as part of our
The US labor market continues to show signs of improvement. This
is good for US consumption, which in turn is good for the global
economy. This is the simple equation for a sustained recovery.
Payrolls processor Automatic Data Processing said private
employers added 158,000 workers in October. That was the biggest
gain since February. The official government report from the US
Dept of Labor showed non-farm employers added 171,000 jobs in
October, against a consensus expectation of 125,000.
Meanwhile, the Labor Dept reported that initial claims for state
unemployment benefits declined by 9,000 for the week ended Oct.
25, 2012, to a seasonally adjusted 363,000. The consensus
expectation was 370,000.
Other metrics, including consumer confidence, which as of Nov. 1
was at its highest level since February 2008, and residential
construction, also suggest the US economy is turning a corner.
We remain a long way from the normal that prevailed from 1946
until 2007, as demonstrated by the chart "Improving Credit," which
depicts the history of charge-off and delinquency rates for loans
of all types from lenders of all types since 1985.
Assuming the federal executive and legislative branches
negotiate the avoidance of the now-proverbial "fiscal cliff," the
US economy appears on the brink of a sustained recovery.
I remain, however, broadly defensive, with an emphasis on
with clearly identifiable revenue streams and high-quality
Two names that I like are
Discover Financial Services
Hillshire Brands Co
The share price of Discover Financial Services
has pushed out to a record high in the aftermath of fiscal 2012
third-quarter earnings that beat Wall Street expectations.
Net income fell 3.4 percent to $627 million, or $1.21 a share,
from $649 million, or $1.18, a year earlier; analysts had forecast
earnings per share of $1.03.
Purchases made with Discover cards increased 4 percent to $27.2
billion from a year earlier, while net interest income climbed 11
percent to $133 million and credit-card loans rose 4 percent to
$48.1 billion. Net interest margin increased to 9.44 percent from
Discover's default and late-payment rates are the second lowest
among the six biggest US credit card lenders. Defaults declined to
2.19 percent during the fiscal 2012 third quarter, from 3.6 percent
a year earlier. Loans at least 30 days overdue, a signal of future
defaults, dropped to 1.79 percent from 2.49 percent. I continue to
think that Discover Financial Services is a high-quality way to
play the recovery of the US consumer
Hillshire Brands Co
is one of the two entities that resulted from the split of the
former Sara Lee Corp in June 2012. Hillshire's brands include Jimmy
Dean, Ball Park and Hillshire Farm.
During the first quarter of fiscal 2013 (ended Sept. 30, 2012),
Hillshire posted a profit of $53 million, or 43 cents a share,
versus a restated loss of $218 million, or $1.85 a share, a year
Adjusted earnings per share were 51 cents, up from 32 cents. The
consensus Wall Street expectation was 33 cents.
Adjusted retail sales increased 3 percent, as solid volumes and
product mix offset weaker pricing. Retail sales margin expanded by
340 basis points to 11.7 percent. Adjusted food service sales
declined by 1.6 percent, as better volumes were offset by weaker
pricing and product mix. Net sales slipped 1.4 percent to $1.01
Management maintained its fiscal 2013 outlook for earnings per
share of $1.40 to $1.55. Hillshire will pay a 12.5-cent quarterly
dividend on Dec. 31, 2012, to shareholders of record on Dec. 3.
Hillshire Brands is a great long play for its steady
cash flow that backs a solid dividend