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

Company

A company is a limited liability legal entity whose purpose is to produce a product or deliver a service to the marketplace for profit. A company is considered to be the next step in the evolution of the sole proprietorship.

 

 

How the Markets Will Close Out 2014

By for Profit Confidential

Markets Will Close Out 2014Credit card companies are some of the best indicators in the global economy. Visa Inc. (V) just reported a pretty decent quarter. While earnings were down comparatively due to a one-time charge, adjusted earnings handily beat consensus.

The company’s fiscal fourth quarter came in solid, with growth of 10% on a constant dollar basis to $3.2 billion compared to the same quarter last year.

Recently, the company increased its quarterly dividend 20%, and a new $5.0-billion share repurchase program has now been authorized.

Management estimates that its upcoming fiscal 2015 will produce revenue growth in the low double-digits and diluted earnings-per-share (EPS) growth in the mid-teens, which is very solid.

Visa’s share price really hasn’t done anything for the last 12 months. But this is on the back of tremendous capital appreciation in 2012 and 2013.

This stock market certainly seems trendless as of late. Investors are taking in corporate earnings news, but not doing too much with it.

The earnings numbers from many large-caps and conglomerates are pretty solid. But this market is tired out and the near-term action seems muted.

September and October are often difficult months for stocks and it’s unclear as to why. But going by the earnings results we’re getting and the forecasts that corporations are providing, I think it’s reasonable to expect a good fourth quarter—barring any shocks.

The marketplace knows that the Federal Reserve is going to initiate a new upward cycle in interest rates. It also knows that the central bank has proven to be highly accommodative to equities in recent history and deflationary indicators will increase the duration of when rates … Read More

Only Up From Here for This World-Class Internet Stock?

By for Profit Confidential

World-Class Internet StockWhat began as a relatively simple idea for communicating across computers or mobile devices has, in little more than a decade, become an iconic American symbol in social media.

Of course, I’m talking about Mark Zuckerberg’s start-up Facebook, Inc. (NASDAQ/FB), which traded at a new record-high of more than $81.00 on Tuesday morning, equating to a colossal market value of $210 billion. (Amazing what can come from the dorms of Harvard.)

Facebook is now arguably the top social media stock in the world with its more than one billion users, based on my stock analysis. A pretty big feat, though the company still hasn’t been able to crack into the highly regulated Chinese market.

As my stock analysis might suggest, getting its foot into China and India could generate even more staggering growth metrics for a company that is already beginning to deliver results by monetizing its user base.

For all those who thought Facebook was just another overhyped company with very little substance, they have so far been proven wrong.

Luckily, I was not one of those bears, as I couldn’t ignore the one billion pairs of eyes, especially if the company evolved and began to make money from its user base.

While the social media space is highly competitive with the likes of chief rival Twitter, Inc. (NASDAQ/TWTR), my stock analysis indicates that Facebook currently has the upper hand as the early entrant.

Facebook Inc Chart

Chart courtesy of www.StockCharts.com

Of course, the proof is in the financials, as my stock analysis suggests. How about revenue growth of 55% to $7.87 billion in 2013? More importantly, how about the superlative growth … Read More

3Q14 Earnings Results Suggest Strength into 2015?

By for Profit Confidential

3Q14 Earnings Results Suggest Strength into 2015Corporate earnings are flooding in, and while there are always disappointments—typically in not meeting Wall Street expectations—the numbers are pretty good.

The stock market was relieved when conglomerates started reporting. 3M Company (MMM) saw its share price pop almost five percent higher after beating estimates and reporting a solid improvement in U.S. market demand.

I continue to like this position for long-term, income-seeking investors. (See “Off-the-Radar Company Delivering Attractive Earnings.”)

The company reported record third-quarter sales growing a modest 2.8% comparatively to $8.1 billion, with local currency sales growing 3.9% and acquisitions adding 0.1% to sales.

