Rudd’s MarketView for Monday, May 22, 2017

Rudd’s MarketView


It was a good day on the Street on Monday, as all the major equity indexes chalked up gains as technology and defense companies saw their shares rise after the United States and Saudi Arabia signed a multi-billion-dollar arms deal.

Shares of General Dynamics, Raytheon, and Lockheed Martin all hit record highs early on but ended off those levels, with gains of between 0.6 percent and 1.6 percent. Boeing gave the Dow Jones Industrial Average its largest improvement, ending up 1.6 percent at $183.67.

The S&P industrials index rose 0.7 percent and the S&P 500 posted a third straight day of gains, further recovering from last week’s selloff that was tied to worries about the outlook for President Trump’s domestic agenda.

Trump visited Saudi Arabia over the weekend and confirmed $110 billion in deals. Riyadh will buy U.S. arms to help it counter Iran, with options running as high as $350 billion over 10 years.

While every sector but energy ended higher on the day, tech shares were the day’s best performers, with Amazon, Microsoft and Apple among the largest drivers in the S&P 500 and the Nasdaq.

Volatility eased as stocks continued their recovery from last week. The CBOE Volatility Index, the most widely followed barometer of expected near-term stock market volatility, has given up nearly all its gains from last week. It fell more than a point on Monday to end at 10.93.

A much stronger-than-expected earnings season has also helped investor sentiment. With results in from nearly all of the S&P 500 names, year-over-year first-quarter growth is now estimated at 15.3 percent, Thomson Reuters data showed.

Ford rose 2.1 percent to $11.10 after the automaker named James Hackett as chief executive, responding to investors’ growing unease about its stock price and prospects.

Approximately 5.9 billion shares changed hands on the major domestic equity exchanges, a number that was below the 6.9 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Rudd’s MarketView for Friday, May 19, 2017


Wall Street’s rebound continued Friday, as major equity indexes’ prices rose but closed below their session highs on renewed concerns about Donald Trump’s presidency. The concerns came after two new reports related to a federal investigation into possible coordination between Russia and Trump’s election campaign.

A senior White House adviser is a significant person of interest in the law enforcement investigation of possible Russian ties, the Washington Post reported on Friday, citing people familiar with the matter.

Separately the New York Times reported that Trump told Russian officials at the White House that firing FBI Director James Comey relieved “great pressure” from the ongoing probe. The Times report cited a document summarizing the meeting.

While Wall Street ended higher it failed to fully regain all the ground lost in Wednesday’s big selloff after reports earlier this week that Trump tried to interfere in the federal investigation.

Wall Street has been closely following events in Washington as it worries whether Trump will be able to fulfill campaign promises for fiscal stimulus and tax reform. Many investors saw the policy promises as a key reason for the post-election rally.

All three indexes clocked losses for the week with the Dow and S&P falling 0.4 percent and Nasdaq off 0.6 percent

Of the 11 major S&P industry sectors all ended the day higher. Industrials showed the largest percentage gain with a 1.36 percent jump while Energy rose 1.24 percent. Oil company shares were gained as a result of  a 2 percent increase in oil futures related to growing expectations that OPEC and other producing countries will agree at a meeting next week to extend crude output cuts.

Some market participants said that for much of the session, they turned their focus to strong quarterly earnings from companies such as Autodesk and Deere. Software developer Autodesk jrose 14.7 percent and was the largest percentage gainer on the S&P after reporting better-than-expected quarterly revenue.

Deere hit an all-time high of $122.24 and ended the day with a gain of 7.3 percent, or $120.90, after posting a better-than-expected quarterly earnings number.

Deere helped lift Caterpillar 2.2 percent. General Electric was the S&P’s top driver with a 2.4 percent rise.

Approximately 7.03 billion shares changed hands on the major domestic equity exchanges, a number that was in line with the average volume for the last 20 sessions.

Rudd’s MarketView for Thursday, May 18, 2017

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Wall Street rebounded on Thursday from its largest selloff in more than eight months with help from a move to loosen internet regulations and strong economic data. Nonetheless, the Street is still watching Washington closely after reports the President tried to interfere with an investigation into former National Security Adviser Michael Flynn’s ties with Russia.

However, the Street was relieved by the appointment of former FBI chief Robert Mueller to investigate alleged Russian interference in the election and possible collusion between Trump’s campaign and Moscow.

