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

Agriculture

Agriculture refers to the active cultivation of animals, plants, crops, and food for the purposes of selling, processing, and/or producing feed for profit. Agriculture is a blanket term referring to agribusiness and all related industries dealing with the production of food and its various uses.

Eight “Super Stocks” for a Slow-Growth Market

By for Profit Confidential

How to Build a Portfolio for a Slow-Growth MarketWith stocks still ticking higher, portfolio safety and a strong adherence to risk management is key with the major indices pushing their highs.

Speculative fervor has come out of this market, but really only in the form of profit-taking. In order for stocks to experience a major price correction (which I view as a healthy development for the longer-run trend), the market requires a catalyst, and there isn’t an obvious one right now.

While individual stock selection is always important in portfolio management, generally, share prices move commensurately with each other based on sentiment. Accordingly, investors who own dividend-paying blue chips are just as well positioned if the broader market delivers more capital gains. And at a lot less investment risk to boot.

At the beginning of last year, in these pages, I put together a list of “Super Stocks”—the names of companies that I thought could be welcome in all but the most conservative of portfolios.

A lot of these positions are pushing their highs again. These stocks are back in favor with institutional investors and most have increased their dividends. (See “Super Stocks—Great Companies for Any Stock Market Portfolio.”)

The three positions that have been disappointments are Bunge Limited (BG), The Procter & Gamble Company (PG), and International Business Machines Corporation (IBM).

Bunge is heavily weighted to the agriculture sector, and as every commodity continues to prove over time, pricing, supply, and the business in general are volatile.

Procter & Gamble has a great dividend and that’s what is keeping investors interested. It’s just a very slow-growth story, being so global and mature.

I always follow … Read More

Three Blue Chips Set to Drive Higher

By for Profit Confidential

The Real Driving Force Behind Existing Winning StocksDespite a difficult start to the year, countless positions recently turned higher, even among slow-growth names.

E. I. du Pont de Nemours and Company (DD) is a company currently trading around 14 times its forward earnings, offering a 2.6% dividend yield. The stock just broke out of a three-month price consolidation.

This is the way the equity market has been trading since the March 2009 low. No big corrections, just consolidations of various durations. It’s a good reminder of just how powerful monetary policy can be (right or wrong) and that a company’s shares price is a relative valuation or bet on the future.

Du Pont has appreciated approximately 23% over the last 12 months, and this doesn’t include dividends paid. Year-to-date, the return is just less than seven percent.

The company’s sales in the first quarter of 2014 were down slightly compared to the same quarter of 2013 and earnings were cut in half.

The company experienced one percent lower volume, one percent lower selling prices, and a one percent adverse currency impact, comparatively. Yet the stock just keeps ticking higher. This time last year, the position was trading around $55.00 a share; now it’s $70.00.

One research firm recently increased its earnings estimate on the company for all of 2014, but like so many other blue chips, it’s the expectation that sales growth will accelerate in 2015, and this is seemingly the bet by investors.

Du Pont didn’t have a good first quarter, and its top operating division—agriculture—actually produced a six-percent drop in segment sales compared to the first quarter of 2013.

Two key themes seem to be … Read More

Why Investors Should Pay Attention to This Diverse Stock

By for Profit Confidential

Business Booming for These Stocks Right NowWith little wind at its back from last year’s exceptional performance, this market is a stock-picker’s market, and one that continues to favor existing winners.

For an existing portfolio of large-cap, dividend-paying blue chips, I don’t see a lot of new action to take right now. The most valuable information for investors is what corporations actually say about their businesses. The outlook for dividends and share repurchases is solid.

Companies like Apple Inc. (AAPL) and Google Inc. (GOOG) get all the headlines, but it’s still very material what a company like E. I. du Pont de Nemours and Company (DD) says about business conditions around the world. Even if you wouldn’t consider DuPont as an investment, the business operates in a number of important industries, so what the company’s management reports could help to inform your market view.

