- how good news from two big banks slammed the shorts;
- why investors shouldn't bet against Dean Food in the long term; and
- why some dividend stocks can deceive.
No Place to Hide Posted at 6:28 p.m. EDT on Friday, July 13 One of the two, either JPMorgan Chase ( JPM) or Wells Fargo ( WFC), was supposed to screw up. At 6:15 a.m. EDT when JPMorgan first started dribbling out the news, of not just the losses we all expected, but a restatement of its first quarter, it looked like JPM would provide the weakness. But as we scrolled through it, the language looked uncannily like other language I have seen in my career when you catch something an employee did wrong after the quarter is reported. In other words, the restatement was the tell that CEO Jamie Dimon had gotten bad-faith data from his own people -- and fraud is hard to game. > > Bull or Bear? Vote in Our Poll So, those who shorted on the restatement -- and there were many, because the before-hours volume was huge -- ended up having to cover when it turned out that there really was a rogue employee, and not a failure of oversight by Dimon. Then we saw at 7 a.m. that the quarterly numbers were better than expected and the losses quantified and contained. There was no bear case to speak of, at least down at $34, and the rest was history. So then we turned to Wells Fargo for some negativity and it, too, originally gave it to us, with some verbiage about expenses running too high. But we wanted to see revenue growth, Wells had it in spades. Management made it clear that the expense growth simply had to happen given the vast opportunities for lending. Put simply, it was a monster quarter. So, with no resistance from either, and yet with a hefty short base, we had the two biggest banks setting a tone that simply never quit. And any time it almost did, crazed coverers came in ahead of the good news out of China.
Delayed Harvest Posted at 7:16 a.m. EDT on Friday, July 13 A thesis with no winners, just losers. That's this crop burnout thesis in a nutshell. The high and many-think-going-higher crop prices are playing havoc with what had been a terrific deflation theme: the food companies. At the same time, trying to profit off it short of buying corn futures has been somewhat futile at this point. You can only buy so much Monsanto ( MON), or Deere ( DE) or Potash ( POT) before you are trapped by worldwide concerns. And there's an understanding that farmers aren't going to rake in money over a drought because they don't sell as much as they would if corn prices were driven up by some insanity, like burning our food supply as an alternative to gasoline. Today we got the worst sign yet that this harvest is slaughtering the best ones now, the downgrade of Dean Foods ( DF) to Hold from Buy at Goldman Sachs. Dean Foods is still up 32% for the year, and it has been a remarkable turnaround. But this $14 stock traded as high as $17 not long ago, as the raw cost of dairy plummeted while the ridiculous price-cutting that had gone on in the dairy aisle to bring in customers had, at last, abated. Now the raw costs are moving up swiftly, so Dean is losing the big margin expansion prop that had buoyed its shares and made it a favorite of so many, including me. Any stock up 30% in this environment is a candidate for profit-taking, and Dean is no different -- especially if, like me, you keep hearing the run in commodities isn't over yet. But when you do take profits, remember, there are two Dean Foods: there is the commodity play, and then there is the specialty organic division, with an emphasis on soy and almond-based, milk-like products. In the years since Dean hit hard times it has restructured its balance sheet, boosted sales of its organic Horizon brand and really put a ton of emphasis on the natural foods aisles, with products that look more like Whole Foods Markets ( WFM) and less like heavy cream.
That 'Good Dividend' May Not Be So Good Posted at 11:12 a.m. EDT on Thursday, July 12 Nothing makes me happier in investing than getting a terrific dividend from a company. And with good reason. Time and again we have seen outsized dividends hold off sellers and stop declines. We have seen the power of reinvesting dividends to compound your gains. And we know that dividends have provided about half the return that investors have gotten in the last decade, a dismal decade for investing. If you pick stocks with good dividends, you are on the right track to successful investing. Ah, but here's the catch. It's the phrase "good dividends," because we have found that not all dividends are created equal. Take the sorry case of Supervalu ( SVU), one of the largest supermarket chains in the U.S., and a company that had told us over and over again that it was confident in its dividend and that it understood how important it was to shareholders. Remember, when stocks go down, yields become larger as the dividend stays the same size but the divisor -- old-fashioned arithmetic -- becomes smaller. Hence you get a bigger yield from the division. Few stocks in the S&P 500 had a bigger dividend than Supervalu going into today's session, not because the dividend was outsized but because the stock had shrunk. Today we found out what happens when we see this process play out for companies that have battered balance sheets and declining fortunes. The dividend gets slashed, or in this case eliminated, despite all protestations to the contrary that anything like that could occur, including assurances given to me on CNBC last year by the CEO, of comfort with that dispensation of cash directly from the company to you, the shareholder. Craig Herkert, the CEO, when asked about why the company eliminated the dividend, cited "holistic" reasons for the decision, whatever the heck that is. All I can say is it was a mighty bitter pill for shareholders, many of whom relied on that dividend as an important source of income. That 30 cents yearly, while not making up for the hideous two-thirds decline in the stock since 2008, did routinely draw in buyers with each reiteration of confidence that the CEO made.