The largest concern is that political events could help or hurt Trump’s ability to implement proposals such as tax reform and deregulation. At least some of the stock market’s post-election rally has been thanks to those proposals.

The Telecommunications Services sector was the S&P’s biggest percentage gainer with a 1.2-percent rise. Telecom regulators voted to advance a Republican plan to reverse a 2015 “net neutrality” order.

Earlier in the day the Philadelphia Federal Reserve said business activity index rose in May after declining for two months. Weekly unemployment data also pointed to strength in the labor market.

Indexes briefly pared gains earlier in the day after a speeding car crashed into pedestrians in New York City’s Times Square, killing one and injuring 22 people. The incident did not appear to be an act of terrorism, witnesses, police and news media said.

The S&P 500’s technology sector, one of the worst hit on Wednesday, rebounded 0.6 percent. Cisco fell 7.2 percent after the networking gear maker forecast current-quarter revenue below analysts’ estimates. Wal-Mart rose 3.2 percent at $77.54 after its quarterly earnings exceeded Street expectations.

Approximately 8.16 billion shares changed hands on the major domestic equity exchanges, as compared with the 6.99 billion share average over the past 20 trading days.

Unemployment Claims Fall Again

New applications for unemployment insurance benefits unexpectedly fell last week and the number of Americans on unemployment rolls fell to a 28-1/2-year low, pointing to rapidly shrinking labor market slack.

Initial claims for state unemployment benefits decreased 4,000 to a seasonally adjusted 232,000 for the week ended May 13, the Labor Department said. That pushed claims close to levels last seen in 1973.

Claims have now decreased for three consecutive weeks. Economists polled by Reuters had forecast first-time applications for jobless benefits rising to 240,000.

Claims have now been below 300,000, a threshold associated with a healthy labor market, for 115 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is close to full employment, with the unemployment rate at a 10-year low of 4.4 percent.

The number of people still receiving benefits after an initial week of aid fell by 22,000 claims to 1.90 million claims in the week ended May 6, the lowest level since November 1988.

Last week’s claims data covered the survey week for May’s nonfarm payrolls. Claims fell 11,000 between the April and May survey periods suggesting further job gains this month. The economy created 211,000 jobs in April after adding only 79,000 positions in March.

The economy’s brightening prospects were further boosted by other data on Thursday showing a sharp acceleration in factory activity in the mid-Atlantic region this month.

While the recent upbeat economic data support an interest rate hike next month, the Federal Reserve’s decision will also hinge on the state of financial markets, which have been rattled in recent days by Trump administration scandals. However, the labor market’s strength, key to any decision, points to a possible increase in interest rates at the Fed’s June 13-14 policy meeting.

Data such as retail sales and industrial production, which suggested that economic growth has picked up early in the second quarter also supports the expectations of a rate hike. On the other hand, a stock market sell-off amid uncertainty over President Donald Trump’s political future could jeopardize further monetary policy tightening.

Financial markets are pricing in a 60 percent chance of a 25-basis-point hike at the Fed’s June meeting, down from 78.5 percent on Tuesday, according to CME Group’s FedWatch program.

In a separate report the Philadelphia Fed said its index for current manufacturing activity in the mid-Atlantic region rose to a reading of 38.8 this month from 22.0 in April. The index recovered some of the declines of the previous two months.

The current new orders and shipments indexes remained at high readings, the survey showed. Both the delivery times and unfilled orders indexes were positive for the seventh straight month, suggesting longer delivery times and increases in unfilled orders.

Firms reported an increase in manufacturing employment this month, though the current employment index fell three points.

Rudd’s MarketView for Wednesday, May 17, 2017


Ouch! That is the single best word I can use here to describe today’s trading activity on Wall Street. The S&P 500 and the Dow chalked up their largest one-day fall since September 9, as hopes for tax cuts and other pro-business policies faded in the wake of reports that President Trump tried to interfere with a federal investigation.

Former FBI chief James Comey said in a memo that Trump had asked him to end a probe into former National Security Adviser Michael Flynn’s ties with Russia, the reports said.

That was only the latest worry in a tumultuous week at the White House after Trump unexpectedly fired Comey and reportedly disclosed classified information to Russia’s foreign minister about a planned Islamic State operation.

The developments intensified doubts that Trump would be able to follow through on his promises for tax cuts, deregulation and fiscal stimulus. Those pledges had helped fuel a record-setting post-election rally on Wall Street.

