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Wanted: Market Seeking Catalyst in 2Q13 Earnings
This week marks the unofficial beginning of second-quarter earnings season as Oracle Corporation (ORCL) reports. Next week, it’s NIKE, Inc. (NKE).
These two benchmark companies offer the first glimpse of business conditions for multinational corporations. What they report is material.
Last quarter, NIKE surprised Wall Street with excellent relative growth in revenues and earnings, particularly in the North American market. Oracle came in just under consensus. The stock’s been treading water for the last several months.
Corporations have been coy with their earnings guidance, both out of the collective uncertainty regarding the economy and to make it easier to beat the Street. It’s always a delicate dance that corporations play with investors. Earnings are definitely managed, which is why it’s important to look at cash flow and other financial metrics to get a better understanding of a company’s performance.
If there’s one trend apparent in the financial results of large corporations, it’s that balance sheets have been getting stronger. And this bodes extremely well for dividend-seeking investors. I have a strong inclination this earnings season that we’re going to see continued increases in dividends and expanded share buyback programs to pay for them.
Generally speaking, I wouldn’t be buying … Read More
Small-Cap Stocks the Place to Be—If Economic Growth Is Real
Make no mistake about it. The wealth in America continues to rise as it is in other parts of the world. Fueling the creation of wealth has been the easy monetary policy, which has essentially pushed up the stock market to its record-highs.
Now the economy is also on the mend; albeit, it has largely been driven by the lure of easy money. Yet growth is growth. At this juncture, the growth, while somewhat muted, is there.
Cyclical stocks are faring well and will continue to do so as long as the economy continues to grow. These companies include the likes of General Electric Company (NYSE/GE), Schlumberger Limited (NYSE/SLB), and Cisco Systems, Inc. (NASDAQ/CSCO).
Yet to make the real big gains and increase the overall return of your portfolio, small-cap stocks are the place to have some of your capital working. The small-cap Russell 2000 index is leading the pack so far in 2013, up a healthy 16.25% as of Wednesday.
The reason is that small companies tend to perform well out of a recession and during economic growth.
The stock market has been seeing some shifting of capital into defensive dividend-paying stocks (read “Investors Down-Shift Risk, Search for … Read More
Breakdown: U.S. Economy and Its Cycles in 18 Brief Points
In a fascinating work on long-run economic cycles, J. Anthony Boeckh’s book The Great Reflation offers up some poignant research on the U.S. economy and its cycles.
The Great Reflation is a non-political, historical breakdown of inflation, monetary and fiscal policies, interest rates, and long-wave economic theory. It was completed in 2010 and made several predictions on the U.S. economy that have turned out to be correct so far.
Boeckh, former publisher of the Bank Credit Analyst, delves into past financial manias, asset inflation bubbles, asset allocation for the aftermath, the U.S. dollar decline, commodities, and the monetary future of the stock market and the U.S. economy.
Here is a summation of Boeckh’s observations:
1. The global financial system will always remain flawed and subject to price inflation and bubbles, so long as it is based on fiat paper money.
2. Before 1914, most Western countries had a monetary regime that legally restricted central bank money creation based on its holdings of gold.
3. Average interest rates fell throughout the 100 years leading up to 1914.
4. In the absence of a financial system based on discipline and restraint, all anchorless fiat money systems (especially the U.S. economy) are destined … Read More
How the Old Economy Can Pay More Than You Might Think
With all the financial engineering that’s been going on over the last several years, it’s great to actually find good businesses that are growing based on their own fundamentals.
There’s always a continuing flow of earnings reports, and one company I’ve followed for years just beat the Street again.
Earnings growth rates might not be as robust as they once were, but modest business growth is out there.
One growing company that continues to execute well is AAON, Inc. (NASDAQ/AAON) out of Tulsa, Oklahoma. This company manufactures and installs heating, ventilation, and air conditioning (HVAC) equipment for commercial and residential customers.
The company was founded in 1988 and now has approximately 1.5 million square feet of office and manufacturing facilities, with over 1,300 employees at two plants.
AAON’s first-quarter revenues grew three percent to $66.8 million, mostly based on higher prices. Earnings grew a substantial 56% to $7.1 million, or $0.29 per diluted share, compared to earnings of $4.6 million, or $0.18 per diluted share.
The company said that both its revenues and earnings made new records in the first quarter of 2013.
AAON’s cash balance tripled and the company’s backlog increased 22% to a record $71.7 million comparatively.
On … Read More
Equity Market Super Stock Adding Up to Solid Returns
One company I consistently like for long-term investors looking for dividend payments is PepsiCo, Inc. (NYSE/PEP).
This is the kind of company that can be put into retirement accounts and held for long periods of time with dividend reinvestment.
The equity market has been very kind to PepsiCo since the beginning of this year. Like many blue chips, it has ridden a wave of enthusiasm by institutional investors looking to bid the equity market with the safest names.
PepsiCo offers safety as a corporation with an array of beverage products that are sold worldwide. The many brands that the company maintains are complemented by its snack business. The two businesses go hand-in-hand.
As a multinational company, currency translation plays a big role in its numbers. In the first quarter of 2013, organic revenue growth was a solid 4.4%, but after currency translation, this fell to a mere one percent.
The company’s Americas Foods division was the highlight, producing organic revenue growth of six percent (five percent after currency translation). PepsiCo experienced business growth in all its Americas Foods segments, which include Frito-Lay North America, Quaker Foods North America, and Latin America Foods.
