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.
John Chambers Delivers, Big Investors Now Chasing Stocks
By Mitchell Clark, B.Comm. for Profit Confidential
The action in the stock market continues to amaze.
When stocks go up on bad news (like last week’s higher initial claims for jobless benefits and lower-than-expected housing starts), you know you don’t want to be short.
Cisco Systems, Inc. (NASDAQ/CSCO) is a component of the Dow Jones Industrial Average, and for such a mature technology stock, it recently reported a very solid quarter.
In its fiscal third quarter (ended April 27, 2012), Cisco announced sales of $12.2 billion, for a net gain of five percent over the comparable quarter. It was the company’s ninth consecutive quarter of record sales.
Earnings grew 14.5% to $2.5 billion, while earnings per share grew 15% to $0.46 per share, beating consensus estimates.
John Chambers, Cisco’s CEO, noted improving signs in the U.S. economy and other markets. Business conditions for the company are also improving.
Like many cash-rich, large corporations, Cisco recently repurchased 41 million shares of its own common stock, spending $860 million.
This, of course, is a pittance. The company finished its latest quarter with cash and cash equivalents of $47.4 billion.
Wall Street boosted the company’s earnings estimates and share price target.
Cisco is ripe for more gains on the stock market because of its valuation.
The company also offers a dividend yield of 3.2%, which is attractive in this market. The company’s huge cash hoard also makes it highly likely that at some point this year, the company will issue another dividend increase.
All institutional investors want to see in this stock market is stability and certainty.
Cisco provided that certainty in its latest earnings report, and this is … Read More
This Company’s Valuation Becoming Attractive
By Mitchell Clark, B.Comm. for Profit Confidential
An enormous amount of effort goes into building a decent golf course. It isn’t just some nicely cut grass carved out of the bush.
After several summers as a teenager working in golf course construction, I can tell you that building a golf course requires a lot of planning.
The crew I worked with would go into an existing golf course and rebuild an entire hole. Or a green that wasn’t draining properly.
The problem—and the most delicate part of this endeavor—was to be careful not to wreck all the services that were buried in the ground. These included irrigation, drainage, telecom, and power lines.
While operating a Case backhoe, I cut through a large electrical line that was missed by the locate crew.
Needless to say, you reevaluate your priorities pretty quickly when something like this happens. An enormous flame shot up out of the ground.
Case Corporation doesn’t trade on the stock market. It is now part of a company called CNH Global N.V. (NYSE/CNH) out of the Netherlands, Fiat Industrial S.p.A being its majority owner.
On the stock market, Caterpillar Inc. (NYSE/CAT) is one of the largest players in heavy equipment. The company was doing really well a few years ago when the construction boom in Asia combined with the mining boom to produce significant growth.
The position is down from its previous stock market high, but the company is not expensively priced.
With a current price-to-earnings ratio of around 12, the position boasts a current dividend yield of 2.3%. If it was over three percent, then Caterpillar would be a much more attractive stock market … Read More
This Stock’s 24% Year-to-Date Gain Signaling a Buy Opportunity?
By Mitchell Clark, B.Comm. for Profit Confidential
“Opportunity cost”—it’s a phrase used in microeconomic theory to denote the costs that are forgone by not having your resources in the highest returning assets.
It is a phrase that’s pertinent to the stock market.
Without question, I remain completely taken aback by what has transpired with the stock market since the beginning of the year.
Looking at the numbers, not being invested in many corporations has been costly.
Excluding the reasons why, the simple fact is that the Dow Jones Industrial Average is up 16% since the beginning of the year (not including dividends).
The S&P 500 is up 15.7%. The NASDAQ Composite is up 14.8% and the Russell 2000, an index of small-caps, is up 16.6% (not including dividends).
I think this stock market can smell the end of quantitative easing.
More meaningful, however, is the Federal Reserve’s policy regarding interest rates, which are going to continue to be low for the near future, as it has been made very clear.
This is a huge, perhaps neglected, certainty for the stock market and corporations.
Making the case for being a buyer in this market is extremely difficult. Institutional investors have already placed their bets and a lot of corporations—good companies with real staying power and solid prospects for earnings growth going forward—are fully priced.
Johnson & Johnson (NYSE/JNJ) is a benchmark stock. Like many large corporations, Johnson & Johnson does everything it can to squeeze every penny out of its bottom line. The company lays off employees, closes plants, and does everything to minimize taxes. Johnson & Johnson’s 10-year stock chart is featured below:
Chart courtesy … Read More
A Froth Called the Stock Market
By Michael Lombardi, MBA for Profit Confidential
Didn’t the government say the economy is getting better? Why do I question what they’re saying? Because consumer spending is going the wrong way.
Core retail sales declined 0.1% in April—and that’s after they already fell 0.4% in the previous month! (Source: U.S. Census Bureau, May 13, 2013.)
When compared to the first four months of 2012, consumer spending in the U.S. economy declined in the first four months of 2013 at electronics and appliance stores, health and personal care stores, gasoline stations, and general merchandise stores.
And looking forward, consumer spending in the U.S. economy doesn’t appear to look very promising either.
If companies don’t spend or create better-quality/better-paying jobs, can consumer spending really pick up? It’s well documented in these pages: the job creation we have seen since the financial crisis started has been in low-wage-paying sectors.
Keeping all this in mind, with consumer spending still bleak and core retail sales constantly declining, the retailer must be suffering.
But that’s not so!
When you look at the stock market and, more specifically, at the retailers, it appears that consumer spending in the U.S. economy is booming! Consider the chart below of the S&P Retail Index. This index tracks the performance of some of the most well-known retailers in the U.S. economy.
Chart courtesy of www.StockCharts.com
Dear reader, the stock market isn’t portraying the real picture of the U.S. economy. The retail sales number actually shows how consumer spending—the biggest contributor to our gross domestic product (GDP)—is fairing, and those numbers look terrible.
Even with the printing of trillions of dollars of new money via quantitative easing, the Federal … Read More
A Real “Made in the USA” Retail Stock That Supports Your Portfolio, Not Sweatshops
By George Leong, B.Comm. for Profit Confidential
The recent devastation of the garment building collapse in Bangladesh was both horrific and a reminder that many of these sweatshop operations that make your clothing are not operating according to American standards. But the fact is that many of these operations in Bangladesh and other low-cost labor markets in Asia produce the clothes you buy; this is what allows prices to be cheap for American buyers and others. The low cost of production also allows companies to reap more earnings.
Yet while the collapse of the factory building was a total shock, the underlying issues of major apparel makers using cheap labor in these poor countries have been going on for decades as a way of improving earnings.
In the pursuit of earnings growth, The Gap, Inc. (NYSE/GPS) and Wal-Mart Stores, Inc. (NYSE/WMT) have long been accused of turning a blind eye to the extremely poor working conditions of the third-party factory workers who produce cheap goods for consumers here and abroad. The reason is the need to deliver earnings.
The reason why the conditions are largely ignored is simply a matter of cutting costs and increasing earnings. Consumers in the richer countries want cheaper clothing and goods. Companies want lower costs and higher earnings. The demand for low costs places immense pressure on the third-party manufacturers to run a very tight operation, which is why the incident in Bangladesh was allowed to happen and why similar incidents will continue to occur as long as earnings are key. (Read “Market Near Record High, but Where’s the Revenue?”)
For those who want to support the local manufacturing … Read More
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