Selling accelerated late in the afternoon of one of the busiest trading days in months and the three major indexes ended near session lows.

Both the Dow and S&P 500 fell below their 50-day moving average for first time since late April. The S&P began the session 0.74 percent lower, the largest gap down since March 30, 2009, when it opened trading with a 0.84 percent drop. The VIX, Wall Street’s so called fear gauge, topped 15.34, its highest level since April 18.

Nasdaq saw its steepest one-day loss since June 24, after Britain voted to exit the European Union, as did the S&P’s financial and technology sector indexes. The financial sector fell 3 percent while the technology sector fell 2.8 percent.

The S&P bank sub-sector was down 4 percent, led by a 5.9 percent decline in Bank of America and a 3.8 percent loss for JPMorgan.

Approximately 8.37 billion shares changed hands on the major domestic equity exchanges in the busiest trading day since March 21, as compared to the 6.9 billion-share average for the last 20 sessions.

Trump Trade More Like Trepidation Trading

Investors are beginning to lose confidence that tax reform and strategies premised on President Trump’s economic growth promises will come about as the President faces his loudest criticism yet over possible collusion between his election campaign and Russia.

From stocks to bonds to the dollar, trades that have been fashionable since Trump’s election last November, becoming unwound, or in some cases shredded, as his reform agenda looked increasingly vulnerable amid the fallout from his firing last week of James Comey, the director of the Federal Bureau of Investigation.

The uncertainty about Trump’s future increased in the last 24 hours over allegations Trump had sought to end Comey’s investigation into ties between the president’s first national security adviser, Michael Flynn, and Russia, and even some Republicans were now calling for a deeper probe into possible obstruction of justice.

The result was the harshest sell off yet in equity markets since Trump was elected and a jettisoning of positions that were tied to the notion that his policies would stoke economic growth and inflation.

Indeed, some “Trump trades” have been unwinding for weeks, especially in the bond and currency markets where bets on inflation risks and economic growth prospects are most prevalent.

On Wednesday, one key indicator of the level of inflation five years from now fell to its lowest since late November. Meanwhile, the dollar, which had surged more than 5.0 percent after Trump’s election, was effectively back to its Election Day level.

The real pain trade on Wednesday, though, was in stocks. Through the end of last week, the S&P 500 index had gained more than 12 percent, and while the index has seen one other day since last November’s election in which it fell by more than 1.0 percent, Wednesday’s drop of 1.7 percent was its largest one-day fall in eight months.

With Washington policymakers distracted by Trump’s political problems, investors were betting on a longer timeline to get to tax reform. Nonetheless, Speaker Paul Ryan said that Republicans were determined to keep pursuing tax reform, although such efforts could be seriously hampered. Democratic Representative Jim Himes, a member of the House Intelligence Committee, told MSNBC that the “legislative agenda…(was) in ruins.”

Investors have become increasingly bearish on domestic equities versus international ones, pulling a total of $11.2 billion from U.S.-based domestic stock funds, according to Thomson Reuters Lipper data, and are stampeding into stock funds that invest in Europe.

A long shot worry is the uncertainty that could be presented if Trump is impeached. A small but growing number of Trump’s fellow Republicans called for an independent probe of possible collusion between his 2016 campaign and Russia, and one mentioned impeachment. And word on the Street is that would not necessarily be a market negative if Vice President Mike Pence were to take over.

Odds Not in Trump’s Favor

Online betting markets are increasingly seeing action on bets predicting President Trump’s impeachment in the wake of controversies surrounding the dismissal of FBI Director James Comey.

On online political stock market PredictIt, chances of Trump being impeached in 2017 hit a record 30 percent late Tuesday on heavy volume, following reports of a memo written by Comey that said Trump had asked him to end the FBI’s investigation into ties between former White House national security adviser Michael Flynn and Russia.

As of mid-morning Wednesday, the numbers fell to about 27 percent but were still significantly higher than 7 percent just last Monday. Trading volume was also at a record of 60,700 bets, up from just 5,500 on May 8.

PredictIt is jointly run by Washington political consultancy Aristotle and Victoria University in Wellington, New Zealand. All of its users are registered U.S. voters.

British bookmaker Betfair also said that punters had bet more than 5,000 pounds ($6,470) on an early departure for Trump in the hours after it was reported Trump had asked Comey to shut down the Russia investigation.

