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

Blue Chip

A company that is well-known and that has been established over a number of years is considered a blue-chip stock. They have been through the boom times and recessions, giving investors confidence that they will remain a viable entity in the future. Blue-chips are usually less volatile than other stocks, as they have a steadier stream of predictable income and usually have extensive ownership by institutions, which can hold shares for a longer period of time than individual investors. Blue-chips are usually the market leader in their respective sectors.

One Group of Stocks Every Portfolio Should Have

By for Profit Confidential

Why Every Portfolio Should Include a Restaurant StockEvery stock market portfolio should consider restaurant stocks if the risk tolerance allows for it.

This industry sector has a long track record of delivering good capital gains to investors, recognizing, of course, that all restaurant chains experience periods of turmoil and changes among consumer preferences.

In the restaurant business, competition is fierce, and because there are so many options, margins are slim.

Sonic Corp. (SONC) just reported its financial results for its third fiscal quarter (ended May 31, 2014).

The company’s system-wide store sales grew 5.3%, with total revenues (including both company-owned drive-ins as well as franchises) growing to $152 million, compared to $147 million in the same quarter last year.

The company opened 10 new drive-ins during its fiscal third quarter and earnings grew to $16.8 million, or $0.30 per diluted share, from $14.8 million, or $0.26 per diluted share, for an earnings-per-share gain of 15%.

Sonic’s two-year stock chart is featured below:

Sonic Corporation Chart

Chart courtesy of www.StockCharts.com

The company expects earnings-per-share growth of between 14% and 15% in fiscal 2014, and the position is fully priced on the stock market.

Operationally, Sonic is experiencing renewed momentum in its business, with most new store openings being new franchises.

The stock did incredibly well from the late 1990s to the end of 2007, until the company’s growth picture turned. It wasn’t until the beginning of 2013 (like so many other stocks) that the company was able to reenergize operations. The stock has doubled over the last 18 months.

All restaurant chains experience periods when they just can’t produce the same growth as they used to. Combined with changes in … Read More

Why Key Stock Indices Can Still Advance in Wake of New Monetary Policy

By for Profit Confidential

Key Stock Indices Can Still Advance in Wake of New Monetary PolicyThe broader market is showing renewed strength in anticipation of the Federal Reserve’s decision on quantitative easing and third-quarter earnings season.

Typically, September is a volatile and tough month for stocks, but there’s a real resilience to the current stock market. Even the NASDAQ Composite is holding up well, considering Apple Inc.’s (AAPL) drop last week.

A key metric for me remains the Dow Jones Transportation Average and the components of the Dow Jones Industrial Average. Top- and bottom-line growth for blue chips is very modest, but balance sheets remain strong, and the institutional drive towards stock market safety and consistency remains a solid investment theme.

Dividends and the prospect for more dividends remain highly attractive in a slow-growth economy, and new funds for equities have to go somewhere. I see no reason why the Dow Jones Industrials can’t come through with their earnings outlooks going into the last quarter of the year.

But regardless of corporate fundamentals, the Federal Reserve has been and will continue to be the clear driver of this stock market. Institutional investors are still of the mantra that it doesn’t pay to fight the Fed and betting against it by those who get paid to play the stock market is highly unlikely.

Unless there is some new shock to the system, the stock market is likely to finish off a very good year.

If corporations are still wary about investing in new plant, equipment, and employees, the outlook for balance sheets and rising dividends remains strong. For years now, it’s been much easier for corporations to borrow cheap money and buy back shares in … Read More

This Old Economy Stock’s a Moneymaking Winner

By for Profit Confidential

Old Economy Stock’s a Moneymaking WinnerI’ve always liked railroad stocks; they are the backbone of North America, and they’re very good at making money. Often in this column we consider the stock market performance of Union Pacific Corporation (NYSE/UNP). I firmly believe that this company will continue to be a winner for investors.

