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

Bull Market

Lombardi Publishing Corporation was established in 1986 as an investment newsletter providing stock market analysis to its readers. Today, we publish 26 paid-for investment letters, most of which provide stock market direction and individual stock picking analysis.

Profit Confidential is our free daily e-letter that goes to all our Lombardi Financial customers and to any investor who wishes to opt-in to receive it. Written by Lombardi Financial editors who have been offering stock market guidance to Lombardi customers for years, Profit Confidential provides a macro-picture on where the stock market is headed.

We start by determining if we are in a bear market or a bull market; based on that analysis, we look at what sectors are hot and what sectors to avoid.

Profit Confidential famously warned its readers to bail from stocks in 2007 (the bull market was over, and a bear market was setting in), telling investors to jump back into the stock market in March of 2009 (a bear market rally began).

Michael Lombardi was one of the first to predict the U.S. economy would be in a recession by late 2007. On March 22, 2007, he warned, “Over the past few weeks, I’ve written about subprime lenders, and how their demise will hurt the U.S. housing market, the economy, and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fuelled the housing boom that peaked in 2005, has yet to arrive.”

At the same time Michael wrote that former Federal Reserve Chairman Alan Greenspan said, “The worst is over for the U.S. housing market, and there will be no economic spillover effects from the poor housing market.”

Michael also warned his readers, in advance, of the crash in the stock market in 2008. On November 29, 2007, Michael Lombardi predicted, “The Dow Jones Industrial Average, the S&P 500, and the other major stock market indices finished yesterday with the best two-day showing since 2002. I’m looking at the market reality of the past two days as a classic stock market bear trap. As the economy gets closer to contraction, 2008 will likely be a most challenging economic year for America.”

The Dow Jones peaked at 14,279 in October 2007. A “sucker’s rally” developed in November 2007, which Michael quickly classified as a bear trap for his readers. One year later, the Dow Jones Industrial Average was at 8,726.

Profit Confidential turned bullish on stocks in March 2009 and rode the bear market rally from a Dow Jones Industrial Average of 6,440 on March 9, 2009 to 12,876 on May 2, 2011, a gain of 99%.

The two-year bull market rally is coming to an end. The start of a bear market doesn’t mean investors should run to the sidelines. In fact, the bear market will present investors with an unprecedented opportunity.

In 2013, Michael predicts that the devaluation of the U.S. dollar that started in early 2009 will accelerate as the U.S. economy deteriorates, that gold prices will continue to rise, and that the euro is done. Michael also predicts that inflation will be a big, big problem for the U.S.; probably for the rest of the decade. Finally, Michael believes that 2013 will be a poor year for stocks.

That doesn’t mean it will be a bad year for all stocks. Even in the deepest bear market, there are always some stocks going against the grain. Michael has ways investors can protect their holdings and even make money off the weak economy.

