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

Dividends

A dividend is the payment that a company distributes to its shareholders as a percent of earnings. Management can decide whether to pay a dividend, how much it is, and the frequency of payments. Dividends are often distributed quarterly and are quoted as the amount of dividend per share. Companies that are growing fast tend not to issue a dividend, as they pour money back into the business.

My Top Company for Income and Capital Gains

By for Profit Confidential

Why Every Investor Should Consider a Stock Like This One at This TimeOnce again, Johnson & Johnson (JNJ) has come through for investors. The company just reported a very solid first-quarter earnings report.

Continued strength in the company’s pharmaceutical business is the big reason for the growth. Total global sales grew 3.5% to $18.1 billion, with domestic sales growing 2.2% and international sales growing 4.5%.

Notable in the company’s latest numbers was strength in European sales, which is an emerging trend this earnings season. Johnson & Johnson reported a nine-percent gain in sales to Europe, growing to $4.89 billion during the quarter.

Excluding some one-time items, first-quarter earnings were $4.4 billion, or $1.54 per diluted share, for an increase of 7.8% and 6.9%, respectively, over the same quarter of 2013.

The company boosted its full-year 2014 earnings guidance to between $5.80 and $5.90 per share, up from the previous $5.75 to $5.85 per-share range excluding special items.

After the stock market sell-off in January, Johnson & Johnson’s share price dropped to around $87.00 a share by early February. It has since made a full recovery, now trading close to $100.00.

I still view this company as a position worth considering for a long-term portfolio when it’s down. Typically, the stock isn’t down for long. Its five-year stock chart is featured below:

Johnson & Johnson ChartChart courtesy of www.StockCharts.com

According to its numbers, Johnson & Johnson’s consumer products business is pretty flat, while medical device growth can be volatile. The anchor to the company’s business and its profitability remains pharmaceuticals, but the other business lines are complementary. Instead of just a pure-play large-cap pharma business, the diversification among other product lines helps with cash flow.

Johnson … Read More

Stock Market Setting Up for Extended Break?

By for Profit Confidential

Soft Q1 Suggesting Market Set for Extended BreakThe S&P 500 index really hasn’t done much since the beginning of the year but churn…but then again, why shouldn’t it?

For stocks, 2013 was an exceptional year. If we get another positive year on top of dividends, then it’s total gravy.

The capital gains over the last several years have been highly unusual, representative of the gains often seen after a major financial crisis.

There are no bandwagons to jump on in this stock market. Investor sentiment finally had a bit of an awakening over the last several weeks. Big investors booked some profits after the big price recovery in February, which occurred because of verbal reassurances by the new Fed chair, Janet Yellen. If there wasn’t further hand-holding from the Fed, stocks likely would have continued January’s sell-off into a full-blown correction, helped by events in Ukraine.

I’m of the mind that the stock market may take an extended break over the next two quarters, as it’s so often done in the past—probably more of a price consolidation over a correction; top-line growth is still pretty modest.

I’m still a big fan of dividend income and also a higher weighting given to cash within a portfolio context. Very little stands out in this stock market as an exceptional buy. There are some exciting innovations in the marketplace, but valuations for many of these stocks are still way off the charts.

Precious metals continue to prove themselves as an unreliable asset class. Spot prices are stuck and all-sustaining mining costs per ounce are still going up. It’s a tough road ahead for precious metals stocks.

But this is … Read More

Blue Chip Stocks Expensive at This Point

By for Profit Confidential

With These Two Blue Chips Pushing HighsThere are a whole bunch of brand-name stocks that recently appreciated back close to their highs, many of which will soon be reporting their earnings.

Despite this fact, however, it still seems like a very difficult environment in which to be a buyer. Stocks just aren’t that attractively priced; in fact, many brand-name companies are priced for perfection. It’s still slow growth out there, and with equity prices at their all-time highs, this year’s returns may only be the dividends, which would just return the rate of inflation at best.

Colgate-Palmolive Company (CL) is a top-performing blue chip with an excellent track record of generating wealth for investors. The stock hit an all-time record-high last fall, and then backed off just like everything else did in January. It has since recovered.

The position boasts a forward price-to-earnings ratio of around 19.5, which makes it fully priced in my books. Sales growth in the first quarter of 2014 is expected to be minimal, and so are comparative earnings.

This year’s revenue consensus averages two percent among Wall Street analysts, rising to 5.4% in 2015.