Another British betting firm Ladbrokes cut the price of a Trump impeachment to odds-on at 4-5 from 11-10, equivalent to about 56 percent probability that Trump will be removed from office.

“Political punters are wondering how many more scandals can Trump overcome,” said Ladbrokes spokeswoman Jessica Bridge. “And despite the short price on offer, money has poured in for the President to be impeached, leaving us with little option but to cut the odds.”

Rudd’s MarketView for Tuesday, May 16, 2017

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The S&P 500 and the Dow Jones Industrial Average ended Tuesday’s session flat after mixed economic data and retail earnings, while the Nasdaq had another record close with help from technology stocks.

Manufacturing production showed its largest increase in more than three years during April, bolstering a view that economic growth picked up early in the second quarter despite a surprise decline in homebuilding.

Investors were also cautious about potential delays to the government’s tax and regulation reform agenda after reports late Monday that President Donald Trump disclosed highly classified information to Russia’s foreign minister about a planned Islamic State operation.

Home improvement chain Home Depot reported a better-than-expected first-quarter performance, but TJX, owner of T.J. Maxx and Marshalls stores, posted slowing comparable-store sales growth and a disappointing current-quarter profit forecast.

Only two of the 11 major S&P 500 sectors closed higher, with technology providing the largest boost. The sector rose 0.5 percent, with an outsized boost from Microsoft, which rose 2 percent.

Soros Fund Management disclosed late Monday that it more than tripled its stake in Microsoft, which also benefited from investors’ focus on security.

Authorities around the globe scrambled to prevent hackers from spreading the “WannaCry” ransomware that has infected more than 300,000 computers in 150 countries. Cyber security researchers have found evidence they say could link the attacks to North Korea.

The S&P’s financial sector index ended the day with a 0.2-percent gain. The utilities index was the S&P’s largest decliner of the day with a 0.8-percent drop.

UnitedHealth and Pfizer were the S&P’s largest drags. Pfizer fell 1.6 percent to $32.60 after Citigroup downgraded the drug developer’s stock to “sell,” from “neutral.”

Approximately 6.4 billion shares changed hands on the major domestic equity exchanges, compared to the 6.8 billion share average over the last 20 sessions.

Rudd’s MarketView for Monday, May 15, 2017


The S&P 500 and the Nasdaq notched record closing highs on Monday, powered by demand for technology stocks after a global cyber attack and by rising oil prices.

Oil rose to the highest level in more than three weeks after top exporters Saudi Arabia and Russia said supply cuts needed to last into 2018, a step toward extending an OPEC-led deal to support prices for longer than originally agreed.

The rising oil prices and housing data drove optimism about the economy and helped make financial stocks the second largest driver for the S&P 500, behind the technology sector.

Approximately 75 percent of S&P 500 companies that have reported quarterly results so far have exceeded Street expectations, according to Thomson Reuters data.

While data for New York state’s manufacturing sector was weaker than expected, homebuilder sentiment gave investors some confidence in the economy.

Johnson & Johnson and Cisco were the largest drivers for the S&P 500 after prominent analysts upgraded their ratings on the stocks.

Shares of cyber security firms jumped on expectations that they would benefit from greater spending after the global “ransomware” attack that began spreading across the globe on Friday.

Shares of Fireye rose 7.5 percent, while Symantec and Palo Alto Networks both gained around 3 percent. The 2.3 percent rise in Cisco was partly driven by its security technology business.

Nine of the 11 major S&P 500 sectors closed higher, with the materials index leading the percentage gainers.

Approximately 6.3 billion shares changed hands on the major equity exchanges on Monday, as compared to the 6.8 billion share average over the past 20 trading days.

Pilgrimage to The Mecca of The Financial World

Streetwise for Sunday, May 14, 2017

They came by the hundreds, by the thousands, by the tens of thousands, about 40,000 in all, to the Mecca of the financial world, Omaha, Nebraska, to hear the Oracle of Omaha preach to them of financial wisdom. And this year I joined in.

Yes, I made this year’s annual pilgrimage to hear Warren Buffett and Charlie Munger spend nearly seven hours answering countless questions as to both the philosophy and decision processes that drive them as they steer Berkshire Hathaway to ever greater success.

While ostensibly the Berkshire Hathaway annual stockholders meeting, the first 6Ω hours was devoted to answering questions, of which neither Warren or Charlie had any prior knowledge. The actual business part, which entailed the reelection of the board of directors, was left to the last half hour.

