Earnings estimates for Microsoft Corporation (MSFT) are going up and the stock, which recently accelerated, finally looks like it has broken out of a 13-year consolidation.
Microsoft has been an income play for quite a while. Currently yielding three percent, the company’s forward price-to-earnings ratio is around 12.5 and is not dissimilar from many other blue chips.
Then there’s Intel Corporation (INTC). This company has been struggling for capital gains, but it’s yielding 3.6% and isn’t expensively priced.
What these technology companies illustrate so well is the business cycle, both in terms of operational growth and also as equity securities. Getting the cycle correct (the right place/stock at the right time) is the toughest thing for any investor or businessperson.
Regarding stocks, both Microsoft and Intel’s long-term charts clearly show how extremely overpriced their share prices were during the bull market of the 90s. Intel’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
The benefit of the very long term is that it provides a normalized but still decent rate of return with these kinds of stocks. No enterprise or investor can escape the business cycle, whether it is industry-specific, a local reality, or the general economy…. Read More
What is Fiscal Cliff?
Over the past couple of years, you’ve doubtlessly heard the phrase “Fiscal Cliff” in the news. And while you may have a basic understanding, you still may ask yourself, “What is the fiscal cliff?” Because even though a fiscal cliff deal was reached, there is still concern that there could be a fiscal cliff in 2014.
The effects of the fiscal cliff were first felt in January of 2013, when a series of expiring tax cuts and government spending cuts first came into effect on December 31, 2012. The economy was still in the early stages of recovery at that point and there was concern that the two events might cause a “perfect storm” that would negatively impact the economy, causing it to spiral back into a recession. This would have caused consumers to lose confidence, unemployment rates would have skyrocketed again, and it would have cut the incomes of American citizens.
Another of the effects of the fiscal cliff was thought to be more benign; it would have caused a significant reduction of the federal budget deficit. It was widely believed that if President Barack Obama and Congress had not acted, America would have gone … Read More
Mom and pop investors bought lots of stocks last year as the key stock indices reached all-time highs. By late 2013, the fear of “missing out” on future stock market gains was back. Sound similar to 2007?
According to the Investment Company Institute, investors bought $160.9 billion worth of stock mutual funds in 2013. This was the first time since 2007 when these types of mutual funds saw inflows. In 2007, investors bought $73.9 billion worth of long-term stock mutual funds. (Source: Investment Company Institute web site, last accessed February 11, 2014.)
And stock advisors are outright optimistic. For example, Birinyi Associates Inc.’s Laszlo Birinyi, a well-known money manager, is saying that the S&P 500 will hit 1,900 by the next quarter (it’s at 1,820 now). His argument: don’t bet against stocks because they have too much momentum. (Source: BusinessWeek, February 10, 2014.) Back in 2007, we heard many bullish calls for higher stock prices; we heard calls from well-known stock advisors saying key stock indices like the Dow Jones Industrial Average would hit 20,000 (seven years later, it’s stuck at 16,000).
One way I gauge optimism and complacency in the marketplace is by accessing auto sales. Car sales … Read More
Top 5 Best Reasons to Invest in Gold
Profit Confidential has been bullish on gold shares for a decade now. And our love for gold bullion has not lost its shine. Back in 2002, when the price of gold bullion was trading under $300.00 an ounce, we first started recommending gold-related investments.
There continues to be a lot of value in the stock market today, and it’s commodity-related. But with expectations for declining economic growth in the world’s major economies, it’s easy to see why oil prices are around $96.00 a barrel, not $125.00.
Like the broader stock market, the price of gold bullion is holding up extremely well, and a big reason for this is the sovereign debt crisis in the eurozone. The price of gold bullion should be trending a little lower than it is, but even if emerging economies continue to slow, we don’t expect to see the price of gold bullion dip much below $1,400 or $1,300 an ounce in the next recession.
The risks in the global economy certainly outweigh the current economic fundamentals. When the price of gold bullion was roaring higher, gold stocks were keeping pace. Gold mining companies were able to raise … Read More
Looking for the best performing stocks? You’re not alone.
The worst bear market since the Great Depression ended March 9, 2009. Since then, stocks have been on a roll, with the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 all up at least 100%.
As expected, some shares climbed in step with those indices, others soared and plunged, and some still continue to climb.
With Wall Street set to make another run at a four-year high, retail investors are increasingly on the lookout for today’s best performing stocks. More importantly, with investors’ hopes pinned to economic stimulus from the central banks, everyone is also looking to find tomorrow’s best performing stocks.
Finding the best performing stocks, before they climb into the best performing stocks category, is not an easy task. If it were easy, we would all be millionaires. But the truth of the matter is it’s difficult to find what we hope will become best performing stocks.
With an endless stream of economic data, earnings results, analyst reports, and technical trends to follow, it’s easy to see why so many investors are at a loss to figure out where the market is going at any given time…and … Read More
Why owning blue chips makes so much sense in a slow-growth environment: they have the cash and they are willing to spend it to keep shareholders happy—and that’s just one of the reasons.