Jumping on the Risk Bandwagon? Think Again

By for Profit Confidential

The stock market has an underlying strength to it, seemingly only to be undone by geopolitical events. Fed action always has the potential to shock the system. Negative economic news isn’t fazing this market. On the back of a pretty decent second quarter, many corporate outlooks predict another year of decent growth, particularly with earnings. While the stock market retrenched recently, positive days are still led by the Dow Jones Transportation Average, the Russell 2000 Index, and the NASDAQ components, which are traditionally positive for broader sentiment. Some speculative fervor has come back to two stock market sectors that are traditionally volatile—biotechnology stocks and restaurant stocks. But there really isn’t an underlying trend to latch onto. Jumping on the bandwagon of risky stocks seems unwise considering the stock market is at an all-time record-high. This is a market where equity investors have to be highly selective and wait for the right opportunities to present themselves, if you’re considering new positions at all. This can be in the form of a specific sector theme (like oil and gas, for example) or looking for good companies that have retrenched for their own specific reasons. In any case, with the stock market at a record high, it’s difficult to find value, and new positions become entirely reliant on market momentum, not necessarily individual corporate achievement. There are very few companies that I would consider now, but within the context of a long-term stock market portfolio, investors want their money to be put to work. In equities, I still think that portfolio safety is the name of the game. This is a market that hasn’t experienced a material price correction for five years. There have been retrenchments and price consolidations, but no reset, no revaluation that would make stock market investors with cash want to jump into a marketplace still beset with huge monetary stimulus and strong balance sheets—a marketplace still extremely favorable to equities. Companies for consideration at this time that fit into my earnings (and dividends) safety list include Microsoft Corporation (MSFT), PepsiCo, Inc. (PEP), Johnson & Johnson (JNJ), and 3M Company (MMM). There should be exposure to oil and gas in this short list, too. Previously, I liked Kinder Morgan Energy Partners, L.P. (KMP), but with news that this high-yielding limited partnership is being bought out by Kinder Morgan, Inc. (KMI), I’m looking for a solid new pick in this sector. (See “This Company’s $70.0-Billion Acquisition a Boon for Investors.”) A lot of investors are more risk-tolerant than these mature enterprises might present. But institutional investors are still skittish; they are still buying earnings safety in this stock market. Accordingly, dividend-paying blue chips remain highly correlated to the broader market and for the investment risk, given that this market could experience a 20% correction at any time for a multitude of reasons, new buyers of equities should consider stocks offering earnings and dividends safety. In the equity market—which is a secondary market with a pricing mechanism subject to fear, greed, and the herd mentality—capital preservation is a worthy investment goal. So far in this bull market, blue chips have performed exceedingly well relative to the rest of the stock market and they are still where institutional investors want to be.The stock market has an underlying strength to it, seemingly only to be undone by geopolitical events. Fed action always has the potential to shock the system. Negative economic news isn’t fazing this market.

On the back of a pretty decent second quarter, many corporate outlooks predict another year of decent growth, particularly with earnings.

While the stock market retrenched recently, positive days are still led by the Dow Jones Transportation Average, the Russell 2000 Index, and the NASDAQ components, which are traditionally positive for broader sentiment.

Some speculative fervor has come back to two stock market sectors that are traditionally volatile—biotechnology stocks and restaurant stocks.

But there really isn’t an underlying trend to latch onto. Jumping on the bandwagon of risky stocks seems unwise considering the stock market is at an all-time record-high.

This is a market where equity investors have to be highly selective and wait for the right opportunities to present themselves, if you’re considering new positions at all.

This can be in the form of a specific sector theme (like oil and gas, for example) or looking for good companies that have retrenched for their own specific reasons.

In any case, with the stock market at a record high, it’s difficult to find value, and new positions become entirely reliant on market momentum, not necessarily individual corporate achievement.

There are very few companies that I would consider now, but within the context of a long-term stock market portfolio, investors want their money to be put to work.

In equities, I still think that portfolio safety is the name of the game. This is a market that … Read More

This Company’s $70.0-Billion Acquisition a Boon for Investors

By for Profit Confidential

Four Strong Businesses Now One Great CompanyAs evidence of the continuing bull market, Kinder Morgan, Inc.’s (KMI) massive acquisition of its partnership companies is a significant sign that business conditions remain strong in the energy industry.

Kinder Morgan surprised the marketplace by announcing plans to purchase Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR), and El Paso Pipeline Partners, L.P. (EPB) in an enormous $70.0-billion consolidation.

The wealth effect from the news was immediately significant, with all partnership units rising substantially on the stock market.

Kinder Morgan Energy Partners is the largest master limited partnership in the United States and has been a top choice among income-seeking investors. The partnership was worth approximately $80.0 billion, or $80.00 per unit, with a 6.9% yield before news of its acquisition. It opened 20% higher, close to $100.00 per unit, on news of the deal.

Investors can choose cash or take up new shares in Kinder Morgan, Inc., which plans to increase its dividend 16% in 2015 to $2.00 a share. The company also plans to increase its dividend by at least 10% per year until 2020, and it’s likely that there will be a number of smaller divestitures over the coming quarters.