Last year, the company said its total sales grew three percent to $35.7 billion. Five-percent growth in volume was offset by a one-percent decline in local selling prices and the one-percent negative impact of a stronger U.S. dollar.

The standout for DuPont was, once again, the company’s agricultural division, which saw a 13% gain in sales for the year to $11.74 billion. Agriculture also contributed the most to the company’s operating earnings, improving by 16% over 2012 to $2.48 billion.

This year, DuPont expects operating earnings of $4.20–$4.45 per share. This translates to an 8%–15% gain over 2013, which is pretty solid. The company expects 2014 total sales to grow four percent to approximately $37.0 billion, which is after an estimated two-percent decline from divestitures.

Management expects global industrial production to keep … Read More

Where to Look for Profits While Waiting for Stock Market Correction

By for Profit Confidential

dividend yieldFor a company with just one operating division that’s generating meaningful growth, E. I. du Pont de Nemours and Company (DD) seems to have an uncanny ability to appreciate in value on the stock market.

DuPont is a big player in the agriculture sector, and this operating division is somewhat of a proxy on the sell-side industry.

Last quarter, the company reported sales growth of five percent to $7.7 billion. The company’s agricultural division experienced the best gain, with a 15% hike in sales to $1.6 billion.

If institutional investors buy the stock market based on improving balance sheets, DuPont’s fits the bill. The company’s third-quarter cash position soared from $4.3 billion to $7.0 billion.

The stock was trading around $45.00 a share at the beginning of the year, and it is currently trading at approximately $62.00 with a 2.9% dividend yield. For such a mature enterprise, an impressive capital gain like this is indicative of a monetary policy-induced stock market, where even slow-growth enterprises have been bid significantly.

Across the board, Wall Street has been increasing DuPont’s earnings estimates for this year and next. For 2013, total sales are expected to grow approximately three percent, accelerating to 6.3% in 2014.

Current earnings growth consensus for 2014 is approximately 12%, and with a three percent dividend yield, a forward price-to-earnings (P/E) of 14 isn’t unreasonable. (See “My Six Favorite Growing Dividend Payers.”)

These big, brand-name corporations can really pay, but usually only after a major correction or shock that provides a good entry point into the stock market.

Blue chips can trade sideways for considerable periods of … Read More

Booming Agriculture Business Makes This Solid Dividend Payer Even More Attractive

By for Profit Confidential

Booming Agriculture Business Makes This Solid DividendWell, it turns out that third-quarter earnings were pretty good for E. I. Du Pont de Nemours and Company (DD). The company surprised with solid volume growth and its cash balance soared.

DuPont recently broke out of a two-year-long stock market consolidation. Still yielding around three percent, this position is not expensively priced, and its latest numbers were very good, considering the size and maturity of this business.

The company’s third-quarter consolidated sales grew five percent to $7.7 billion. The strongest division was, once again, in agriculture, with a 15% gain in sales to $1.6 billion on stronger volumes and higher pricing in Latin America.

Every single operating division posted improved operating earnings comparatively, except for the company’s performance chemicals business. Sales in Europe, the Middle East, and Africa (EMEA) grew a surprising 10% during the quarter, while sales in North America and the Asia Pacific grew three percent; Latin American sales grew four percent.

Of note was the company’s strong improvement in shareholders’ equity, and as is typical with so many large corporations, DuPont’s cash and cash equivalents balance soared to $7.0 billion, from $4.3 billion at the end of 2012.

The company’s third-quarter dividend was $0.45 a share, compared to $0.43 in the same quarter last year. Another dividend increase is likely within the next two quarters; the company can certainly afford it.

As I stated before, the most important division for DuPont is its agriculture business. Third-quarter expenditures on research and development were $540 million, compared to $521 million in the same quarter last year. Virtually all of the increased spending was dedicated to the company’s agriculture … Read More

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The Great Crash of 2014

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