Take Caterpillar Inc. (CAT), for example. This company is experiencing slow business conditions, because the mining industry is in its own recession.
The company can’t manufacture sales, but it can keep buying back its own shares. Management allocated $1.7 billion for share repurchases in this quarter alone. Last year, the company spent a total of $2.0 billion buying its own shares.
Caterpillar’s recent financial results surprised Wall Street. Even though sales were down comparatively, 2013 fourth-quarter revenues beat consensus by $1.0 billion and consensus earnings by $0.26 per share.
Caterpillar is a global benchmark and an enterprise worth following. The company offers a lot of industry and global economic information to investors. (See “A Must-Read for Long-Term Equity Investors.”)
Big corporations have the cash, and while capital expenditures on plant, equipment, and employees are restrained, shareholders are the beneficiaries of such strong balance sheets.
United Technologies Corporation (UTX) reported fourth-quarter revenues below Wall Street consensus, but earnings were better than expected. The company plans to … Read More
The business section of any bookstore is littered with leadership stories of big corporations, musings on personal finance, and countless how-to manuals.
However, there are very few books that deal specifically with capital markets and how to improve your skills in picking stocks and honing your market view. Jim Cramer’s latest book, Get Rich Carefully, is a worthwhile read, especially if you’re not a full-time investor/speculator and you’re either saving for retirement or you’re in retirement and looking to improve your portfolio.
Cramer always has a lot to say, and like his shows on CNBC, his latest book is wordy and somewhat laborious. But he offers a lot of tips that he’s garnered through his experiences in trading and picking stocks, with each chapter offering a summary of lessons learned—the dos and don’ts.
The first chapter offers what 99% of all business books do not—“What Moves a Stock.” Cramer examines the pricing mechanism for all securities—supply and demand—and demonstrates the power that buy-side institutional investors and professional Wall Street traders have over stocks. As evidenced in the stock market crash of 1987, index futures have now overwhelmed traditional share price movements. Cramer says that stocks now trade like commodities, … Read More
So far this year, the NASDAQ Composite Index has outperformed the other large-cap averages, and this is a positive indicator.
At the beginning of last year, blue chips shot out of the gate with uncommon capital gains, and as confidence in the rally grew, investors slowly felt more comfortable with more speculative issues, which are often listed on the NASDAQ.
After a pronounced consolidation during the summer of last year, large-cap NASDAQ stocks, like Microsoft Corporation (MSFT), Juniper Networks, Inc. (JNPR), and even Intel Corporation (INTC), reaccelerated.
I view the price reacceleration in large-cap technology stocks as a combination of attractive valuations and yields and improved expectations for growth. Microsoft’s fourth-quarter sales are expected to grow some 10%.
While blue-chip strength is always helpful, large-cap technology stocks must be a big part of the long-term trend, as they are such a large part of the daily economy now.
The Russell 2000 Index of small-caps is also holding up extremely well and is another positive indicator for the broader market. While stocks are very much in need of a correction, it won’t happen without a major catalyst, and trading action among large-cap technology and small-caps is reason enough to expect … Read More
From what I’m seeing, Europe and the eurozone appear to be in play once again, following years of torment and two recessions.
While there’s still a ways to go, you should put Europe on your radar, since a buying opportunity appears to be here. Now don’t go full-tilt and empty your capital into Europe. Instead, with the U.S. stock market facing some upside resistance, you may want to shift some of your investable capital to other regions of the world, including Europe and China. (See “China’s Macau Gambling Region: The Growth Opportunity” to learn about a small region in China that has high hopes.)
Now, I have been negative on Europe for years, but I saw some encouraging signs in 2013 after the eurozone emerged from its second recession.
The big attraction in Europe is the 800 million people living in the region who are armed with money to spend, similar to our domestic economy. For companies, Europe is a region that appears set to rally and may be a buying opportunity.
Some may question the slow growth in this region, but I say it’s better to buy at a time of misfortune than when everyone wants in—and … Read More
I keep telling you about my suspicion that the backbone of any stock market—corporate earnings growth—is disappearing. Now, we see it in the numbers…
Of the 106 companies in the S&P 500 that have issued corporate earnings guidance for the fourth quarter, an astounding 94 of them have issued negative guidance—that’s 89% of the companies issuing guidance, warning it will be negative, which is well above the five-year average rate of 63%. (Source: FactSet, December 13, 2013.)
And analysts continue to drop their expectations for corporate earnings growth for the fourth quarter. As of September 30, analysts expected fourth-quarter corporate earnings growth in the current quarter would be 9.5%. By last week, that rate had come down to 6.5%. (Source: Ibid.) I expect corporate earnings growth for the fourth quarter will continue to disappear.
So we have 2013 ending with the smallest increase in corporate earnings since 2009. How can 2014 be any better?
The risks that disappearing corporate earnings growth creates for the key stock indices continue to be ignored. And problems in the global economy are mounting, not improving, with each passing day.
Economic growth in China, the second-biggest economic hub in the global economy, is declining rapidly. … Read More
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