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

Earnings

Earnings are also known as profits. At the most basic level, a company’s earnings consist of what’s left over after all costs are taken out from the revenue generated. Earnings are also the basis for corporate taxes. Many corporations report EBITDA, or earnings before interest, taxes, depreciation and amortization. The most important thing to watch for when researching a company is where earnings are forecasted to move. Investors want to see that the future expectations are for the earnings to grow over time.

The Problem With Reality in 2014

By for Profit Confidential

U.S. Economy Halfway to a Recession AlreadyEarlier this month, Jeremy Siegal, a well-known “bull” on CNBC, took to the airwaves to predict the Dow Jones Industrial Average would go beyond 18,000 by the end of this year. Acknowledging overpriced valuations on the key stock indices are being ignored, he argued historical valuations should be taken with a grain of salt and nothing more. (Source: CNBC, July 2, 2014.)

Sadly, it’s not only Jeremy Siegal who has this point of view. Many other stock advisors who were previously bearish have thrown in the towel and turned bullish towards key stock indices—regardless of what the historical stock market valuation tools are saying.

We are getting to the point where today’s mentality about key stock indices—the sheer bullish belief stocks will only move higher—has surpassed the optimism that was prevalent in the stock market in 2007, before stocks crashed.

At the very core, when you pull away the stock buyback programs and the Fed’s tapering of the money supply and interest rates, there is one main factor that drives key stock indices higher or lower: corporate earnings. So, for key stock indices to continue to make new highs, corporate profits need to rise.

But there are two blatant threats to companies in the key stock indices and the profits they generate.

First, the U.S. economy is very, very weak. While we saw negative gross domestic product (GDP) growth in the first quarter of this year, the International Monetary Fund (IMF) just downgraded its U.S. economic projection. The IMF now expects the U.S. economy to grow by just 1.7% in 2014. (Source: International Monetary Fund, July 24, 2014.) One more … Read More

Three Retail Stocks Showing Impressive Growth This Earnings Season

By for Profit Confidential

Three Retail Stocks That Are Nailing the Second QuarterIt wasn’t too long ago that NIKE, Inc. (NKE) reported another great quarter of solid growth in its business.

The company’s fiscal fourth-quarter numbers beat Wall Street consensus, and its sales from continuing operations grew 11% to $7.4 billion, or 13% on a currency-neutral basis.

In this market, double-digit growth is significant no matter if it’s in the top or bottom line.

Like the last several earnings seasons, corporations are typically only beating consensus on one financial metric (either earnings or revenues). But this is enough to keep investors buying.

Under Armour, Inc. (UA) blew the doors off of Wall Street consensus and the stock shot strongly higher.

The company reported a surge in new apparel sales. Total revenues grew a whopping 34% over the second quarter of last year to $610 million.

Breaking it down, the company’s apparel revenues grew 35% to $420 million, while footwear sales grew 34% to $110 million on new product offerings. The company experienced significant sales growth of 30% in North America, while international sales doubled (representing approximately 10% of total revenues).

Previous guidance for 2014 was for sales growth of between 24% and 25% over 2013. Management boosted this guidance to between 28% and 29%, with operating income expected to grow between 29% and 30% over last year.

This time last year, Under Armour was trading around $35.00 per share. It’s doubled since then, and the position has further momentum in this market.

It is pricey, however, with a forward price-to-earnings ratio of around 60. But the stock is likely to stay this way; the business has operational momentum, and that’s what … Read More

Why This Company’s a Solid Pick for Any Long-Term Portfolio

By for Profit Confidential

PepsiCo Still a Solid Stock for Any Quality PortfolioThe numbers are piling in, and there have been some disappointments as usual. This is why individual stock selection always matters in a portfolio, and equity investors should be willing to make changes depending on what stage of the business cycle a company is experiencing.

One company that’s proven itself to be a good business to own is PepsiCo, Inc. (PEP). It’s a brand-name mature enterprise with an excellent track record of long-term, reliable wealth creation for stockholders. It’s not the fastest growing large-cap in the marketplace, but the snacks and beverage business is consistent and so are the dividends.

