Earlier this month, Jeremy Siegal, a well-known “bull” on CNBC, took to the airwaves to predict the Dow Jones Industrial Average would go beyond 18,000 by the end of this year. Acknowledging overpriced valuations on the key stock indices are being ignored, he argued historical valuations should be taken with a grain of salt and nothing more. (Source: CNBC, July 2, 2014.)
Sadly, it’s not only Jeremy Siegal who has this point of view. Many other stock advisors who were previously bearish have thrown in the towel and turned bullish towards key stock indices—regardless of what the historical stock market valuation tools are saying.
We are getting to the point where today’s mentality about key stock indices—the sheer bullish belief stocks will only move higher—has surpassed the optimism that was prevalent in the stock market in 2007, before stocks crashed.
At the very core, when you pull away the stock buyback programs and the Fed’s tapering of the money supply and interest rates, there is one main factor that drives key stock indices higher or lower: corporate earnings. So, for key stock indices to continue to make new highs, corporate profits need to rise.
But there are two blatant threats to companies in the key stock indices and the profits they generate.
First, the U.S. economy is very, very weak. While we saw negative gross domestic product (GDP) growth in the first quarter of this year, the International Monetary Fund (IMF) just downgraded its U.S. economic projection. The IMF now expects the U.S. economy to grow by just 1.7% in 2014. (Source: International Monetary Fund, July 24, 2014.) One more negative quarter of GDP for the U.S., and we are in a technical recession. We’re already halfway there!
If the U.S. economy does not improve, companies on key stock indices will have troubles selling their goods and services, and their corporate earnings will suffer. It … Read More
It wasn’t too long ago that NIKE, Inc. (NKE) reported another great quarter of solid growth in its business.
The company’s fiscal fourth-quarter numbers beat Wall Street consensus, and its sales from continuing operations grew 11% to $7.4 billion, or 13% on a currency-neutral basis.
In this market, double-digit growth is significant no matter if it’s in the top or bottom line.
Like the last several earnings seasons, corporations are typically only beating consensus on one financial metric (either earnings or revenues). But this is enough to keep investors buying.
Under Armour, Inc. (UA) blew the doors off of Wall Street consensus and the stock shot strongly higher.
The company reported a surge in new apparel sales. Total revenues grew a whopping 34% over the second quarter of last year to $610 million.
Breaking it down, the company’s apparel revenues grew 35% to $420 million, while footwear sales grew 34% to $110 million on new product offerings. The company experienced significant sales growth of 30% in North America, while international sales doubled (representing approximately 10% of total revenues).
Previous guidance for 2014 was for sales growth of between 24% and 25% over 2013. Management boosted this guidance to between 28% and 29%, with operating income expected to grow between 29% and 30% over last year.
This time last year, Under Armour was trading around $35.00 per share. It’s doubled since then, and the position has further momentum in this market.
It is pricey, however, with a forward price-to-earnings ratio of around 60. But the stock is likely to stay this way; the business has operational momentum, and that’s what the Street likes.
Columbia Sportswear Company (COLM) is another apparel manufacturer that just increased its guidance for the year.
Total revenues for the second quarter of 2014 grew a solid 16% to a record $324 million. Management cite… Read More
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