With the meeting covered in detail by virtually every major news outlet, I will not regurgitate what has already been said and written, rather I will supply some anecdotes of what impressed me the most.

This was the first time I had an opportunity to attend what the locals refer to as, “The Meeting,” and what can best be described as a financial convention dedicated to one company and two people, with a definite celebratory atmosphere comparable in some ways to a carnival or your average state fair.

If asked what impressed me the most, it would have to be a statement made by Buffett resulting from a discussion about the Wells Fargo debacle. Berkshire Hathaway is the single largest Wells Fargo shareholder.

To paraphrase from the movie, The Godfather, Buffett said that if a person or division loses money that he can forgive. Not every investment or undertaking will always be a winner.

However, tarnish the sterling reputation of Berkshire Hathaway and that he cannot forgive. From Buffett’s perspective, as I interpret it, Wells Fargo’s missteps were inexcusable. Moreover, the blame should fall squarely on the shoulders of the bank’s executive management.

Yes, Buffett made it clear that in any large organization there will always be employees who put their personal interest ahead of the organization they work for. In fact, Buffett said that while he was discussing the issue there was probably someone within the Berkshire Hathaway family who was guilty of it at that very instant.

My suggestion to that individual would be to never let Buffett find out about it. My impression was that such actions would mean immediate dismissal and that if Wells Fargo had been a wholly owned division of Berkshire Hathaway, Buffett would be recruiting a new management team after firing those he felt were directly responsible. To Buffett, loyalty cannot be questioned.

Another interesting point, and one that has been bothering me for some time is the seemingly conflicting statements between Buffett’s passion for index funds versus his investment strategy. It is a question I would have asked given the opportunity.

Buffett explained it this way. Yes, the wealth he will leave to his wife upon his passing is to be invested in an S&P 500 index fund. His reasoning is that it would provide her with ample funds for the rest of her life without her having to worry about the what and whys of Berkshire Hathaway shares.

Buffett also believes that many in the investment world are guilty of charging exorbitant fees with considerably less than commensurate returns.

This was followed up by John Bogle, founder of the Vanguard funds, as to the question; if everyone owned index funds there would be no financial markets.

Yes, this is true Bogle said. However, index funds currently represent less than 25 percent of the equity markets and the danger point would only come if that number climbed to 75 percent, which Bogle did not see happening for many years, if ever. Bogle thought that there would always be a demand for individual securities, particularly by large investors.

Mere words cannot do justice to ìThe Meeting.î My suggestion would be to purchase a class B share (BRK.B), recent price $164.86, attend next year’s festivities and immerse yourself in Buffett’s wisdom.

Lauren Rudd is a financial writer and columnist. You can write to him at Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to

Rudd’s MarketView for Friday, May 12, 2017

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Wall Street slipped again on Friday, ending the week lower as tepid economic data weighed on banks and worries deepened over Nordstrom and other department stores. To put it another way, risk-averse sentiment gripped the Street this week after President Donald Trump unexpectedly fired his FBI chief, the potential fallout from which could delay Trump’s pro-growth goals to cut taxes and boost spending on infrastructure.

Soft retail sales and monthly inflation data on Friday raised concerns about slow economic growth and questions about whether the Federal Reserve could maintain its hawkish outlook for interest rates this year.

Federal funds futures implied a 49-percent chance of two more rate hikes this year, compared with 54 percent shortly before the release of the data, CME Group’s FedWatch tool showed.

Banks, which typically benefit from higher interest rates, dragged on the S&P 500 and Dow Jones Industrial Average. The S&P 500 financial sector index fell 0.45 percent, while the industrial fell 0.65 percent.

Department stores faced serious pressure for a second straight day after J.C. Penney reported lower-than-expected comparable-store sales, sending its shares down 13.99 percent. Nordstrom fell 10.84 percent after weak quarterly same-store sales. Macy’s fell 3.04 percent, bringing its loss to more than 19 percent in the past two sessions following its dismal quarterly report.

The less-than-expected 0.4 percent month-over-month increase in April retail sales stirred fears about the retail sector as well as the economy.

For the week, the Dow fell 0.5 percent, the S&P 500 lost 0.4 percent and the Nasdaq rose 0.3 percent.

With a better-than-expected first-quarter reporting season all but complete, S&P 500 companies on average are now predicted by analysts to grow their second-quarter earnings by 8.3 percent, according to Thomson Reuters I/B/E/S.