As part of an ongoing series in this column, we’ve been looking at some of the best long-term performers the stock market has to offer. So far, we’ve considered PepsiCo, Inc. (NYSE/PEP), Union Pacific, and Colgate-Palmolive Company (NYSE/CL). While a track record can’t tell you where a stock is going to go in the future, for me, it lends a lot of weight to making a new investment decision. What I’m trying to find are great, dividend paying stocks that investors can accumulate when they’re down. If a stock has a history of recovering strongly from periods of price weakness, this lends a lot of credibility to its story.

Looking at railroad stocks specifically, one of the best-performing companies on the stock market has been Canadian National Railway Company (NYSE/CNI), which trades on both the New York and Toronto stock exchanges. Among railroad stocks, this company’s long-term wealth creation on the stock market is unmatched. The company’s dividend yield isn’t as large as other railroad stocks, but its capital gains are very impressive. The company’s stock chart is featured below:

Canadian National Railway Company Chart

Chart courtesy of www.StockCharts.com

This stock has basically been going straight up since the stock market correction in 2008/2009. On a split-adjusted basis, the stock was worth approximately $50.00 a share at the beginning of 2008, $20.00 a share in 2004, … Read More

Going Large-Cap for Capital Gains? Yep, and It Works

By for Profit Confidential

Going Large-Cap for Capital GainsBack in April of 2012, oil and gas giant ConocoPhillips (NYSE/COP) created spin-off Phillips 66 (NYSE/PSX) from its downstream energy assets. In the energy business, the term “downstream assets” refers to refining and marketing. For every two shares held in ConocoPhillips, shareholders received one free share of Phillips 66. It was a great bonus for shareholders, and it’s a gift that keeps on giving. Phillips 66 listed on the stock market around $34.00 a share last April; now it’s at $52.00, and the stock pays a dividend.

Every once in a while, the stock market offers up a bonus like this one. A big company sells off or splits up its different businesses, and this can create a lot more wealth for shareholders. The former Kraft Foods Inc. recently did this, and now shareholders have two dividend paying businesses to contend with. Many investment banks and consulting firms advise big corporations to do this, but not only because of the great fees spin-offs create; the whole idea is to let the stock market decide what individual businesses are worth, because in a conglomerate, it’s difficult to place a value on any one division.The company’s stock chart is featured below:

Phillips 66 Chart

 Chart courtesy of www.StockCharts.com

I was a stockbroker in the late 1990s, and that was a time when the stock market was roaring. The trading action was so good, day trading was a cinch. I saw all kinds of stocks fly high and then crash. I saw all kinds of initial public offerings (IPOs) hit the market and then crash in value. When the bubble was really building, people off the … Read More

How to Use Blue Chips for Capital Gains

By for Profit Confidential

How to Use Blue ChipsI still think that the best investment strategy for a stock market investor is to keep their assets at home. The eurozone is in recession, and emerging markets are just that—emerging. Now, I’m not referring to trading where there are lots of opportunities in small-cap technology companies and U.S.-listed Chinese stocks. I’m talking about building blue chip positions for long-term wealth creation—and preservation. These are the kind of stocks that you can use to build a nest egg for retirement, or use for income while in retirement.

Previously, I featured PepsiCo, Inc. (NYSE/PEP) as the kind of blue chip company with which I think long-term investors can build a position when the stock is down. The best strategy with an investment in this kind of blue chip company is to take its dividends and reinvest them in new shares. You can do this through a dividend reinvestment plan (DRIP), and the company allows you to reinvest all or a portion of its dividends into new shares. Dividend reinvestment in a blue chip stock that has a solid track record is an excellent way for you to create wealth.

Another blue chip company that has a great track record of making money for shareholders is Colgate-Palmolive Company (NYSE/CL), which is much more than just a toothpaste business. I like this company, its products, and most importantly, its track record of wealth creation on the stock market. Pull up a long-term chart on Colgate-Palmolive, and you’ll see what I mean. This is a company that you can invest in when its share price is down. Build a position in Colgate-Palmolive over time, … Read More

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