U.S. Payrolls, Fair Value and Earnings Season
ADP payroll numbers of +158,000 for March came out in early
April and spooked an over-extended five month long rally. A
troll (hopefully) put together very weak weekly unemployment
claims numbers that followed.
How about March Labor Dept. payroll numbers?
At first blush, the March Fed payroll number was weak. But that
may not be the right takeaway from this report. The right
takeaway may be the U.S. economy has not changed with the
introduction of the latest Money Printing in December.
Given the lags, that makes more sense than the market
Yes, the Labor Dept.'s non-farm payroll number edged up in March
+88,000. However, the change in total nonfarm payroll employment
for Jan was revised up from +119,000 to +148,000. Change
for Feb was revised up from +236,000 to +268,000. Over the prior
12 months, jobs growth averaged +169,000 per month.
It looks like Jan added +30K more than preliminary numbers
said. Feb added +30K more. Tack +60K revisions onto
+88K and, lo and behold, we get +148K net additions over the last
three months. The U.S. economy needs +125K a month to
supply a labor force growth rate of +1% a year. Once again,
this macroeconomic ship is on the same course it has been on over
the last three years.
Payroll growth of this magnitude knocks out +0.5% from the
unemployment rate each year.
At 14.65 times this year's conservative earning estimate,
S&P 500 stocks look to be trading at fair value.
Consider the average stock market P/E is 15. Apply that to $113
per share optimists expect for the S&P 500 in 2013. That
computes to fair value at 1695! If you say those earnings
projections are high (we would agree), trim to a conservative
$105 per share. That gives S&P 500 fair value of 1575.
As we enter Q1 reporting season, estimates seek -2.6% earnings
growth and -2.4% revenue growth above last year. For Q4-12,
S&P 500 companies reported earnings and revenues up +2.2% and
+1.5% y/y, respectively.
That is a low earnings bar to beat.
Outside the U.S., What's Happening?
The gloom in Europe is palpable.
Yet, the ECB and the Bank of England left policy rates alone this
week. Short rate are no longer the vanguard of
out of the ECB.
Small and middle sized banks with footprints only in Europe and
concentrations of risk in places like Spain and Italy is the
likely conduit for contagion; and conversely, for positive
increases in lending to hurting populations. Big banks have
piled into U.S. treasuries and are diversified.
The ECB could lower long-term rates in those countries, by
buying their sovereign bonds. And/or provide these types of
institutions more bank liquidity directly, ECB style. A targeted
infrastructure spending package could help too.
Tidy German economic managers won't like it either way. It
shuffles negative consequences their way. The euro area is
a teenager. It either grows up and gets more federal and
communal, in this way, or it stagnates.
In Japan, the Money Printing bandwagon just got louder.
The BoJ said it would buy longer-term Japanese government bonds.
The average maturity of holdings go to seven years from three
years, expanding Japan's monetary base to ¥270 trillion by March
2015 (synced up to the U.S. Fed no doubt). Under that plan, the
bank buys ¥7 trillion of bonds (roughly $75B) each month.
With an economy at $6T in U.S. terms, that's a quantitative
easing program roughly equivalent to the U.S., for an economy
less than 40% the size.
Money printing in Japan isn't likely to gear up slack resources,
like it does currently in the USA and Europe (but not
Germany). This is not the hoped-for result. The BoJ
wants money to flow directly through to prices in the economy and
create inflation. Prices rise, profit margins expand, stocks go
up, investment rises, and loan values from the past look better.
GDP growth goes up, deficits shrink, and the elected government
is happy. Honda's stock did surge.
Today, we celebrate and wait for +2% Japanese inflation to
arrive. Tomorrow, watch for unintended consequences, with
asset inflation in unwanted parts of its financial system. Too
much-too little inflation is also a tricky plank to walk.
APOLLO GLOBAL-A (APO): Free Stock Analysis
CULP INC (CFI): Free Stock Analysis Report
CALUMET SPECLTY (CLMT): Free Stock Analysis
CDN PAC RLWY (CP): Free Stock Analysis Report
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PACKAGING CORP (PKG): Free Stock Analysis
SANDISK CORP (SNDK): Free Stock Analysis
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Zacks Sector, Industry and Company Telescope
Here are April themes:
Consequences of our much earlier Money Printing exercises, mind
(A) With a rise in Q1 U.S. jobs numbers and upward 2013 jobs
stock market hit multi-year highs
. In a positive feedback loop, the personal and home sides
are highest ranked:
ranked at the top of the pack.
are now at Market Perform:
is here too.
Consumer industries that showed us very weak Zacks Ranks had
business model issues:
). Culp ranks as one of the two largest producers of
mattress fabrics known as mattress ticking in North America, as
measured by total sales, and one of the three largest marketers
of upholstery fabrics for furniture in North America, again
measured by sales. It is a Zacks Rank #1 and a Zacks Outperform
(B) High Zacks Ranked industries from building U.S. momentum in
the Finance sector focused on home finance and the stock market.
Thrifts & Mortgage Finance
Investment Banking & Brokering
industries showed up even stronger in April.
Apollo Management LP
). The company operates in three business segments: private
equity, capital markets and real estate. It is a Zacks Rank #1
(Strong Buy) and a Zacks Outperform stock.
(C) Marked improvement in the domestic outlook pushed up parts of
the Materials sector. Strength was apparent in high Zacks
Industry Ranks for
Containers & Glass
Packaging Corp. of America
). The company is one of the largest producers of containerboard
in the U.S. and also one of the largest manufacturers of
corrugated packaging products. It is a Zacks Rank #1 (Strong Buy)
and a Zacks Outperform stock.
(D) In addition, there is strength inside the Industrials sector
on a stronger domestic outlook.
(one victim of higher oil prices) struggle.
Canadian Pacific Railway
). The company operates a transcontinental railway in Canada and
the U.S. The company owns approximately 10,700 miles of track. An
additional 4,700 miles of track are owned jointly, leased, or
operated under trackage rights. It is a Zacks Rank #2 this week,
a #1 last week (Strong Buy), and a Zacks Outperform stock.
(E) IT looks stronger, but with different drivers.
became the most attractive industry here, with growth in
Computer Software & Services
ranked as market weight industries.
fell back to become slight underweight Zacks Ranked Industries.
). Sandisk is the major flash memory chip provider, which is one
of the strongest growing areas in semiconductors worldwide. It is
a Zacks Rank #1 (Strong Buy) and a Zacks Outperform stock.
(F) Stronger gasoline at the pump prices played out within the
Energy Sector. We saw
do best in the Zacks Ranks. There was a Zacks Rank rise in
Drilling and E&P.
further downstream remain market underweights.
remain the victims of low natural gas prices.
Calumet Specialty Products Partners, LP
). Calumet is a leading independent producer of high-quality,
specialty hydrocarbon products in North America. Calumet
processes crude oil into customized lubricating oils, solvents,
and waxes used in consumer, industrial and automotive products.
It is a Zacks Rank #1 and Zacks Outperform stock.
(G) The Utilities sector, interestingly, got a noted upgrade in
). The company looks attractive owing to the inherent business
strength of its regulated utility Southern California Edison. It
is a Zacks Rank #1 with a Zacks Outperform rating.