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

Search Results


Why Exposure to Healthcare Sector Is a Must

How These Companies Celebrate a Great QuarterIn what is on par with the course in today’s stock market, biotechnology firm Amgen Inc. (AMGN) posted double-digit revenue and earnings growth while raising its full-year outlook.

The kicker for this stock and its recent price strength was the news that the company plans to cut 12%–15% of its global workforce (2,400 to 2,900 employees) and close four of its facilities in Washington and Colorado. A lot of the job cuts will be to middle management, according to Amgen’s Securities and Exchange Commission (SEC) Form 8-K.

The company’s second-quarter sales grew 11% to $5.18 billion on strong sales and better margins on “ENBREL,” which is a treatment for arthritis. GAAP (generally accepted accounting principles) earnings grew 23% to $1.55 billion, while adjusted earnings per share grew 25% to $2.37.

On the back of such a strong earnings performance, you’d think the company would be hiring. But such is the marketplace with large corporations and large institutional investors.

Amgen has finally broken out of a 12-year price consolidation on the stock market and is set for more capital gains.

A share split wouldn’t be a surprise and the company is well positioned to provide shareholders with another dividend increase at … Read More


Why It’s Time to Cull Your Stocks

Still Buying Stocks StopGood numbers are one thing, but stocks did go up in advance of what’s turning out to be a fairly decent earnings season.

It’s not unreasonable at all to expect the market to take a solid break, perhaps for the next two to three months. Of course, predicting corrections and/or consolidations among stocks is a difficult endeavor in an era of extreme monetary stimulus. The Federal Reserve is slowly chipping it away, but it remains very committed to helping capital markets, especially as the economic data continues to be pretty soft.

Stocks are still looking stretched and this market is tired. A 10% to 20% correction would be a healthy development for the longer-run trend. Stocks need a catalyst for this to happen. It could come out of nowhere, and I’m reluctant to be a buyer with so many positions trading at record-highs.

Johnson Controls, Inc. (JCI), a large U.S. auto parts manufacturer, had a modestly positive third fiscal quarter with sales growing three percent to $10.8 billion due to more sales in China.

The company had some one-time restructuring charges during the quarter. Earnings per share from continuing operations (excluding restructuring and one-time items) grew a hefty 17% to … Read More


Why This Company’s a Solid Pick for Any Long-Term Portfolio

PepsiCo Still a Solid Stock for Any Quality PortfolioThe numbers are piling in, and there have been some disappointments as usual. This is why individual stock selection always matters in a portfolio, and equity investors should be willing to make changes depending on what stage of the business cycle a company is experiencing.

One company that’s proven itself to be a good business to own is PepsiCo, Inc. (PEP). It’s a brand-name mature enterprise with an excellent track record of long-term, reliable wealth creation for stockholders. It’s not the fastest growing large-cap in the marketplace, but the snacks and beverage business is consistent and so are the dividends.

Wall Street and institutional investors would love to see PepsiCo spin off its food and snacks business from beverages, similar to what recently transpired with Kraft Foods Incorporated.

A spin-off would, no doubt, be a boon to shareholders, but I don’t see it happening, because the company’s management needs the profits from Quaker foods (oatmeal) and especially “Frito-Lay” (potato chips) to help with the slow-growth world of soda and juice.

PepsiCo’s organic global snacks sales grew five percent comparatively in the second quarter of 2014 and two percent for global beverages.

Currency translation was unfavorable during the most recent quarter, … Read More


Small-Cap vs. Big-Cap: The Real Winners in This Market

Why I'm Not Giving Up on Small-Cap StocksHealthy second-quarter results from technology and banks are helping to drive buying in stocks. On Tuesday, the S&P 500 traded at an intraday record and is again looking toward 2,000, while the blue-chip DOW is edging toward another record.

While we are hearing about how the S&P 500 will break 2,000 and the DOW will reach 20,000, we are not hearing much about small-cap stocks, which have been under some pressure this year after leading the pack in 2013.

The Russell 2000 is struggling after failing to hold above 1,200 on two occasions; it’s currently down about 0.66% this year and 4.6% from its record.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

I recently read how the failure of the Russell 2000 to follow the broader stock market higher is a red flag that could warn of a pending correction in the stock market.

Now, while small-cap stocks are probably the most vulnerable to selling at this time, I don’t feel that it’s time to simply ignore this high-beta growth group and focus solely on big-cap stocks.

My thinking is that investors are simply dumping some risk from their portfolio after recording strong returns in 2013. It’s not that small-cap stocks are … Read More


My Top Tech Stock for Wealth Creation

Top Wealth-Creating Tech Stock for the Risk-Averse InvestorThe numbers are still coming in pretty good this earnings season and corporate outlooks are holding up well for the year.

Stocks have been trading off of Federal Reserve Chairman Janet Yellen’s monetary policy report to Congress, and less so on earnings.

This market is tired and you can see it in the trading action of individual stocks that beat the Street with their earnings. Most market reaction is pretty mute.

One that wasn’t, however, was Intel Corporation (INTC). The company’s second quarter really got institutional investors fired up. The stock was $26.00 a share mid-May; now it’s close to $34.00, which is a very big move for this company.

Microsoft Corporation (MSFT) doesn’t report until next week, but the company’s shares moved commensurately with Intel’s.

Earnings strength from these older technology benchmarks is really good news for both the stock market and the economy in general. It means that the enterprise market is spending money again, and that’s exactly what the technology industry needs.

