Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

The Nine-Month Check-Up

By for Profit Confidential | October 1, 2014

Nine-Month Check-UpWith nine months behind us this year, today we look at how two popular forms of investment have done in 2014 and where I think they are headed for the remainder of the year.

Starting with stocks, the Dow Jones Industrial Average closed yesterday up 2.8% for the year. Given the risk of the stock market, 2.8% is no big gain. I wrote at the beginning of 2014 that the return on stocks would not be worth the risk this year. I was on the money. When we look at the broad market, the Russell 2000 Index is down 5.4% for the year.

Going forward, as you know as a reader of Profit Confidential, I see stocks as risky. Plain and simple, stocks are overpriced in an environment where the Federal Reserve is putting the brakes on paper money printing and is warning that interest rates are going higher.

On a typical day, I see the Dow Jones up 100 points; the next day, it’s down 100 points. This is happening in an environment where trading volume has collapsed. I wouldn’t be surprised to see October deliver us a nasty stock market crash.

Moving to gold (and this is very interesting), gold is flat for the year in U.S. dollars. But if we look at gold in Japanese yen, gold is up 4.6% for 2014. If we look at gold in Canadian dollars, bullion is up 4.6% as well this year. And if we measure gold in euros, we find gold bullion prices are up 10.4% in 2014.

What explains this?

Yesterday, the U.S. dollar hit another six-year high against the yen and a 22-month high against the euro. While the Federal Reserve gets ready to tighten monetary policy, other major central banks are doing the opposite.

China’s central bank is easing lending rules so its banks can make more home mortgage loans. And the European Central Bank needs to lower interest rates to fight weak inflation (inflation hit a five-year low in September).

So, for now, the rush is to the greenback. And that is making gold very affordable for investors. There is a “for sale” sign on gold… Read More

Mature Company Serving Up Grand Slam Results

By for Profit Confidential

Mature Company Serves Up Grand Slam ResultsThere’s a lot the stock market has to deal with these days, but that’s par for the course. Uncertainty, risk, and fear are basic components of equities these days. But good businesses are good businesses and NIKE, Inc. (NKE) hit a grand slam with its latest quarterly earnings.

This company’s been doing well for a number of quarters and this is a mature brand we’re talking about, not a fast-growing startup.

The momentum began before the World Cup, culminated in its previous quarter, and now, the company just produced another top-notch batch of financial results. The stock shot nine points higher on the news to a new all-time record-high.

According to NIKE, its first fiscal quarter of 2015 (ended August 31, 2014) saw total sales grow 15% to $8.0 billion. The company also owns the “Converse” label and that division’s sales grew 16% in the most recent quarter to $575 million.

NIKE has a good amount of cash on its books and the company spent $819 million buying back its own shares in its first quarter. Since September of 2012, the company has spent approximately $4.2 billion buying back its own stock at an average cost of $67.74 a share, which, as it turns out, has been a very good investment (for the company and shareholders alike). About $3.8 billion over the next two years is left in the share repurchase authorization.

As for its bottom line, NIKE’s earnings grew 23% to $962 million, or 27% on diluted earnings per share to $1.09.

One of the things that NIKE does is it comments on future orders. According to the company, global orders for all NIKE-branded footwear and apparel for delivery between September 2014 and January 2015 are up 11% over last year.

So the momentum continues for this company, and I see no reason why this stock won’t keep ticking higher going into the 2015 calendar year. (See “Eight Stocks to Beat the Street.”)

NIKE has a very good balance sheet, institutiona… Read More

My Top Five Picks in the Booming Airline Sector

By for Profit Confidential

My Top Five Picks in the Booming Airline SectorThe Boeing Company (NYSE/BA) is going to space and its stock price is following. The top company in the airline sector just won a joint $6.8-billion contract along with SpaceX to build “space taxis” to ferry NASA astronauts to and from the International Space Station.

For Boeing, it’s just more evidence of why it is the “Best of Breed” in the airline sector and a valid component in anyone’s long-term core holdings.

SpaceX, or Space Exploration Technologies Corporation, is a project of Elon Musk’s, the man who is also the brains behind the creation and success of Tesla Motors, Inc. (NASDAQ/TSLA). Musk apparently wants to eventually offer space travel for commercial use, so this deal from NASA is moving him in the right direction.

The airline sector is hot and will continue to expand as the wealth creation around the world grows, especially in the emerging markets, such as China, Asia, and India. When income levels rise, people want to travel, and this has clearly been reflected in the superlative demand for airplanes out of China. Boeing believes China is the top aviation growth area worldwide.

The International Air Transport Association (IATA) estimates that North America will continue to be the largest airline sector market with profits of about $8.6 billion this year. The Asia-Pacific airline sector is predicted to be the second biggest with about $3.7 billion in earnings this year. Europe comes in third with an estimated $3.1 billion. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)

And whether you own Boeing, Embraer S.A. (NYSE/ERJ), or another of the numerous aerospace parts and services stocks, there is money to be made in the airline sector, and I expect this trend to continue.

The chart of the Dow Jones U.S. A… Read More

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