Great companies like this tend to command higher multiples, as institutional investors pay for the certainty. But comparatively, Colgate-Palmolive commands a much higher valuation than Microsoft Corporation (MSFT), which is a technology company growing at a faster rate.

All things being equal, it makes me think that a blue chip like Microsoft can actually run a lot further than it has recently, playing catch-up to the rest of the market.

It’s interesting how stocks go through their own cycles, both operationally and in terms of favor among … Read More

Does Risk Trump Returns in This Stock Market Environment?

By for Profit Confidential

Why Risk Now Trumps Stock Market ReturnsGoing by the choppy trading action this year, investment risk with equities is going up.

Recent shocks to the system include events in Ukraine and Crimea, Chinese economic data, and Citigroup Inc.’s (C) failed stress test.

This is a very uneasy stock market, and because the main indices are right around their highs, any shock has the potential to deliver a serious haircut to asset prices. The choppy, trendless action combined with full valuations is the reason why I’ve been advocating taking profits from speculative positions. This stock market is just plain tired out.

First-quarter earnings season is just around the corner, and while it’s looking like we’ll get more of the same from corporations (a meet-or-beat on only one financial metric, revenues or earnings) the stock market needs more than dividends and share buybacks in order for share prices to keep appreciating.

Blue chips, especially, have been coasting along, providing single-digit earnings growth on modest sales. The icing on the cake has been the rising dividends and share repurchases, which the stock market has eaten up over the last two years.

But sentiment is slowly changing regarding share repurchases. Big investors want to see more than these financial tools in the businesses they own. Rising dividends are always great, but you need underlying revenue and earnings growth to sustain the case. And in order to do so, corporations have to make new investments. They’ve been very reticent to date.

Healthy balance sheets are always desirable, but new business investment and innovation is what creates wealth over the long-term. Everything’s been short-term thinking the last few years, and companies … Read More

What These Two Large-Cap Techs Are Saying About the Upcoming Quarter

By for Profit Confidential

What These Two Companies Signal for Tech Stocks This QuarterYou know another earnings season is right around the corner because Oracle Corporation (ORCL) and Adobe Systems Incorporated (ADBE) always report their fiscal results just ahead of the calendar quarter end.

Both technology stocks are bellwethers, and while they are mature enterprises, they do help set the tone in sentiment. It’s exactly what the marketplace needs now so investors can have something else to worry about over geopolitical events.

Oracle’s been going through its own issues trying to generate top-line growth. Revenue and earnings the last several quarters have been very modest.

And so have Adobe’s numbers, but Wall Street analysts have been boosting their earnings estimates for the company in 2015 and the stock has doubled over the last 18 months.

Oracle is definitely more of a value play, and the company pays a dividend. Adobe is expensively priced and while much smaller, still boasts a stock market capitalization of approximately $34.0 billion.

In previous quarters, it was pretty obvious what the Street was looking for in terms of earnings results. At the beginning of 2013, investors just wanted to know that corporate earnings would hold up. Then they were happy with modest growth so long as dividends were increased.

This quarter, there doesn’t seem to be a financial metric that the market is looking for just yet. The choppy trading action is a reflection of all the uncertainty in the world, but also a market that hasn’t experienced a material price correction since 2008/2009, which is a long time to go.

As much as a broad stock market correction would be a healthy development for the long-run trend, … Read More

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My Top Company for Income and Capital Gains

By for Profit Confidential

Why Every Investor Should Consider a Stock Like This One at This TimeOnce again, Johnson & Johnson (JNJ) has come through for investors. The company just reported a very solid first-quarter earnings report.

Continued strength in the company’s pharmaceutical business is the big reason for the growth. Total global sales grew 3.5% to $18.1 billion, with domestic sales growing 2.2% and international sales growing 4.5%.

Notable in the company’s latest numbers was strength in European sales, which is an emerging trend this earnings season. Johnson & Johnson reported a nine-percent gain in sales to Europe, growing to $4.89 billion during the quarter.

Excluding some one-time items, first-quarter earnings were $4.4 billion, or $1.54 per diluted share, for an increase of 7.8% and 6.9%, respectively, over the same quarter of 2013.

The company boosted its full-year 2014 earnings guidance to between $5.80 and $5.90 per share, up from the previous $5.75 to $5.85 per-share range excluding special items.