The S&P 500 is trading at 17.6 times expected earnings, higher than its 10-year average of 14.2.

GE was the top percentage loser on the Dow, down 2.08 percent after Deutsche Bank downgraded its shares to “sell” from “hold”.

Approximately 6.1 billion shares changed hands on the major domestic equity exchanges, a number that was below with the daily average of 6.8 million shares over the last 20 sessions.

Retail Sales Rise Along with the CPI

Retail sales increased broadly in April while consumer prices rebounded, pointing to a pickup in economic growth and a gradual rise in inflation that could keep the Federal Reserve on track to raise interest rates next month.

According to a report released by the Commerce Department Friday morning, retail sales were up 0.4 percent in April, after an upwardly revised 0.1 percent gain in March. Sales rose 4.5 percent in April on a year-on-year basis.

The reports on Friday added to labor market data in suggesting the near stall in economic activity in the first quarter was an anomaly. But a moderation in year-on-year inflation led financial markets to dial down expectations of at least two more rate increases this year.

Excluding automobiles, gasoline, building materials and food services, retail sales gained 0.2 percent after advancing 0.7 percent in March. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

The economy grew at a 0.7 percent annualized rate in the first quarter, held back by the weakest increase in consumer spending in more than seven years. The Atlanta Fed estimates GDP will rise at a 3.6 percent pace in the second quarter.

In a separate report on Friday, the Labor Department said its Consumer Price Index rose 0.2 percent after dropping 0.3 percent in March. The rise in prices suggested that March’s decline, which was the first in 13 months, was an aberration.

In the 12 months through April, the CPI increased 2.2 percent. While that was a slowdown from March’s 2.4 percent increase, it still exceeded the 1.7 percent average annual increase over the past 10 years.

Financial markets are pricing in more than a 70 percent chance of a rate hike at the Fed’s June 13-14 policy meeting, according to CME Group’s FedWatch program. But the likelihood the U.S. central bank will raise rates twice before the end of the year fell after Friday’s data.

Treasury prices rose and the dollar index weakened against a basket of currencies after the release of Friday’s data. Putting pressure on stock were the weak financial and industrial sectors.

Gasoline prices rose 1.2 percent in April after falling 6.2 percent in March. Food prices rose 0.2 percent as prices for fresh vegetables recorded their biggest increase since February 2011.

The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent last month, reversing March’s 0.1 percent dip. The monthly core CPI was restrained by declines in the prices of wireless phone services, medical care, motor vehicles and apparel.

Rental costs increased 0.3 percent after a similar gain in March. The core CPI increased 1.9 percent on a year-on-year basis, the smallest gain since October 2015, after rising 2.0 percent in March. Still, April’s increase was above the 1.8 percent average annual increase over the past decade.

Consumer spending is being supported by a tightening labor market, marked by an unemployment rate at a 10-year low of 4.4 percent. A third report on Friday showed consumer sentiment rose in early May as the outlook for wages improved.

Motor vehicle sales increased 0.7 percent in April after three straight months of decreases and there were large gains in sales at stores selling building materials, electronics, and appliances.

Sales at clothing stores declined by 0.5 percent. Department store retailers have been hurt by declining traffic in shopping malls and increased competition from online retailers, led by

J.C. Penney said on Friday its net loss widened to $180 million, or 58 cents per share, in the first quarter. On Thursday, Macy’s Inc (M.N) reported a 4.6 percent drop in first-quarter sales. Sales at online retailers rose 1.4 percent in April.

Looking To Do Some Bargain Hunting? Consider Celgene (CELG)

Streetwise for Friday, May 12, 2017

With alternating tides of enthusiasm and pessimism roiling the financial markets, there is no better time than now to do some bargain hunting. For example, you might want to consider Celgene Corporation (CELG).

The pharmaceutical giant discovers, develops, and commercializes therapies to treat cancer and inflammatory diseases. When I wrote about the company a year ago, my earnings estimate for 2016 was $5.70 per share, with a projected 12-month share price of $135.

So how did the company do? Earnings well exceeded my forecast, coming in at $5.94 per share. However, the shares recently closed at $119.68. So now the question is what doe Celgene’s future look like?