PepsiCo’s first-quarter financial results beat consensus, and … Read More
Why the Stock Market’s Sticking with These Two Pharma
One sector we haven’t looked at in quite some time is the big pharmaceutical stocks sector. Exposure to this sector is always welcome in a long-term stock market portfolio.
Like every company, big pharmaceutical companies experience their own business cycles, but dividend payments within the group are significant and worthy of attention.
Bristol-Myers Squibb Company (NYSE/BMY) was one of the higher dividend paying stocks within the group.
The company got a major Wall Street upgrade from Citigroup, based on its Phase 3 development program for “Nivolumab,” a new cancer treatment.
The company recently experienced renewed stock market momentum after a period of consolidation. Its dividend yield is approximately three percent now because of the run-up. It was closer to five percent not too long ago.
I’m still a fan of combo pharmaceutical companies for long-term portfolios. By this I mean companies with other business lines, rather than pure-play drug development stocks. I’m referring to companies like Johnson & Johnson (NYSE/JNJ), which has pharmaceuticals, consumer products, medical devices, and diagnostics business lines. There’s also Abbott Laboratories (NYSE/ABT), which sells drugs, eye-care products, nutritional products, and dog food.
This multifaceted business approach that includes the expensive, but also rewarding business of drug … Read More
Big Investors Still Buying Big-Caps; Will They Be Right?
When it comes to the equity market, the institutional mindset is useful; it’s equally as important as changes in Federal Reserve policy.
While examining views and portfolios of many large, buy-side institutions, I’ve been reading what could only be described as unscientific cautious optimism for the U.S. economy.
There is an expectation to further accumulate the equity market’s existing winners based on earnings growth and valuations. The buy-side is paid to play, but I read many views with these intentions.
This is including corporations like Wal-Mart Stores, Inc. (NYSE/WMT), Johnson & Johnson (NYSE/JNJ), PepsiCo, Inc. (NYSE/PEP), The Home Depot, Inc. (NYSE/HD), International Business Machines Corporation (NYSE/IBM), and even Berkshire Hathaway, Inc. (NYSE/BRK-A).
Sticking with the equity market’s existing winners does make sense for institutional buyers for a number of reasons: liquidity, earnings reliability, growing dividends, very strong balance sheets, and window dressing. Big investors don’t want to look like they’ve missed the equity market’s top stocks.
Everybody knows what can go wrong, but what’s most important for investors is how you structure your portfolio to deal with the investment risk.
Because of the equity market’s stunning performance since the beginning of the year, I view investment risk as … Read More
Equity Flux: The Stock Market’s Latest Problem
Blue chips need a big retrenchment.
I never root for losses, but with equities having gone up so much, a correction would be beneficial from a technical perspective.
Action in the stock market and blue chips, specifically, has been spectacular this year. But it’s time for a break.
While history proves it’s not wise to fight the Fed or the ticker tape, the stock market is most definitely a leading indicator.
As a fan of dividend-paying blue chips, utilities and consumer staples are good multiyear investment themes. But being at their cyclical highs, I would not be a buyer right now. These stocks are frothy.
I think it’s probable this year that the U.S. economy will outperform other developed economies. I also see the formation of an equity universe, in which big investors are still buying blue chips.
Corporations do have to perform. But with excellent balance sheets among most blue chips, the stock market can finish the year higher than its current level (save for a shock).
The end of quantitative easing is slowly being priced into the stock market. While more news on the subject from the Fed would result in a sell-off, this is not an … Read More
This Year Solar Is Tops, Precious Metals the Dogs
As we approach the mid-point of the year, U.S. stocks continue to fare well with the annualized return of the Dow at 42% and the S&P 500 at 39%. While I have long been skeptical of the idea of stocks continuing at their current pace, you never know, as trading can be irrational, based on my stock analysis. Just think back to late 1999 and early 2000, prior to the technology implosion.
As my stock analysis suggests, you know things may be irrational when the Nikkei 225 in Japan is up over 70% during the last six months prior to a more than seven-percent correction on May 23 and 3.2% on May 27. Japanese stocks could further correct, as I’m not convinced the economy in Japan is guaranteed to grow consistently, despite the steady injection of easy money, based on my stock analysis. (Read “Japan Not Home-Free Despite Strong GDP.”)
A closer look at some of the sector performances so far this year shows gold and silver mining investments are faring the worst, with the gold mining sector down nearly 33% this year and its silver counterpart down a whopping 38%, according to data from Barchart.com. At this … Read More
How Peter Lynch Got It Right 20 Years Ago
There’s always strength in numbers.
The equities market is definitely due for a prolonged break, but one subsector I always follow is restaurant stocks. These are key benchmark stocks, and the performance of these stocks offers up an unscientific survey on consumer spending and sentiment.
So many restaurant stocks experienced a breakout at the beginning of the year. Then they took a break and re-accelerated again.
If there is more confidence in the economic landscape, consumers spend money on eating out or ordering in food.
Restaurant stocks are a group where you can make good money as a stock market speculator. Peter Lynch (the famous manager of the Magellan Fund) always advocated for this sector, telling investors to look here for opportunities. He wrote a chapter on it in his book Beating the Street.
What Lynch advocated, and I agree with wholeheartedly, is that a successful restaurant company must have an experienced and capable management team, proper financing, and a deliberate and methodical approach to expanding the concept. He advocated that a company’s slow and steady business expansion is what wins the race at the end of the day.
The great thing about restaurant stocks is that … Read More
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