After the stock market sell-off in January, Johnson & Johnson’s share price dropped to around $87.00 a share by early February. It has since made a full recovery, now trading close to $100.00.

I still view this company as a position worth considering for a long-term portfolio when it’s down. Typically, the stock isn’t down for long. Its five-year stock chart is featured below:

Johnson & Johnson ChartChart courtesy of www.StockCharts.com

According to its numbers, Johnson & Johnson’s consumer products business is pretty flat, while medical device growth can be volatile. The anchor to the company’s business and its profitability remains pharmaceuticals, but the other business lines are complementary. Instead of just a pure-play large-cap pharma business, the diversification among other product lines helps with cash flow.

Johnson … Read More

Stock Market Setting Up for Extended Break?

By for Profit Confidential

Soft Q1 Suggesting Market Set for Extended BreakThe S&P 500 index really hasn’t done much since the beginning of the year but churn…but then again, why shouldn’t it?

For stocks, 2013 was an exceptional year. If we get another positive year on top of dividends, then it’s total gravy.

The capital gains over the last several years have been highly unusual, representative of the gains often seen after a major financial crisis.

There are no bandwagons to jump on in this stock market. Investor sentiment finally had a bit of an awakening over the last several weeks. Big investors booked some profits after the big price recovery in February, which occurred because of verbal reassurances by the new Fed chair, Janet Yellen. If there wasn’t further hand-holding from the Fed, stocks likely would have continued January’s sell-off into a full-blown correction, helped by events in Ukraine.

I’m of the mind that the stock market may take an extended break over the next two quarters, as it’s so often done in the past—probably more of a price consolidation over a correction; top-line growth is still pretty modest.

I’m still a big fan of dividend income and also a higher weighting given to cash within a portfolio context. Very little stands out in this stock market as an exceptional buy. There are some exciting innovations in the marketplace, but valuations for many of these stocks are still way off the charts.

Precious metals continue to prove themselves as an unreliable asset class. Spot prices are stuck and all-sustaining mining costs per ounce are still going up. It’s a tough road ahead for precious metals stocks.

But this is … Read More

Blue Chip Stocks Expensive at This Point

By for Profit Confidential

With These Two Blue Chips Pushing HighsThere are a whole bunch of brand-name stocks that recently appreciated back close to their highs, many of which will soon be reporting their earnings.

Despite this fact, however, it still seems like a very difficult environment in which to be a buyer. Stocks just aren’t that attractively priced; in fact, many brand-name companies are priced for perfection. It’s still slow growth out there, and with equity prices at their all-time highs, this year’s returns may only be the dividends, which would just return the rate of inflation at best.

Colgate-Palmolive Company (CL) is a top-performing blue chip with an excellent track record of generating wealth for investors. The stock hit an all-time record-high last fall, and then backed off just like everything else did in January. It has since recovered.

The position boasts a forward price-to-earnings ratio of around 19.5, which makes it fully priced in my books. Sales growth in the first quarter of 2014 is expected to be minimal, and so are comparative earnings.

This year’s revenue consensus averages two percent among Wall Street analysts, rising to 5.4% in 2015.

Great companies like this tend to command higher multiples, as institutional investors pay for the certainty. But comparatively, Colgate-Palmolive commands a much higher valuation than Microsoft Corporation (MSFT), which is a technology company growing at a faster rate.

All things being equal, it makes me think that a blue chip like Microsoft can actually run a lot further than it has recently, playing catch-up to the rest of the market.

It’s interesting how stocks go through their own cycles, both operationally and in terms of favor among … Read More

Does Risk Trump Returns in This Stock Market Environment?

By for Profit Confidential

Why Risk Now Trumps Stock Market ReturnsGoing by the choppy trading action this year, investment risk with equities is going up.

Recent shocks to the system include events in Ukraine and Crimea, Chinese economic data, and Citigroup Inc.’s (C) failed stress test.

This is a very uneasy stock market, and because the main indices are right around their highs, any shock has the potential to deliver a serious haircut to asset prices. The choppy, trendless action combined with full valuations is the reason why I’ve been advocating taking profits from speculative positions. This stock market is just plain tired out.

First-quarter earnings season is just around the corner, and while it’s looking like we’ll get more of the same from corporations (a meet-or-beat on only one financial metric, revenues or earnings) the stock market needs more than dividends and share buybacks in order for share prices to keep appreciating.