Unfortunately, the recent earnings announcement was a disappointment. While first quarter earnings per share (EPS) of $1.68 exceeded the $1.60 the Street was expecting, revenue fell short, coming in at $2.96 billion, versus Street expectations of $3.04 billion.

However, the company did raise its full-year EPS number from $7.15 to $7.30, due to the strong commercial performance of their current pharmaceuticals and better-than-expected operating leverage. Net product sales grew 18 percent year over year (YOY), and EPS grew 27 percent YOY.

Revlimid, Celgene’s most profitable drug, saw sales increase 20 percent YOY. In the US, Revlimid sales increased 24 percent YOY, while internationally the increase was 13 percent.

More importantly, Revlimid has some unrealized potential in that it received approval from both the FDA and EU to be used in maintenance therapy for post autologous stem cell transplantation. Currently, there are many patients who do not receive Revlimid for this maintenance therapy. At the same time, Revlimid sales show no signs of slowing down in the foreseeable future.

Abraxane and Pomalyst also continue to see growth in YOY sales. Pomalyst sales are up 33 percent YOY, with Abraxane sales growing at a more modest 5 percent YOY.

The key reason Celgene’s revenue miss was Otezla not meeting expectations. Otezla reported $242 million in sales versus an expected $337 million. However, the miss was likely a one-time occurrence. An unexpected contraction within the psoriasis marketplace, along with insufficient inventory levels, led to the miscue.

On a more positive note, Celgene now has three agreements in place that remove the restriction of having to try other treatments before using the more expensive Otezla.

Looking at the company’s pipeline of future offerings, the key Phase 3 candidates include Ozanimod, a drug currently in phase 3 clinical trials for the therapy of relapsing multiple sclerosis and ulcerative colitis. There have been extensive words said about its upside sales potential.

Mongersen, licensed from Nogra after a successful Phase 2 study, is in Phase 3 for Crohn’s and Phase 2 for ulcerative colitis. Celgene is also looking to market this product for inflammatory bowel disease.

CC-486 (oral Vidaza) is not only more convenient than Vidaza, an important product for Celgene before it went generic, it may have some superiority over it.

Otezla is in a new Phase 3 program for the spine disease ankylosing spondylitis and for the rare Behcet’s disease.

The intrinsic value of the shares, using the free cash flow to the firm model with updated numbers, produces an intrinsic value of $230 per share. My earnings estimate for 2017 is $7.30 per share, with a projected 12-month share price of $140.

Note to Readers: Rudd International has sponsored a Superhero Puppy sculpture to raise funds for Southeastern Guide Dogs. The unveiling will take place on May 24th at The Met on St. Armand’s Circle, 5:30 to 7:00 P.M. If you would like to meet myself, sculptor Scott Moore, along with artists and friends of Southeastern Guide Dogs, please RSVP to Fran Marinaro at or at 941-400-7884. I will be there to solicit votes for our entry, “Happy Returns,” and our artist Louis Pak. You can vote for your favorite sculpture, $1.00 per vote, with all funds going to Southeastern Guide Dogs.

Lauren Rudd is a financial writer and columnist. You can write to him at Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to

Rudd’s MarketView for Thursday, May 11, 2017

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The major equity indexes were lower on Thursday after worse-than-expected sales declines at Macy’s and Kohl’s sparked a selloff in shares of department stores and stirred fears that consumers are not spending enough to drive economic growth forward.

Macy’s dismal quarterly performance sent its shares tumbling 17 percent, taking a toll on the consumer discretionary sector, which fell 0.59 percent. Kohl’s fell 7.86 percent after it reported a drop in quarterly sales, while shares of Nordstrom and J.C. Penney each dropped more than 7 percent.

The weak corporate reports left investors looking to April retail sales data due out on Friday for signs of whether consumers are simply shifting their spending habits away from department stores, or simply are not spending.

Eight of the 11 major S&P sectors declined. Financials were lower by 0.53 percent, weighed down by a 1.79-percent loss in Wells Fargo.

Shares of Snap fell 21.45 percent after the Snapchat owner reported a slowdown in user growth and revenue in its first earnings report as a publicly-listed company.

Straight Path closed down 20.41 percent after it agreed to be taken over by Verizon in a $3.1 billion deal, snubbing a rival offer from AT&T.

Merck rose 0.77 percent on news that the FDA cleared its lung cancer combination treatment.

Approximately 6.7 billion shares changed hands on the major domestic equity exchanges, in line with the daily average over the last 20 sessions.