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

Investment Strategy

An investment strategy is a protocol and methodology for allocating funds of a portfolio. This strategy is based on an investor’s risk profile. The more risk the investor is willing to take, the greater the potential returns, but also the higher risk of a loss in capital. There is a whole universe of investment strategies, from the least risky of buying treasury bills and government bonds with high credit ratings, to the more risky of buying stocks based on fundamental analysis, technical analysis or simply buying and holding for the long term. Some investors also look to stocks with dividends that return a yield over time, to mitigate some of the risks of the stock market.

Drop in This Company’s Stock Price Makes It Very Attractive Now

By for Profit Confidential

Top Company for Dividend ReinvestmentJohnson & Johnson (JNJ), which is one of my favorite long-term stocks for income and dividend-reinvesting investors, just dropped below the $100.00-per-share level and is becoming more attractive each day.

This stock has been doing extremely well over the last few years and should continue to do so. The position has been a worthy buy when it’s down and according to its recent trading history, it typically isn’t down for long.

If you’re a shareholder in this company or are considering a long-term position, you’ll want to take a look at the company’s recently filed Securities and Exchange Commission (SEC) Form 10-Q, which was submitted August 1.

This quarterly SEC filing reveals much more information over and above a company’s regular earnings press release. It gives a much better snapshot of a company’s financial position, where the sales are, which divisions are the most profitable, and where the company sees its operations in the near future.

In Johnson & Johnson’s recently filed Form 10-Q, the company’s overall profitability, that is its net earnings as a percentage of total sales, leapt higher from 20.7% to 24.1% in the first half of this year compared to last.

This is a huge accomplishment for a company this large and a major reason why stockholders should feel so confident about increasing dividends in the future, along with more share buybacks.

The company’s average common shares outstanding in the first half of 2014 dropped by approximately 3.3 million shares on a diluted basis compared to the same period last year.

Johnson & Johnson’s two-year stock chart is featured below.

Johnson & Johnson Chart

Chart courtesy of www.StockCharts.com

Johnson & … Read More

Simple Wealth-Creating Strategy for Long-Term Investors

By for Profit Confidential

Compounding Strategy Every Investor Should ConsiderAs a strong believer in the wealth-creating effects of large-cap, dividend paying stocks, I’m also an advocate of dividend reinvestment, which is the purchasing of a company’s shares using the cash dividends paid.

This can be done commission-free from your broker and/or through the company itself if it offers such a program.

Dividend reinvestment is a powerful wealth creator if you do not require the income paid out by a corporation. It is a great way to invest and to grow your money over the long-term.

As the timespan increases, the percentage return produced by the S&P 500 becomes weighted to dividends. It’s kind of old school, but the numbers add up. Even over a few short years of good broader market performance, total investment returns can increase substantially over simple capital gains.

For example, if you bought shares in Intel Corporation (INTC) at the beginning of 2010, that stock would have produced a capital gain to date of approximately 50%.

But if you reinvested the dividends paid by Intel into new shares each quarter, your total investment return, including dividends and new shares, jumps to approximately 75%, which is a very big difference!

In the utility sector, Duke Energy Corporation (DUK) increased on the stock market about 30% over the last three years. But by reinvesting the company’s dividends into new shares during that same time period, your total return could have climbed to around 49%. Again, this is a material improvement.

Of course, dividend reinvestment excludes the potential returns to be had with the income being applied to other potential assets.

But the process is so easy, and … Read More

How to Put Your Assets to Good Use in a Stalling Market

By for Profit Confidential

How to Profit in a Stalling MarketThe stock market appears to want to go higher, but it’s going to take a push by investors. While we could see the S&P 500 edge higher, I’m not convinced the gains will be that great unless the underlying stock market fundamentals improve.

I am talking about the economic renewal that appears to be stalling. The International Monetary Fund (IMF) slashed the country’s estimated gross domestic product (GDP) growth to an even two percent this year from the previous 2.8% in April. Growth in 2015 is expected to rise to three percent. These are OK numbers, but they’re not great and they indicate that the economy will likely struggle to find ground in the short-term. As far as the global economy goes, the World Bank cut its estimates, too.

Moreover, you also have the recent weaker-than-expected housing starts and building permits numbers. Both readings for May came in below both the estimates and the readings in April. The decline in building permits by 6.4% to below one million annualized units suggests there could be some stalling in the months ahead.

Geopolitically, you have the escalating conflict in Iraq and the continued standoff in Ukraine. Oil is above $107.00 a barrel and could head higher should the internal conflict escalate in Iraq and impact the flow of oil, which could affect global economic growth.

So here we have the stock market, namely the S&P 500 and the DOW, coming off record-highs.

If the stock market fails to find its footing (namely a fresh catalyst), we could see mixed and volatile trading in the months ahead as the stock market looks for … Read More

Fear of Stock Market Declining Almost Non-Existent

By for Profit Confidential

Complacency of Investors Near Record LowThere’s one long-term investing adage that has shown a great amount of success over the years: buy when everyone is fearful and sell when optimism is over the top. This theory worked extremely well when key stock indices fell to their lowest levels. It worked in 1987, in 2000, and then in 2009—three of the greatest times to buy stocks in history.

With this in mind, take a look at the long-term chart of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) below. This index is often referred to as the “fear index” for key stock indices, since it is a gauge/measure of how fearful investors are about the stock market declining. The higher the index goes, the more fear in the market; the lower the index goes, the more optimism in the market.

 Volatility Index Chart

Chart courtesy of www.StockCharts.com

The VIX clearly shows investor concern about key stock indices declining, sitting close to the same point it was at back in 2007—just a few months before stocks started to collapse.

Aside from the VIX flashing red…there are two other key stock market indicators in the trouble zone.

According to the CNBC Market Insider Activity, insiders of companies on the key stock indices continue to sell billions of dollars worth of stock monthly. The sell-to-buy ratio—that is how many shares they sold compared to how many they bought—was 10 to 1 in May, meaning they sold 10 shares for every one share bought. (Source: CNBC Market Insider Activity, last accessed May 27, 2014.) Corporate insiders have been selling their shares at an accelerated pace for some time now.

And corporate earnings … Read More

My Simple, Safe Investment Strategy for Playing Risky Stocks

By for Profit Confidential

Here's a Strategy to Play Momentum Stocks While Limiting RiskThere’s some hand-holding required out there in the stock market. We have seen destruction in the momentum biotech and Internet stocks that have corrected by more than 30%.

Now we are hearing some analysts on Wall Street saying to jump back in—but I’m hesitant at this juncture, as the downward risk is likely not over yet.

The reality is that, given the superlative gains recorded in 2013 by many of these biotech and technology momentum stocks, you shouldn’t be surprised to see the current malaise.

The fact that many of these highflying stocks in the stock market have more than doubled in a year should be a red flag. My simplest advice is to wait for the selling to subside in the stock market before you jump into these stocks.

You also need to be careful when hearing the bullish comments by Wall Street firms on these momentum stocks. Many of these firms have investment banking relationships with these stocks; it’s only natural to support your clients in the bad times.

Don’t get fooled by the stock market rhetoric. Instead, take a prudent approach to the stock market.

You don’t want to be caught exposed on this stock market unless you are fine with losing money should the selling intensify. Like I wrote at the beginning of the year, making money on the stock market will not be easy this year and capital preservation should be your objective.

Now, if you are willing to risk some capital and feel a stock market bottom is near, then what I suggest you do is consider using call options as a risk … Read More

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