Currency translation, which is a big issue for any company with international operations, reduced third-quarter revenues by about 1.2%, according to the company.

Net income came to $1.3 billion, or $1.98 per share, representing an 11% gain over the same quarter last year with operating margins exceeding 22% in all of the company’s operating subsidiaries.

It was a very good quarter for 3M Company. It’s important to remember that this is a mature conglomerate, so nobody is expecting double-digit top-line growth in this environment.

Still, the bottom line was impressive along with management tightening its 2014 earnings range to between $7.40 and $7.50 per share from the previous $7.30 to $7.55 per share.

Also jumping on the stock market after announcing its financial results was Alaska Air Group, Inc. (ALK). The company is up almost seven percent after reporting a record third quarter.

This airline has been a very hot stock over the last five years. Passenger revenues in the third quarter grew a solid seven percent over last year. Excluding some one-time items, … Read More

Crushed Oil Sector a Profitable Opportunity?

By for Profit Confidential

Crushed Oil Sector

The big news so far this earnings season isn’t corporate financial results but the price of oil, which continues to be under pressure.

Domestic production has finally caught up to spot prices and combined with reduced expectations for the global economy, oil prices continue to be vulnerable.

Resource investing is inherently volatile; risk related to commodity-based investing is always higher. But as oil prices have given oil stocks a well-deserved buzz-cut, value is appearing, which is not a common trait in today’s stock market.

There are countless growth stories in domestic oil and gas production. The smaller-cap growth stories have been expensively priced for a considerable period of time. They just got a big haircut as well, and all of a sudden, they are much more fairly priced.

For quite some time, oil prices held firm just over the $100.00-per-barrel level, which makes the recent drop all the more momentous. Conspiracy theories abound.

Some of the best opportunities when oil bottoms, I believe, will be in the large-cap space, but it’s important to consider that the price of oil is currently in “turmoil”—it can’t, in a sense, be counted on near-term.

One company that’s a standout in the current environment is Kinder Morgan, Inc. (KMI), which is going through a major corporate reorganization. Acquiring its related master limited partnership (MLP) entities, it is now the fourth-largest domestic oil company by market capitalization.

This corporate reorganization is a rejection of the MLP business model, but also an opportunity for management to shed non-core assets. (See “This Company’s $70.0-Billion Acquisition a Boon for Investors.”)

What I like about Kinder Morgan is that … Read More

Why I Expect a Big Boost in This Company’s 2015 Dividend Payout

By for Profit Confidential

Company 2015 Dividend PayoutEven with the recent price retrenchment, there’s not a lot of value circulating in this stock market. Everything’s already gone up and the capital gains have been great the last few years. But it’s still a slow-growth environment in the global economy, and despite a very accommodative monetary policy, stocks can’t go up forever without experiencing a meaningful retrenchment.

Company earnings are pouring in and there have been some disappointments. But for a lot of mature large-cap businesses, this is a reflection of their industries’ cycles. Large companies in mature industries don’t grow by very much more than the low single-digits.

Which is why a company’s dividends are so important in a stock market that’s at a high but offering little value.

It’s difficult to imagine stocks this year serving up double-digit returns on the back of 2013’s standout performance.

And investor sentiment has changed, too, with oil prices being the catalyst for the recent “deflation worry” sell-off. (See “Is This Stock Sell-Off Just a Blip?”)

The stock market’s existing winners are the way to go going into 2015. There’s plenty of cash in company coffers for more dividends and more share repurchases. It’s a formula that’s worked for large corporations over the last several years, and there’s no reason why it won’t keep working in a slow-growth environment.

Texas Instruments Incorporated (TXN) had a good quarter. The company beat Wall Street consensus, producing substantial double-digit gains in comparable earnings on eight-percent year-over-year revenue growth.

Texas Instruments achieved a new record in gross margin as both analog and embedded processors (which comprise just over 80% of the company’s total sales) … Read More

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