain point is. We know that now. Furthermore, management has doubled down on its aggressive growth forecasts and now expects subscriber adds to accelerate again in the current quarter.

We've had it with Netflix. We've warned throughout that it's going to be a volatile ride. The stock is now down 20% since we started covering it this time around, after making 65% back in 2016-17. We're worried about competitors like Disney and Apple starting to crowd into the space. With a negative $3.5 billion of free cash flow this year and next, we'd rather be invested in a company that actually makes money. We hereby remove Netflix from our High Tech portfolio. We added them on July 16th last year. We're gone now on July 18th, 2019.

However, even for a volatile stock, the reaction to so-so numbers was so extreme that we now suspect that the market as a whole is getting overheated. It's not Netflix. It's Wall Street. And an overheated market can lurch lower as fast as it soars. Even counting the stocks that fizzled and left our list under a cloud, the BMR universe is up a dramatic 33% YTD. This is a great time to lock in some of that profit before a moody market can take it away.

Is It Time to Take Some Profits?

Why are we asking this question?We can’t predict the future. You may think we can, but we can’t. And we want YOU to think about where YOU are and where you are going with your investments. We have made some amazing stock picks and we’ve made you a lot of money in many of these.  (We’ve had a few losers too.) Roku is now a triple since we added it last year. Shopify is up 350% in two years. Square is another quadruple play. PayPal, Twilio, Paycom, Microsoft, Apple, Visa: all strong performers.

Is it time to take some of that off the table? There are a lot of things to worry about in the world today: Trump, Chinese tariffs, Iran, immigrants, global slowdown, flat earnings for the past quarter and next; negative interest rates in Europe and Japan . . . can they happen here? If so, will the Fed run out of ammunition if short rates go to zero? What about the attacks on Big Tech by Congress and the European Union? Can Facebook, Amazon and Google survive this onslaught? Of course they will, but why sit around with someone hitting you on the head with a hammer. Maybe it’s better to step a little away from the scene.

Lots of questions. No solid answers. Irrational exuberance was proclaimed by Alan Greenspan on December 5, 1996 after an amazing bull run in the preceding few years. But the bull market continued to skyrocket until the Spring of 2000. That’s almost 3½ years after Greenspan’s call. So is it too early to start taking profits now?

Again, we don’t know, but we do know that there are things you can do.  You can sell some calls against your stocks. This brings in cash and cushions you on the downside a bit.  But if Roku, which was at $32 at the start of the year goes from $110 now to $90 or even lower, it’s not going to cushion you much with $5 of call option income. So perhaps you can take some profits off the table. Maybe you should put some stops in place.  Sell some at $104. Sell some shares if it hits $96. Sell some more if it hits $90. Then if it goes to $70, which is a distinct possibility in a nasty bear market, you’ve protected your profits and have cash in the bank.

And don't forget, we’ve got 17 stocks in our High Yield and REIT portfolios that are paying from 3% to 11% dividends. (Be wary of Annaly and New Residential, though.) These stocks are just waiting for you to place some cash in them so that you can sleep better at night.

This content is for our beloved subscribers and anything you see on this page is just an excerpt!

Please note BullMarket.com access is available to paid subscribers only. Our Members Areas include archives of past Newsletters, News Flashes, our eight portfolios including STOCKS FOR SUCCESS, Healthcare, High Yield, High Technology, Aggressive, Real Estate Investment Trusts, Long Term Growth, and Special Opportunities. Also, all of our in-depth research is available, and more.

Already a subscriber?

Ready to join?
Subscribe Now!

July 19, 2019

Microsoft Clear For Fresh Records. And Blackstone Does Its Job

Netflix (NFLX: $362, down 3% earlier this week) disappointed last night and the stock's precipitous overnight decline provides us with a different kind of wake-up call. Whether you're in Netflix or not, you're going to want to read this flash.

On the surface, Netflix delivered a quarter almost entirely in line with what investors told themselves they wanted to see. Revenue of $4.92 billion was only 0.1% below guidance and reflects healthy 26% year-over-year improvement. Even quarter-to-quarter, the company squeezed 9% more cash out of its subscribers than it did three months ago.

Furthermore, despite profit being a lower priority while management invests vast amounts in original content, it was nice to see that Netflix carried $0.60 per share across the bottom line, $0.04 better than we expected.

But the market found fault as Netflix missed its subscriber growth target, losing 126,000 paid U.S. accounts and only adding 2.83 million new viewers overseas. Management told us to expect the audience to grow by an even 5 million accounts, so it's a clear disappointment.

