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

These Poor 3Q Earnings Reports Foretell 2015’s Economy

By for Profit Confidential | October 31, 2014

Poor 3Q Earnings Reports Foretell 2015’s EconomyAccording to research by UC Berkeley, in 2012, the top one percent of income earners in the U.S. earned 22.5% of all the income. The bottom 90%, on the other hand, earned less than 50% of all the income. (Source: Pew Research Center, January 7, 2014.) Income inequality in the U.S. economy is the highest it has been since 1928. The rich are getting richer, and the poor are seeing their share of income decline.

And according to the United States Department of Agriculture, in 2013, 17.5 million households in the U.S. economy were “food insecure.” This means that at some point during the year, they had difficulty putting food on the table for all their family members due to a lack of resources. This number, 17.5 million food insecure households, was unchanged from 2012. (Source: U.S. Department of Agriculture, September 2014.)

As I have said many times in these pages, economic growth will occur in the U.S. economy only once the average American Joe sees his standard of living improve. This isn’t happening. In fact, the standard of living is deteriorating despite the Federal Reserve having printed and pumped trillions of new dollars into the financial system.

The problem with income inequality in the U.S. escalated after the Great Recession of 2008. According to the Russell Sage Foundation, at the end of 2013, median family wealth in the U.S. economy was $56,335—a decline of more than 43% from $98,872 in 2007. (Source: “Wealth Levels, Wealth Inequality and the Great Recession,” Russell Sage Foundation, June 2014.)

Dear reader, the fact is the U.S. economy isn’t going through a period of economic growth. It’s witnessing a period of stagnation. The economic statistics I just told you about are only some of the troubles facing America.

If you listen to the mainstream, it will have you convinced the U.S. economy is just fine…that it’s growing and that it’s fine to buy stock… Read More

How the Markets Will Close Out 2014

By for Profit Confidential | October 31, 2014

Markets Will Close Out 2014Credit card companies are some of the best indicators in the global economy. Visa Inc. (V) just reported a pretty decent quarter. While earnings were down comparatively due to a one-time charge, adjusted earnings handily beat consensus.

The company’s fiscal fourth quarter came in solid, with growth of 10% on a constant dollar basis to $3.2 billion compared to the same quarter last year.

Recently, the company increased its quarterly dividend 20%, and a new $5.0-billion share repurchase program has now been authorized.

Management estimates that its upcoming fiscal 2015 will produce revenue growth in the low double-digits and diluted earnings-per-share (EPS) growth in the mid-teens, which is very solid.

Visa’s share price really hasn’t done anything for the last 12 months. But this is on the back of tremendous capital appreciation in 2012 and 2013.

This stock market certainly seems trendless as of late. Investors are taking in corporate earnings news, but not doing too much with it.

The earnings numbers from many large-caps and conglomerates are pretty solid. But this market is tired out and the near-term action seems muted.

September and October are often difficult months for stocks and it’s unclear as to why. But going by the earnings results we’re getting and the forecasts that corporations are providing, I think it’s reasonable to expect a good fourth quarter—barring any shocks.

The marketplace knows that the Federal Reserve is going to initiate a new upward cycle in interest rates. It also knows that the central bank has proven to be highly accommodative to equities in recent history and deflationary indicators will increase the duration of when rates start going up, which will be of more concern in 2015.

The recent sell-off in the stock market was nothing more than that. It was just a small price retrenchment due to oil prices and the terrible health scares re… Read More

Only Up From Here for This World-Class Internet Stock?

By for Profit Confidential | October 31, 2014

World-Class Internet StockWhat began as a relatively simple idea for communicating across computers or mobile devices has, in little more than a decade, become an iconic American symbol in social media.

Of course, I’m talking about Mark Zuckerberg’s start-up Facebook, Inc. (NASDAQ/FB), which traded at a new record-high of more than $81.00 on Tuesday morning, equating to a colossal market value of $210 billion. (Amazing what can come from the dorms of Harvard.)

Facebook is now arguably the top social media stock in the world with its more than one billion users, based on my stock analysis. A pretty big feat, though the company still hasn’t been able to crack into the highly regulated Chinese market.

As my stock analysis might suggest, getting its foot into China and India could generate even more staggering growth metrics for a company that is already beginning to deliver results by monetizing its user base.

For all those who thought Facebook was just another overhyped company with very little substance, they have so far been proven wrong.

Luckily, I was not one of those bears, as I couldn’t ignore the one billion pairs of eyes, especially if the company evolved and began to make money from its user base.

While the social media space is highly competitive with the likes of chief rival Twitter, Inc. (NASDAQ/TWTR), my stock analysis indicates that Facebook currently has the upper hand as the early entrant.

Facebook Inc Chart

Chart courtesy of www.StockCharts.com

Of course, the proof is in the financials, as my stock analysis suggests. How about revenue growth of 55% to $7.87 billion in 2013? More importantly, how about the superlative growth in mobile advertising? According to my stock analysis, this is the area that will be key for social media companies going forward.

For Facebook, the third quarter was impressive, with revenues coming in at $3.20 billion, up 59% year-over-year and beating the consensus $3.12 billion, a… Read More

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