Once the company acquires all its related corporate entities, it will be the largest energy infrastructure company in North America. Management expects its debt to be investment grade, and the combined company should be able to garner a lower cost of capital.

The current environment is a great time to be in energy infrastructure. Transportation and storage of hydrocarbons is a growth business with rising domestic production.

And it’s tough to find double-digit … Read More

Why a Full-Blown Market Correction Should Be Expected

By for Profit Confidential

Investors Can't Overlook to Succeed in This MarketThe monetary environment is still highly favorable to stocks and should continue to be so well into 2015. However, while this market can handle higher interest rates, stocks can only advance in a higher interest rate environment if gross domestic product (GDP) growth is there to back it up.

Because of the capital gains over the last few years and the across-the-board record-highs in many indices, investment risk in stocks is still high. Accordingly, it’s worthwhile reviewing your exposure to risk, particularly regarding any highflyers in your portfolio; they get hit the hardest when a shock happens.

Currently, geopolitical events between Ukraine and Russia have the potential to be the catalyst for a correction. It could happen at any time depending on what transpires.

The risk of stocks selling off on the Federal Reserve’s actions is diminishing. The marketplace is well informed about the central bank’s intentions and it’s quite clear that Fed Chair Janet Yellen doesn’t want to do anything to “surprise” Wall Street.

I still view this market as one where institutional investors want to own the safest names. The economic data just isn’t strong enough for traditional mutual funds and pensions to be speculating.

This is why the Dow Jones Industrial Average and other large-cap dividend paying stocks are so well positioned. They offer great prospects for increasing quarterly income, some capital gain potential (still), and downside protection compared to the rest of the market.

Of course, all stocks are risky. An equity security is priced in a secondary market where fear, greed, emotions, and a herd mentality are part of the daily pricing mechanism.

Accordingly, anything … Read More

What Investors Need to Know About the Current Market Cycle

By for Profit Confidential

What These Large-Caps Are Revealing About the Current Stock Market CycleIf there ever was an equity security epitomizing the notion that the stock market is a leading indicator, Caterpillar Inc. (CAT) would fit the bill.

This manufacturer is in slow-growth mode, but it’s been going up on the stock market as institutional investors bet on a global resurgence for the demand of construction and other heavy equipment and engines.

And the betting’s been pretty fierce. Caterpillar was priced at $90.00 a share at the beginning of the year. Now, it’s $110.00, which is a substantial move for such a mature large-cap. (See “Rising Earnings Estimates the New Catalyst for Stocks?”)

The stock actually offers a pretty decent dividend. It’s currently around 2.6%.

While sales and earnings in its upcoming quarter (due out July 24, 2014) are expected to be very flat, Street analysts are putting their focus on 2015. Sales and earnings estimates for next year are accelerating, and it’s fuel for institutional investors with money to invest.

The notion that the stock market leads actual economic performance is very real. Just like there are cycles in the economy, the stock market itself is highly cyclical. And while every secular bull market occurs for different reasons, there are commonalities in the price action.

Caterpillar’s share price is going up on the expectation that its sales and earnings (on a global basis) will accelerate next year.

Transportation stocks, as evidenced by the Dow Jones Transportation Average, are the classic bull market leaders.

Transportation, whether it’s trucking, railroads, airlines, or package delivery services, is as good a call on general economic activity as any. The Dow Jones Transportation Average was … Read More

What Do This Quarter’s Mixed Earnings Results Mean?

By for Profit Confidential

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.

While earnings are managed, over time, a business can’t manufacture success unless it’s a fraud (which, sadly, does happen).

Big companies have the operational leverage and the cash to keep boosting their earnings per share. Oracle’s latest financial results were uninspiring, and while recognizing that this is a very mature business with growing competition in the cloud, the position advanced a material 10 points since last June—this seems so overdone…. Read More

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The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.

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