There are some compensating factors like the way revenue hit guidance. Netflix raised prices in many markets and this is apparently where the pain point is. We know that now. Furthermore, management has doubled down on its aggressive growth forecasts and now expects subscriber adds to accelerate again in the current quarter.

We've had it with Netflix. We've warned throughout that it's going to be a volatile ride. The stock is now down 20% since we started covering it this time around, after making 65% back in 2016-17. We're worried about competitors like Disney and Apple starting to crowd into the space. With a negative $3.5 billion of free cash flow this year and next, we'd rather be invested in a company that actually makes money. We hereby remove Netflix from our High Tech portfolio. We added them on July 16th last year. We're gone now on July 18th, 2019.

However, even for a volatile stock, the reaction to so-so numbers was so extreme that we now suspect that the market as a whole is getting overheated. It's not Netflix. It's Wall Street. And an overheated market can lurch lower as fast as it soars. Even counting the stocks that fizzled and left our list under a cloud, the BMR universe is up a dramatic 33% YTD. This is a great time to lock in some of that profit before a moody market can take it away.

Is It Time to Take Some Profits?

Why are we asking this question?We can’t predict the future. You may think we can, but we can’t. And we want YOU to think about where YOU are and where you are going with your investments. We have made some amazing stock picks and we’ve made you a lot of money in many of these.  (We’ve had a few losers too.) Roku is now a triple since we added it last year. Shopify is up 350% in two years. Square is another quadruple play. PayPal, Twilio, Paycom, Microsoft, Apple, Visa: all strong performers.

Is it time to take some of that off the table? There are a lot of things to worry about in the world today: Trump, Chinese tariffs, Iran, immigrants, global slowdown, flat earnings for the past quarter and next; negative interest rates in Europe and Japan . . . can they happen here? If so, will the Fed run out of ammunition if short rates go to zero? What about the attacks on Big Tech by Congress and the European Union? Can Facebook, Amazon and Google survive this onslaught? Of course they will, but why sit around with someone hitting you on the head with a hammer. Maybe it’s better to step a little away from the scene.

Lots of questions. No solid answers. Irrational exuberance was proclaimed by Alan Greenspan on December 5, 1996 after an amazing bull run in the preceding few years. But the bull market continued to skyrocket until the Spring of 2000. That’s almost 3½ years after Greenspan’s call. So is it too early to start taking profits now?

Again, we don’t know, but we do know that there are things you can do.  You can sell some calls against your stocks. This brings in cash and cushions you on the downside a bit.  But if Roku, which was at $32 at the start of the year goes from $110 now to $90 or even lower, it’s not going to cushion you much with $5 of call option income. So perhaps you can take some profits off the table. Maybe you should put some stops in place.  Sell some at $104. Sell some shares if it hits $96. Sell some more if it hits $90. Then if it goes to $70, which is a distinct possibility in a nasty bear market, you’ve protected your profits and have cash in the bank.

And don't forget, we’ve got 17 stocks in our High Yield and REIT portfolios that are paying from 3% to 11% dividends. (Be wary of Annaly and New Residential, though.) These stocks are just waiting for you to place some cash in them so that you can sleep better at night.

This content is for our beloved subscribers and anything you see on this page is just an excerpt!

Please note BullMarket.com access is available to paid subscribers only. Our Members Areas include archives of past Newsletters, News Flashes, our eight portfolios including STOCKS FOR SUCCESS, Healthcare, High Yield, High Technology, Aggressive, Real Estate Investment Trusts, Long Term Growth, and Special Opportunities. Also, all of our in-depth research is available, and more.

Already a subscriber?

Ready to join?
Subscribe Now!

March 29, 2016

Blackstone

Investors looking to participate broadly in the global financial markets need look no further than The Blackstone Group L.P. They are a highly respected global alternative asset manager, the largest in the world. Unlike Morgan Stanley or Merrill Lynch who specialize in publically traded stocks and bonds for institutions and individuals, Blackstone is different...

This content is for our beloved subscribers and anything you see on this page is just an excerpt!

Please note BullMarket.com access is available to paid subscribers only. Our Members Areas include archives of past Newsletters, News Flashes, our eight portfolios including STOCKS FOR SUCCESS, Healthcare, High Yield, High Technology, Aggressive, Real Estate Investment Trusts, Long Term Growth, and Special Opportunities. Also, all of our in-depth research is available, and more.

Already a subscriber?

Ready to join?
Subscribe Now!