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.

Best Stocks Going Into 2015

By for Profit Confidential

Stocks Going Into 2015A lot of good companies with solid investment prospects going into 2015 are pushing new highs in an otherwise trendless stock market before the end of another reporting period.

Market leaders have kept their momentum the last few years and are likely to keep doing so as earnings reliability and dividends keep investors buying.

Microsoft Corporation (MSFT) continues to tick higher in this market. The position was $35.00 a share at the beginning of the year and is now just short of $50.00.

What many of these established blue chips offer are good balance sheets, reasonable financial growth, and good prospects for rising dividends going forward. A stock like Microsoft is a simple, large-cap solution that continues to work in a slow-growth environment.

There’s no need for an equity market portfolio to be complicated at this stage of the business cycle. Dividend income is key, because that’s what institutional investors are buying.

And the good news with blue chip leadership is that it comes with less investment risk. The business cycle is not yet mature enough to support itself and therefore the investing marketplace remains somewhat risk averse.

Or at the very least, many institutional portfolios comprise dividend-paying blue chips, peppered with the stock market’s more aggressive names, like Facebook, Inc. (FB) and Chipotle Mexican Grill, Inc. (CMG). (See “Where You Can Find Value in Stocks Right Now.”)

This is a marketplace where you don’t need to be in the riskiest sectors in order to capture most of the stock market’s potential capital gains. Dividend reinvestment remains an excellent way in which to build wealth in a low … Read More

Why These “Payroll” Stocks Look Interesting Now

By for Profit Confidential

Payroll Stocks Look Interesting NowVery soon we’re going to hear the earnings news straight from the horse’s mouth. Quarterly earnings are beginning to trickle in and even if you aren’t interested in the stocks that you don’t own, corporate reporting is the most important market intelligence you can review.

For years, Paychex, Inc. (PAYX) was one of those companies that continually reported great financial results. It was a growth stock during the technology bubble in the late 1990s, and it made a lot of money for shareholders.

The company hit a wall in terms of its double-digit growth shortly after the technology bubble burst, but what this payroll and benefits outsourcing company has to say about its business conditions is still material to equity investors today.

Recently, Paychex beat the Street by a penny and reported revenue growth in-line with Wall Street consensus.

The company’s first fiscal quarter of 2015 (ended August 31, 2014), saw its total sales grow nine percent to $667 million, with particular strength in human resources services revenues, which grew 17% comparatively to $244 million during the quarter.

Earnings grew five percent to $171 million (which is very strong profitability per dollar of sales). Earnings per share rose seven percent to $0.47.

Company management recently repurchased 900,000 shares for cancellation during its first fiscal quarter for a modest expenditure of $37.5 million.

The company finished the quarter with cash and total corporate investments of $956 million with no debt. In July, Paychex increased its quarterly dividend nine percent to $0.38 per share.

Overall, it was a pretty good quarter for this mature enterprise. Earnings for its upcoming quarter are expected … Read More

The Stocks to Watch as Small-Caps Stall

By for Profit Confidential

Stocks to Watch as Small-Caps StallDespite the choppy trading action before the end of the third quarter, a lot of the market’s best stocks are still ticking higher. And the positive trading action remains especially prevalent with large-caps and dividend-paying blue chips.

Big investors want earnings reliability and dividend income in a slow-growth environment. It’s a trend that began with the stock market’s breakout at the beginning of 2013 and it still has legs right into next year.

The Walt Disney Company (DIS) is a dividend-paying blue chip that I continue to like. With solid operating momentum (sales and earnings) in both media assets and theme parks, this stock has been consistently ticking higher since October of 2011.

It remains a great holding with solid prospects for more capital gains near-term. This stock is a perfect example of what institutional investors are buying—revenue and earnings growth combined with some income and reliability in regards to its outlook.

Another dividend-paying blue chip that just broke through to new record highs is PepsiCo, Inc. (PEP). This mature enterprise has been consistently bid by investors since February.

Still yielding almost three percent, the company’s food and snacks business is expected to keep its earnings momentum in the upcoming quarter. Management increased its quarterly dividends substantially this year and investors have been buying the story.

On any major price retrenchments, I do believe these two companies make for attractive long-term holdings.

Previously, we considered these two companies with the addition of NIKE, Inc. (NKE), Johnson & Johnson (JNJ), V.F. Corporation (VFC), Microsoft Corporation (MSFT), Kinder Morgan, Inc. (KMI), and 3M Company (MMM). (See “Eight Stocks to Beat the Read More

What This Company’s Earnings Say About the Broader Market

By for Profit Confidential

Company’s Earnings Say About the Broader MarketFedEx Corporation (FDX) just bounced off a new record-high on the stock market and is an important component of the Dow Jones Transportation Average.

In its fiscal first quarter of 2015 (ended August 31, 2014), the company’s sales and earnings surged. It was a great quarter and a strong indicator for the rest of the market.

Total revenues grew six percent to $11.7 billion. This may not sound like a lot of growth, but it is for such a mature enterprise in a very competitive industry.

But the big news was the company’s strong earnings growth. Net income grew 24% over the same quarter last year to $606 million. Diluted earnings per share grew 37% to $2.10, of which $0.15 per share of the total was due to share repurchases during the quarter. The company bought back 5.3 million of its own common shares in its fiscal first quarter and no shares remain now under existing repurchase authorization.

Each of the company’s three main operating divisions posted solid gains in revenues and operating earnings.

Higher rates are not affecting demand. In fact, FedEx is experiencing higher revenue per package including increases in residential and fuel surcharges, and this is going right to the bottom-line. And rates are going up by an average of 4.9% at the beginning of 2015 for FedEx Express, FedEx Ground, and FedEx Freight, which cover most of North America, Hawaii, Puerto Rico, and the U.S. Virgin Islands.

What the company didn’t do in its latest earnings report was increase its existing financial guidance for fiscal 2015. But this isn’t unusual for management to underplay their … Read More

My All-Around Favorite “Growth” Company

By for Profit Confidential

All-Around Favorite “Growth” CompanyTomorrow, Oracle Corporation (ORCL) reports its numbers for its first fiscal quarter of 2015. What the company has to say about its business conditions is material to the equity market.

Oracle is a benchmark technology stock that’s not expensively priced. The company offers dividends; its current yield is approximately 1.2%, which may not be enough for some investors looking for a large-cap, mature technology stock.

Oracle’s share price tends to experience waves of buying enthusiasm. If the company just slightly beats consensus, there will be solid buying in the stock.

But being a mature business, this company isn’t a fast grower. What it offers investors is a benchmark in enterprise information technology (IT) demand. A quick read of the company’s SEC form 10-Q can be very informative regarding enterprise customers and their spending.

Oracle’s share price has been steadily climbing back and it’s almost at its all-time record-high set during the technology bubble of 2000. It’s been a great comeback from the irrational exuberance of those days. The company’s long-term chart is featured below:

Oracle Corporation Chart

Chart courtesy of www.StockCharts.com

Dollar for dollar, however, I still prefer Microsoft Corporation (MSFT) for those investors looking for a blue chip technology stock.

The company pays more in dividends, its valuation is about the same as Oracle’s, and it has a multifaceted business strategy that includes both consumer and enterprise customers.

Furthermore, I think Microsoft is more likely to deliver better capital gains over Oracle in the near- to medium-term.

This doesn’t mean that Oracle can’t accelerate its business growth going forward. All the company has to do is get the next business cycle in … Read More

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