Blue chips, especially, have been coasting along, providing single-digit earnings growth on modest sales. The icing on the cake has been the rising dividends and share repurchases, which the stock market has eaten up over the last two years.

But sentiment is slowly changing regarding share repurchases. Big investors want to see more than these financial tools in the businesses they own. Rising dividends are always great, but you need underlying revenue and earnings growth to sustain the case. And in order to do so, corporations have to make new investments. They’ve been very reticent to date.

Healthy balance sheets are always desirable, but new business investment and innovation is what creates wealth over the long-term. Everything’s been short-term thinking the last few years, and companies … Read More

What These Two Large-Cap Techs Are Saying About the Upcoming Quarter

By for Profit Confidential

What These Two Companies Signal for Tech Stocks This QuarterYou know another earnings season is right around the corner because Oracle Corporation (ORCL) and Adobe Systems Incorporated (ADBE) always report their fiscal results just ahead of the calendar quarter end.

Both technology stocks are bellwethers, and while they are mature enterprises, they do help set the tone in sentiment. It’s exactly what the marketplace needs now so investors can have something else to worry about over geopolitical events.

Oracle’s been going through its own issues trying to generate top-line growth. Revenue and earnings the last several quarters have been very modest.

And so have Adobe’s numbers, but Wall Street analysts have been boosting their earnings estimates for the company in 2015 and the stock has doubled over the last 18 months.

Oracle is definitely more of a value play, and the company pays a dividend. Adobe is expensively priced and while much smaller, still boasts a stock market capitalization of approximately $34.0 billion.

In previous quarters, it was pretty obvious what the Street was looking for in terms of earnings results. At the beginning of 2013, investors just wanted to know that corporate earnings would hold up. Then they were happy with modest growth so long as dividends were increased.

This quarter, there doesn’t seem to be a financial metric that the market is looking for just yet. The choppy trading action is a reflection of all the uncertainty in the world, but also a market that hasn’t experienced a material price correction since 2008/2009, which is a long time to go.

As much as a broad stock market correction would be a healthy development for the long-run trend, … Read More

Analyst Downgrade on This Retailer Creates Opportunity?

By for Profit Confidential

Top Retailer Surprises the Street with Great NumbersRetail is a tough business to be in and always difficult as an investor. Williams-Sonoma Inc. (WSM) took off after the company beat Wall Street consensus and increased its quarterly dividend by six percent on the back of 4.3 million repurchased shares in fiscal 2013.

The stock moved 10% higher on the day of the company’s earnings report, and it broke out of an eight-month price consolidation.

Williams-Sonoma also operates the “Pottery Barn” and “West Elm” retailers, and is pretty much a unique story in specialty merchandising in terms of its operational success.

Over the last month, a number of Wall Street analysts reduced the company’s earnings expectations for this fiscal year and next. But the company did have good operational success in its fiscal fourth quarter of 2013, with a 10.4% gain in comparable revenue growth among its five retail divisions, with particular strength at West Elm.

Earnings per share increased 8.7% in the fourth quarter, and the dividend increase really pleased investors.

Operationally, Pottery Barn is the company’s largest revenue generator, about double the revenues generated from Williams-Sonoma-branded stores at $1.9 billion last year.

In the fiscal first quarter of 2014, the company expects comparable total sales to grow between four and six percent. The company has been conservative with previous forecasts; many companies have a tendency to lowball their outlooks to make “outperformance” easier.

Williams-Sonoma’s long-term track record is solid, however, and it’s been a good performer on the stock market. Its 20-year chart is featured below:

WSM Williams Sonoma, Inc. NYSE Chart

Chart courtesy of www.StockCharts.com

The company is doing better than a lot of other retailers, and management said that it … Read More

This Blue Chip Keeps Bouncing Back

By for Profit Confidential

This One Stock Keeps Bouncing BackAmong blue chips, Johnson & Johnson (JNJ) remains one of the most attractive enterprises for long-term investors.

As a benchmark stock within the entire equity universe and a conglomerate itself of healthcare businesses, it’s reasonable to expect a stock like this to provide a normalized annual return of approximately 10% including dividends.

Johnson & Johnson isn’t typically down for long on the stock market, and most recently, the stock popped higher after dropping to $86.00 a share.

The position’s been toying with $95.00 a share, and this is a ceiling for the stock, according to its recent trading action over the last couple of quarters. If the broader market holds firm, $100.00 a share by year-end would be a fair and attainable price target.

