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

Dow Jones Industrials

The Dow Jones Industrials Average is an index that comprises 30 stocks. Originally founded in 1896, it is now owned by the Dow Jones Company. The Dow Jones Industrials index is price-weighted. While many households follow the Dow Jones Industrials, it is increasingly becoming outdated as many more current indexes are far more representative of the markets.

The Only Way to Beat Rising Gasoline Prices

By for Profit Confidential

Beat Rising Gasoline PricesWith remarkable consistency, oil stocks continue to do great on the stock market. Even though spot oil seems to be stuck below $100.00 a barrel, gasoline prices have been going up for the last month, as U.S. refiners use January and February for maintenance shutdowns.

Any way you cut it, oil remains a huge part of our daily lives, and most oil stocks are trading at or very near their all-time record highs. I should qualify that—what I mean is that most big oil stocks are trading right at their highs. Even with the U.S. oil production boom (which is very real), smaller oil stocks just don’t go up in value unless the spot price is doing so as well.

I always love consistency in a stock market investment. Consistent growth in earnings, dividends, and share price is absolutely golden, considering the volatility we get in capital markets. Save for pumping from your own oil well, you can only beat rising gasoline prices by owning a part of the company, and the biggest ones offer some of the best consistency the stock market has to offer.

Consider Chevron Corporation (NYSE/CVX), which is one of the large, integrated oil stocks that are trading at their all-time record highs on the stock market. But the stock isn’t expensive, with a current price-to-earnings (P/E) ratio of 8.7. The company has about $11.00 a share in cash and a price-to-sales ratio of around one. Its long-term stock chart is below:

CVX Chevron corp stock market chart

Chart courtesy of www.StockCharts.com

Chevron is a member of the Dow Jones Industrials and has an outstanding track record of increasing its quarterly dividends … Read More

Large-Caps Shine as Dow Jones Industrial Average Toys with All-Time High

By for Profit Confidential

Industrial Average Toys with All-Time HighAny way you slice it, the Dow Jones Industrial Average had a great January—one of the best in years. Yet the stock market still isn’t trading all that well. In fact, I don’t really like the trading action at all. The market has kind of been ignoring news, both good and bad, and moving listlessly, without trend. If the uncertainty in the world, the U.S. economy, and Washington is reflected in the stock market, then I’d say it is clearly showing it. The Dow Jones Transportation Average experienced a very meaningful breakout, and the Russell 2000 index is at an all-time high; so higher share prices are probable for the near term. The big question is: will a rising market be sustainable?

Without question, I think equity investors need to be highly conservative going forward. Sure, there are lots of companies that are doing great on the stock market (many of which have been mentioned in our past articles), but no matter how you look at it, real economic growth is minimal. Furthermore, the stock market is basically trading right at its all-time high (except the NASDAQ, but technology stocks were way overdone anyway). The Dow Jones has led the other indices so far this year, and this blue-chip move is very positive. But realistically, I wouldn’t really be buying in this market.

The stock market and the Dow Jones have room to go higher in the near term, largely because of the Dow’s reasonable valuation. With artificially low interest rates still intact and the bull market in bonds coming to an end, it makes sense that fund flows for … Read More

U.S. Oil Gushing, Oil Stocks Getting Ready to Move

By for Profit Confidential

Oil Stocks Getting Ready to MoveThe stock market’s recent breakout has legs, and there’s more optimism for the economy and corporate earnings this year. The stock market had a very strong start to the year, with the Dow Jones Industrials leading the way. Transportation stocks have turned strong, and the NASDAQ Composite is moving solidly. Even the price of oil is slowly ticking higher—$100.00 oil is a near-term reality.

There is a renaissance taking place in the domestic U.S. oil and gas business, and there is a ton of money sloshing around in the system. Countless companies are drilling in Montana, North Dakota, and California, along with the traditional regions. There is a glut of natural gas on the market, and low prices are supplanting coal for electricity production. It won’t be long before the U.S. is actually energy independent, especially if natural gas is used in more applications (as T. Boone Pickens advocates). Plus, there’s a lot of oil and gas drilling going on outside of the U.S. market, and the big oil and gas services companies just reported great financial results.

On the stock market, resource investing is always cyclical. Even the fastest growth story (say, an oil producer with new discoveries and a verifiable production forecast) won’t move upward on the stock market without a commensurate move in oil prices. An oil producer not only has to find the commodity and get it to market; it also has to worry about the prices for that commodity, which are set by a marketplace beyond its control. It’s a different business from speculating among technology stocks, for example.

That being said, however, if oil … Read More

Intel’s Share Price Says It All

By for Profit Confidential

Intel’s Share Price Says It AllThe Dow Jones Industrials gave up most of their gains this year in the recent stock market selloff; given current fundamentals, this market is oversold. Strife in the Middle East definitely affected investor sentiment last week, but the market is now betting that U.S. policymakers will address the fiscal cliff issue before the end of the year. Across the board, expectations among equity investors have come downward; this gives stocks the potential to outperform in the fourth-quarter earnings season.

During the third-quarter earnings season, we saw large-cap, international businesses impacted by economic weakness in the eurozone and China. Chinese economic data has improved in recent weeks, although like everything nowadays, you have to consider the numbers with a grain of salt. In order for this stock market to advance, it requires improvement on the part of the Chinese economy; it goes without saying that the eurozone will be in no-growth mode well into 2013.

The latest earnings season saw large-cap companies report very conservative outlooks for the rest of this year. Corporations also showed difficulty in growing revenues, while earnings themselves held constant. (See “Where’s The Good News? Companies Just Meeting Expectations.”) Stock market valuations, however, are very reasonable at this time, and this provides a floor to the recent selloff. Still, without earnings growth, the stock market won’t really be able to advance in a meaningful trend.

One company that’s really been hit hard over the last six months on the stock market is Intel Corporation (NASDAQ/INTC). After reporting that its earnings were affected by weakness in Europe and, to a lesser extent, strength in the tablet market, Intel’s … Read More

S&P 500 up Against a Wall Following Slight Breakdown

By for Profit Confidential

Wall Following Slight BreakdownThe S&P 500 is up against a bit of a wall and has to convincingly break 1,465 again, which it achieved in mid-September, in order to accelerate. A lot of corporate earnings have been decent, but quite a few are reporting light visibility for the fourth quarter, and this is no surprise. The stock market peaked mid-September when the mini-rally, driven by a third round of quantitative easing (QE3), consolidated; it has now recovered. We’ve seen large, international companies report earnings or visibility below consensus due to very slow business conditions in the eurozone. Despite the S&P 500’s fair valuation, I think it’s going to be quite difficult for the main stock market averages to accelerate much further.

While Johnson & Johnson’s (NYSE/JNJ) earnings were good and the company’s share price helped the Dow Jones Industrials, earnings results for International Business Machines Corporation (NYSE/IBM) had the opposite effect. This former stock market leader broke down significantly, as you can see in the stock chart for International Business Machines (IBM) below:

 International Business Machines Chart

Chart courtesy of www.StockCharts.com

Expectations were already lowered for third-quarter earnings season. My reading of current corporate results is that blue chip companies are now running out of cost-cutting options to keep their earnings afloat. The likelihood of corporations being able to accelerate their earnings going into 2013 is very low, considering business conditions in the eurozone and declining economic growth in China, which is now the world’s second-largest economy.

The “AGA” stocks, which include Apple Inc. (NASDAQ/AAPL), Google Inc. (NASDAQ/GOOG), and Amazon.com, Inc. (NASDAQ/AMZN), have all retreated from their recent 52-week highs. Amazon.com recently hit $264.00 a share; now … Read More

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