Here Comes Santa Claus
Holiday shopping got off to a mixed start. Traffic was weak at Gap, Old Navy and Chico’s and up at TJX (TJX-$70), the global leader in off-price apparel and home fashions. Costco (COST-$165) stock is trading near all-time highs as same-store sales were up 6% for the month of November. Management makes a difference with Costco sales forecast for steady improvement and Wal-Mart’s for further declines.
Costco is up 17% this year while Wal-Mart is down 32% and Gap 37%. TJX is up 3%, slightly ahead of the market averages TJX and Costco remain as buys with TJX particularly compelling as its success has been overlooked.
The FBI reported that background checks for gun sales in the home of the brave on the day after Thanksgiving exceeded 185,000, a new record. Another reason to call this day Black Friday.
As we enter the home stretch, the Dow Jones Industrials are down 1% and the S&P 500 flat. I consider it highly probable that the traditional yearend rally will kick in, boosting some of the year’s laggards.
Johnson & Johnson (JNJ-$101) is down 3%, reflecting sub-par earnings and the patent expiration of one of its best-selling drugs. It has a dozen new drugs and a moderate earnings recovery in its pipeline, as well. It has $37 billion cash and announced that it intends to acquire “various growth assets.” The stock yields 2.9% with increases for over 50 years, thus particularly attractive for retirement accounts.
FedEx (FDX-$155) has had an even tougher year, down 9% despite lower fuel costs. It’s trading at 14 times earnings, less than the overall market and of competitor UPS, which is at 18 times earnings. Its overseas operations have struggled with currency exchange issues and an uncertain global economy. U.S. regulators just cleared its purchase of Netherlands-based TNT Express, which will enhance its European operations. It also signed last month a new six-year contract with its pilots, removing another uncertainty.
Earnings for its fiscal year ending in May are estimated at $10.65, up from $8.95. For several years, it has been cutting costs, primarily by new equipment. FedEx is currently forecasting a 12% increase in shipments this season, outpacing the traditional retailers as consumers shift even more to online shopping.
Some stocks with substantial price gains this year are still in buying ranges. AMN Healthcare Services (AHS-$30), which provides staffing services to healthcare facilities, is having a good year even though its price dipped with the medical sector for no logical reason. Three analysts recently raised earnings estimates, which now look for $.41 for this quarter and $1.60 for the full year, both doubles from the prior year. The company is moving up from the small cap sector with revenues for the nine months ending Sept 30 up 40% to $1.06 billion.
Total System Services (TSS-$55), offers electronic payment processing services for banks and other financial institutions. It benefits from links to Apple Pay and other payment platforms. Earnings this year are estimated at $2.46, up from $1.96. There is even a modest 0.7% yield with a dime dividend going ex-dividend on Dec 15.
Avago Technologies (AVGO-$145) jumped 10% as earnings of $2.51 beat estimates of $2.38. Last week’s column recommended Broadcom (BRCM-$57), which is being acquired by Avago and jumped 5%. Broadcom is still a buy.
Avago, among other things, is a supplier to Apple (AAPL-$114), whose stock price continues to linger 20 points below its high point despite continuing strong sales reports. Its stock often dips between earnings reports as critics crab about possible disappointments. Its own forecasts of earnings are perennially conservative, thus buys between earnings announcements are timely. Its next earnings announcement is expected on Jan 25.
The next employment report due the day after this column will probably report a sustained rebound, which will almost surely lead to the long-anticipated Federal Reserve interest rate increase in another two weeks. This may rattle the market for a day or so but it will confirm an improving economy, good for shoppers and for investors.
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622