While not robust, earnings have caught up to share prices for many blue chips and countless positions are not overpriced.

Johnson & Johnson has a trailing price-to-earnings (P/E) ratio of approximately 19.5 and a forward P/E ratio of around 15. Because of the company’s stellar long-term returns to shareholders, it’s kind of like a golden blue chip, as very few companies have been able to produce such decent and consistent operational growth in their businesses.

Johnson & Johnson’s long-term, split-adjusted stock chart is featured below:

JNJ Johnson & Johnson NYSE Chart

Chart courtesy of www.StockCharts.com

All blue chips, even those with increasing dividends, experience periods of non-performance, but often to a lesser degree than the broader market. While not offering robust growth, the stability of an enterprise like this company provides peace of mind, in addition to the high likelihood that dividends will increase in the future and that demand for … Read More

Three Steady Stocks to Balance High-Flyers & Boost Your Returns

By for Profit Confidential

Solid Portfolio Needs Some Steady Growers Like These Three StocksLots of companies are still reporting their financial results, and there are a lot of unique stories out there that are worth following.

AAON, Inc. (AAON) reports this week. We’ve looked at this enterprise several times before in this publication. Company management has an impressive track record of generating consistent growth.

It will be interesting to see if the company can keep its operational momentum. (See “Why This Company Should Be a Case Study in Business Schools.”) Over the medium- to long-term, it’s proven unwise to bet against this well-managed business.

Last year in these pages, we briefly highlighted a very interesting medical device company called Globus Medical, Inc. (NASDAQ/GMED). Based out of Audubon, Pennsylvania, the company specializes in the treatment of spinal disorders and is building its business in a very consistent and methodical way.

The stock stumbled in the fourth quarter of 2012 but has been moving solidly higher as management delivers modest but consistent growth in revenues and earnings.

The company’s two-year stock chart is featured below:

GMED Globus Medical, Inc. NYSE Chart

Chart courtesy of www.StockCharts.com

Stocks with consistent share price performance are golden, and it comes on the back of consistent operational growth. It doesn’t have to be runaway growth or even double-digit growth; institutional investors love medical device stocks, and they will bid them as long as a company delivers on expectations.

Any stock can break down at any time for a multitude of reasons, but I’ve seen so many consistently returning stocks produce better capital gains (over a longer period of time, of course) than many high-flyers.

It’s not that high-flying trades aren’t worth pursuing; rather, within … Read More

Former Momentum Stocks Signpost to Sell?

By for Profit Confidential

Price Momentum Suggests Portfolio RebalancingA good amount of speculative fervor has come out of this market so far this year, but there’s still quite a bit of valuation froth around.

Across the board, 3D-printer stocks have come back. 3D Systems Corporation (DDD) still boasts a trailing price-to-earnings (P/E) ratio of around 150.

Tesla Motors, Inc. (TSLA) is still going strong. It’s one of few super-hyped stocks that made a strong recovery in January after a material sell-off months before. (See “Buy High, Sell Higher: Top Investment Strategy for Buoyant Markets?”) The position just bounced off $265.00 per share. Next year, Wall Street estimates the company will do more than $5.0 billion in sales.

Looking at the stock market currently, there’s a lot of indecisiveness and geopolitical events are overshadowing the action.

Watch large-cap biotechnology stocks (or the NASDAQ Biotechnology Index) for their trading action specifically. This group of stocks reaccelerated strongly in February and is very much overdue for a material correction.

I’ve noticed several key momentum stocks within the group have started rolling over. This should be a strong contributing indicator to the short-term action unrelated to specific events happening in Ukraine.

Gold is holding up well with the geopolitical tensions, and oil prices are too, but to a lesser degree.

Stocks are due for a break. What looked like the makings of a material correction in January, equities reversed direction after the Federal Reserve, once again, reiterated its willingness to be highly accommodative to capital markets.

This kind of market (after such a strong 2013 for stocks) warrants a significant degree of caution. I wouldn’t be jumping onto any bandwagons. … Read More

The Dividend-Paying Blue Chips That Also Deliver Significant Capital Gains

By for Profit Confidential

Two Blue Chips to Snatch up When They're DownAmong the many lessons to be learned by 2013’s stunning stock market performance, one is that dividend-paying blue chips can also experience significant capital gains.

Portfolio strategy can be based on blue chips, but it can also include companies with varied market capitalizations; mixing it up is always useful.