Even Cisco Systems, Inc. (CSCO) got a boost from Intel’s earnings results. This stock has been trying to break out of a long price consolidation. It hasn’t really done anything on the stock market … Read More


Simple Wealth-Creating Strategy for Long-Term Investors

Compounding Strategy Every Investor Should ConsiderAs a strong believer in the wealth-creating effects of large-cap, dividend paying stocks, I’m also an advocate of dividend reinvestment, which is the purchasing of a company’s shares using the cash dividends paid.

This can be done commission-free from your broker and/or through the company itself if it offers such a program.

Dividend reinvestment is a powerful wealth creator if you do not require the income paid out by a corporation. It is a great way to invest and to grow your money over the long-term.

As the timespan increases, the percentage return produced by the S&P 500 becomes weighted to dividends. It’s kind of old school, but the numbers add up. Even over a few short years of good broader market performance, total investment returns can increase substantially over simple capital gains.

For example, if you bought shares in Intel Corporation (INTC) at the beginning of 2010, that stock would have produced a capital gain to date of approximately 50%.

But if you reinvested the dividends paid by Intel into new shares each quarter, your total investment return, including dividends and new shares, jumps to approximately 75%, which is a very big difference!

In the utility sector, Duke Energy … Read More


Why This Institutional Favorite Tops My List of Stocks

Why This Company Is One Great Long-Term PlayOne of my favorite companies for long-term, income-seeking investors is Johnson & Johnson (JNJ).

While pharmaceuticals are the company’s anchor, its other business lines help with cash flow and dividend increases.

Investors have bid Johnson & Johnson shares tremendously in recent years, and it’s difficult to consider buying the company now, as the position is up another 10 points since March.

But Johnson & Johnson is the kind of stock income-seeking investors should keep an eye on for more attractive entry points, even though they may not come around all that often. The most recent possible entry points were in late September of last year and late January of this year.

My expectations for a mature company like this is for total annual sales to grow by the mid-single digits, with earnings growth and dividends producing an approximate 10% total annual return.

With a 10% annual return on investment, your money doubles every seven years.

Johnson & Johnson is typically priced at a slight premium to the S&P 500, but the company has earned its higher valuation by providing relatively consistent growth, reliable corporate outlooks, and a strong track record of dividend increases.

The company’s stock chart is featured … Read More


Your Top Priority When Investing in a Record-High Market

What to Prioritize with Stocks at an All-time HighStocks are going to gyrate around second-quarter earnings, but that’s exactly what this market needs—the corporate bottom line and expectations for the rest of the year.

With so many stocks trading at their all-time record-highs, I view investment risk in equities as being high at this time.

This is actually a tough environment in which to be an investor looking for new positions. There’s not a lot of value around and good businesses have already been bid.

It’s been years now since the stock market was first in need of a material price correction, and the next one will probably come out of nowhere.

It could be a shock from the Federal Reserve, but the central bank has been extremely delicate in how it effects and communicates monetary policy. More likely, stocks will be vulnerable to an unforeseen shock like a geopolitical event or a big derivative trade gone bad.

The risks are out there and stocks are long overdue for a reckoning.

With this in mind, I’m still a fan of the market’s existing winners, especially dividend-paying blue chips. In the absence of a shock, I think they’ll just keep pushing new highs going right into 2015.

3M Company … Read More


This Company a Benchmark for the Entire Stock Market?

One Company, One Benchmark Stock for EverythingUnion Pacific Corporation (UNP) is a company that’s getting upgraded by the Street and earnings estimates are ticking higher. It’s great news for this benchmark stock and top wealth creator.

The business cycle in old economy industrial businesses still has legs, and while Union Pacific’s share price is up some 25 points over the last 12 months, I think this stock can keep ticking higher into 2015.

The railroad business has proven to be a good one over the last several years. Most railroad companies have been able to increase their prices for freight without affecting demand, and that’s a very important metric and telling indicator.

Union Pacific’s share price was around $26.00 a share this time in 2009. Now it’s just over $100.00 (the company recently effected a two-for-one stock split) and the company has increased its dividends paid seven times since 2009. This is a good business, and it continues to pay as a stock market investment.

The company’s volume growth is coming from both agricultural and industrial products. And even its coal transportation business is showing improvement.

Union Pacific is moving a lot of freight cars related to the domestic oil business. While many might see this … Read More


What Do This Quarter’s Mixed Earnings Results Mean?

Market May Be Entering a New Cycle—But Don't Buy Just Yet!Oracle Corporation (ORCL) announced a quarterly revenue gain of three percent, but Wall Street was looking for more and the company’s share price retreated on its earnings results.

If it weren’t for the Federal Reserve, we probably would be in a correction, if not a consolidation, which has been the broader market’s go-to trend when it should have retreated further.

It’s such a mixed bag out there both in terms of economic news and corporate reporting.

While I think dividend-paying blue chips have the advantage going into the second-quarter earnings season, if the Federal Reserve wasn’t so extremely sensitive to Wall Street, this market would probably be a lot lower.

Even the Fed’s recent language is assuaging. If this market had to operate on its own (with free market interest rates and liquidity), things would be a lot different.

But this isn’t the environment we live in. Economic history clearly supports the scenario that it doesn’t pay to fight the Fed and that Wall Street will move mountains when it has Fed certainty.

Lots of investors bemoan the quarterly earnings cycle or game, but I don’t. I want to know a public company’s up-to-date financial results as frequently as possible…. Read More


« Older Entries

Enter your e-mail address to subscribe to
Profit Confidential — IT'S FREE!
Enter e-mail:
ALSO RECEIVE A FREE COPY of our exclusive report:
"A Golden Opportunity for Stock Market Investors"