Wall Street and institutional investors would love to see PepsiCo spin off its food and snacks business from beverages, similar to what recently transpired with Kraft Foods Incorporated.

A spin-off would, no doubt, be a boon to shareholders, but I don’t see it happening, because the company’s management needs the profits from Quaker foods (oatmeal) and especially “Frito-Lay” (potato chips) to help with the slow-growth world of soda and juice.

PepsiCo’s organic global snacks sales grew five percent comparatively in the second quarter of 2014 and two percent for global beverages.

Currency translation was unfavorable during the most recent quarter, bringing the growth rates down to two percent for global snacks and a decline of one percent for global beverages.

But despite the slow growth, the company’s operating margin improved a solid 10% during the second quarter, and that’s the big story that got the shares moving on the earnings report.

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

Pepsico Inc Chart

Chart courtesy of www.StockCharts.com

The company also boosted its full-year 2014 earnings-per-share … Read More

Top Sector Offering More Capital Gains

By for Profit Confidential

The One Sector with More Capital Gains to ComeWhile business conditions are pretty good in the domestic oil and gas business, they’re also holding up very well in the railroad sector.

If railroad companies and related services are old economy, they are still important economic benchmarks and they continue to be great businesses producing excellent returns to stockholders.

Union Pacific Corporation (UNP) is an important company to follow, even if you aren’t interested in owning a position. What the company reports about its business conditions is material and helpful in advancing your own market view. Union Pacific reports on Thursday.

Norfolk Southern Corporation (NSC) just hit an all-time record-high on the stock market. This time last year, the stock was around $77.00 a share; now, it’s close to $107.00.

CSX Corporation (CSX) is not as large in terms of market capitalization as Norfolk Southern or Union Pacific, but it is still a $31.0-billion company with extensive operations in the eastern United States and Canada.

Its second quarter of 2014 was a record quarter with sales growing seven percent to $3.2 billion on an eight-percent gain in volume.

Earnings growth was more modest, coming in at $529 million, or $0.53 per diluted share, compared to $521 million, or $0.51 per diluted share, for second quarter 2013. But management expects margin expansion going into 2015, and the Street wasn’t fazed.

Like so many other large-caps, the company is buying its own shares, including some $131 million worth during the most recent quarter.

By April of next year, the company will have spent $1.0 billion on share repurchases over the last two years.

Notably, CSX saw double-digit volume and revenue gains … Read More

How to Spot a Genuine Momentum Stock

By for Profit Confidential

How I Know This Stock's Headed HigherOne stock that’s experiencing serious upward price momentum is in the equipment rental business. Momentum stocks might typically be associated with other market sectors, but United Rentals, Inc. (URI) is doing fantastic operationally and the market is bidding.

It’s kind of odd to think of an equipment rental company soaring on the stock market, but United Rentals is doing just that. In its most recent quarter, the company handily beat Wall Street consensus and raised its full-year guidance.

According to the company, its second quarter produced sales of $1.4 billion, up 16.7% from $1.2 billion in the same quarter last year.

Management said that the company is experiencing solid demand in non-residential construction. It’s renting out more equipment at higher margins than normal.

Second-quarter earnings were $94.0 million, or $0.90 per diluted share, compared to $83.0 million, or $0.78 per diluted share, representing a gain of about 15%.

Adjusted earnings per share were $1.65 on a diluted basis, which was way above Wall Street consensus.

United Rentals is one of the largest equipment rental companies in the world, with more than 12,000 employees. The company is considered a mid-cap stock and has been doing extremely well since the middle of 2012, which you can see in the stock chart below.

United Rentals Inc Chart

Chart courtesy of www.StockCharts.com

Not only did United Rentals beat consensus, but it also raised its outlook for adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and tightened its revenue range to $5.55–$5.65 billion for all of 2014, up from the previous outlook of $5.45–$5.55 billion.

Many companies do not have their SEC Form 10-Q documents ready when they … Read More

« Older Entries

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.

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.