The thing with blue chips is that they often experience long periods of underperformance, even if they are still paying their dividends. Periods like 2013 are pretty rare, but I do think there is enough momentum in this market to carry blue chips a little higher, with gains more likely towards the end of the year.

I still feel that existing winners, especially larger-cap companies that offer dividend income, are the way to go in a slow-growth environment. Top-notch balance sheets, including huge cash balances and the very low cost of capital are a boon to big companies.

The bears are always looking for reasons why stocks should go down, but blue chips have the pricing power and the economies of scale to keep earnings afloat.

Management teams are reticent to make bold investments in new plant and equipment, and the trend of keeping shareholders happy with increasing dividends and share repurchases shows no sign of abating. These are good markets for conservative investors.

The Walt Disney Company (DIS) is one of many blue chips that are worthy of consideration when they’re down. According to this stock’s historical track record, it isn’t down for long. The company’s recent stock chart is featured below:

DIS Walt Disney Co. NYSE Chart

Chart courtesy of www.StockCharts.com

Disney recently dipped to $70.00 a share when the broader stock market retrenched in … Read More

Should Your Portfolio Strategy Focus on Geopolitical Events?

By for Profit Confidential

Are Geopolitical Events Now the Catalyst for StocksStocks have been choppy since the beginning of the year and geopolitical events are now the near-term catalyst.

It’s a good reminder that it’s worthwhile to review investment risk to equities and what you can tolerate in terms of potential downside with stocks.

As these pages are focused on the equity market, investment risk is always a priority. Portfolio risk can get lost in a bull market, but it’s still a huge part of the equation in terms of overall strategy.

There’s just so much beyond your control as an individual investor. At the end of the day, with stocks, it’s an investment in a business commensurate with a bet that its per-share worth (which is only definitive in the event of a buyout) will be recognized by a marketplace ruled by fear, greed, and emotions.

In late 1999, The Procter & Gamble Company (PG) had an earnings miss and the stock was basically cut in half, as the hype related to technology stocks was coming apart. It took five full years for Procter & Gamble’s share price to recuperate from the sell-off; and while the company was still paying its dividends, that’s a long time for any equity investor.

Stocks always correct themselves eventually, but excessive pricing (like in other asset classes) can last for quite a while. Procter & Gamble’s long-term stock chart is featured below:

PG Procter Gamble Company Chart

Chart courtesy of www.StockCharts.com

In terms of portfolio strategy related to stocks, a multi-faceted investment strategy is key. This means varying holdings among industries, stock market capitalizations, dividend paying stocks, and pure-play bets.

An individual investor certainly doesn’t have to be the … Read More

Reckless New Fad: Companies Raise Money to Buy Back Stock, Pay Dividends

By for Profit Confidential

The Tale of Share Buybacks Few TellLast Thursday, the CEO of DIRECTV (NASDAQ/DTV) said “…we are pleased to announce a share repurchase program of $3.5 billion. This repurchase program reflects our strong balance sheet and confidence in continued strong DIRECTV revenue, earnings and free cash flow growth, as well as our belief that our stock is far below our intrinsic value.” (Source: “DIRECTV Announces Fourth Quarter and Full Year 2013 Results,” DIRECTV, February 20, 2014.)

DIRECTV is buying back its shares because it believes they are undervalued? Since when did CEOs of companies on key stock indices become stock pickers?

In 2013, DIRECTV’s total corporate earnings came in at $2.85 billion. That means the company is spending 122% of what it made in 2013 to buy back its stock. Talk about pumping up per-share earnings!

Cisco Systems, Inc. (NASDAQ/CSCO), another major component of key stock indices, reports it is “raising” $8.0 billion to repay some of its debt. It will use the remainder of the money to buy back its shares and pay dividends. (Source: Cisco Systems, Inc., February 24, 2014.) Yes, instead of raising money to invest in equipment, technology, or research and development (R&D), the new fad is for companies to raise money to buy back their shares and pay dividends.

These are only two examples of companies in key stock indices using share buybacks to make their per-share corporate earnings look better. There are many others that are doing the exact same thing.

Dear reader, with corporate earnings growth falling to its lowest level since 2009, companies have no choice but to prop up earnings via stock buyback programs. Companies in key stock … Read More

A “Boring” Investment Strategy That Always Pays

By for Profit Confidential

What Makes a Stock an Attractive PackageAmong blue chips, 3M Company (MMM) is getting a lot of increased earnings estimates from analysts. For such a mature company, 3M’s been doing very well on the stock market, and it looks to be well-positioned for more capital gains.

At the end of 2013, 3M had approximately 89,000 employees (full-time equivalent), of which 60% were based abroad. The company spends a lot on new research and development, and while many blue chips have been doing everything they can to squeeze costs, 3M keeps spending on new scientific and technology development ($1.57 billion in 2011, $1.63 billion in 2012, and $1.72 billion in 2013).

The largest component of the company’s sales is its industrial business, which makes a lot of product for automotive original equipment manufacturers (OEMs) and the automotive aftermarket. Products like tapes, sealants, ceramics, vinyl, polyester, and adhesives are sold to this market, but they’re also sold to electronics, appliance, food and beverage, construction, and paper and printing customers.

Thanks to the acquisition of Ceradyne Inc. in the fourth quarter of 2012, 3M is now one of the top manufacturers of advanced ceramics used for solar, electronics, and defense applications.

The company’s industrial business was 34% of last year’s total sales, growing the most over other operating divisions at 6.5% in U.S. dollars comparatively.

3M has paid a dividend to stockholders since 1914 and just recently increased its first-quarter dividend 34.6% to $0.855 per share, representing the 56th consecutive year of dividend increases. (See “The Six Things I Look for in a Company Before Buying Its Stock.”)

No wonder this stock is doing well. Its … Read More

Strength in These Stocks a Classic Signal of Bull Market Momentum?

By for Profit Confidential

What Strength in These Stocks Is Telling UsThe NASDAQ Composite index sold off significantly in January to around 4,000. Then it recovered to its current level at 4,300, which is a pretty substantial move.

For a number of months now, the NASDAQ has been outperforming both the S&P 500 and Dow Jones Industrial Average. This relative outperformance continues to be a positive overall sign regarding sentiment.

I don’t really expect much from stocks this year, although the prospect of rising dividends still remains very good in the bottom half. 2013’s stock market performance was so exceptional and so substantial, especially among blue chips, that it’s time for earnings to catch up with share prices.

Not to be excluded, the performance of the Russell 2000 index has also been relatively strong compared to larger-caps. But this index still can’t quite keep up to the outperformance of the NASDAQ.

Stock market leadership from large-cap technology stocks is always a good thing. And a lot of it has been from older brand-name companies, the kind of former fast-growing stocks that are now almost income plays.

Oracle Corporation (ORCL) has been on the comeback trail after several quarters of disappointing results. This position has been treading water since the beginning of 2011, and its recent breakout on the stock market is not immaterial. The company’s five-year stock chart is featured below:

Oracle Corp. NYSE Chart

Chart courtesy of www.StockCharts.com

Following a similar trading pattern over the last several years, Microsoft Corporation (MSFT) has recently been strong. The stock is up $10.00 a share over the last 12 months, and Wall Street earnings estimates have been going up across the board for this fiscal year and … Read More

Where to Find Value in an Overbought Market

By for Profit Confidential

What Stocks to Buy in an Overbought MarketMany smaller companies are now reporting their financial results, and very soon, it will be the lull between earnings seasons, when the only fuel the marketplace has to go on is monetary policy and economic news.

It wouldn’t surprise me at all if stocks took a break for the entire second quarter. Fourth-quarter financial results were decent, but they weren’t the kind of numbers that justify loading up on positions. Stocks seem to be about fully priced and there’s no real reason why they should go up near-term, especially considering last year’s performance.

The market had a tough time at the very beginning of the year but recovered strongly after the Federal Reserve provided certainty on monetary policy and the outlook for quantitative easing. There were some material corporate events in terms of new share buyback programs and select dividend increases, but most companies announce dividend news in the bottom half of the year; this is when we might see stocks generate further capital gains, if any.

Last year’s performance on the stock market was just so exceptional that stocks will be doing well if they close flat for this year.

Turning to blue chips for their corporate outlooks always yields useful information, even if an investor is not interested in the company’s shares. A lot of blue-chip stocks reported, in their fourth-quarter financial reports, that they expect high-single-digit sales growth in 2014 and high-single- to low-double-digit growth in earnings. This is pretty solid for mature, slow-growth enterprises, and it helps validate the market’s recent run as earnings per share catch up to share prices.

But if an investor was … Read More

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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