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

Investor Sentiment

Investor sentiment is the view of the market by investors. This is the combined view of all investors at any one time. Since this is not static, but rather always changing, investor sentiment is usually seen in three general categories: extremely optimistic (bullish); extremely pessimistic (bearish); and neutral or equal in number of optimists and pessimists. The view of investor participants can be based on either fundamental or technical reasons. Investor sentiment is seen as moving the main indices, which will push individual stocks in its wake. For example, a company might not be a great stock, but if the investor sentiment for the overall index is extremely bullish, this optimism will push up the price of most, if not all, stocks. Many view extreme market sentiment readings as a contrary indicator; when most people are bullish (optimistic), the market is close to a short-term top and vice versa.

Why I Expect a Big Boost in This Company’s 2015 Dividend Payout

By for Profit Confidential

Company 2015 Dividend PayoutEven with the recent price retrenchment, there’s not a lot of value circulating in this stock market. Everything’s already gone up and the capital gains have been great the last few years. But it’s still a slow-growth environment in the global economy, and despite a very accommodative monetary policy, stocks can’t go up forever without experiencing a meaningful retrenchment.

Company earnings are pouring in and there have been some disappointments. But for a lot of mature large-cap businesses, this is a reflection of their industries’ cycles. Large companies in mature industries don’t grow by very much more than the low single-digits.

Which is why a company’s dividends are so important in a stock market that’s at a high but offering little value.

It’s difficult to imagine stocks this year serving up double-digit returns on the back of 2013’s standout performance.

And investor sentiment has changed, too, with oil prices being the catalyst for the recent “deflation worry” sell-off. (See “Is This Stock Sell-Off Just a Blip?”)

The stock market’s existing winners are the way to go going into 2015. There’s plenty of cash in company coffers for more dividends and more share repurchases. It’s a formula that’s worked for large corporations over the last several years, and there’s no reason why it won’t keep working in a slow-growth environment.

Texas Instruments Incorporated (TXN) had a good quarter. The company beat Wall Street consensus, producing substantial double-digit gains in comparable earnings on eight-percent year-over-year revenue growth.

Texas Instruments achieved a new record in gross margin as both analog and embedded processors (which comprise just over 80% of the company’s total sales) … Read More

Why This Company Is a Consistent Winner for Investors

By for Profit Confidential

One Company That’s Proven It Can Adapt to the MarketplaceAmid all the turmoil in capital markets, I’m reminded of all the good corporate earnings being released.

Of course, the stock market is a system of discounting future business conditions and the recent sell-off has been pronounced, but stocks have come so far over the last several years. If the catalysts were deflationary pressures among oil prices and global economic activity, a little haircut in share prices is well deserved.

One of the first businesses to show a real turnaround after the financial crisis sent stocks and the economy tanking was Winnebago Industries, Inc. (WGO).

The first thing that dries up when there’s a shock to the economy is spending on luxury items and/or non-essential products. Likewise, the recreational vehicle market is very sensitive to prevailing economic conditions. For a number of years now, however, Winnebago Industries has been on a turnaround roll.

Based in Forest City, Iowa, the company’s fourth fiscal quarter of 2014 (ended August 30, 2014) saw revenues improve a solid 15% to $246 million, up from $214 million in the same quarter last year.

The company reported that it experienced a 15% improvement in total motorhome sales. A 25% comparable gain in motorhome unit growth was offset by lower average selling prices.

Earnings came in solid with management noting particular bottom-line strength in towable recreational vehicles. Total fourth-quarter operating earnings grew 19% to $18.3 million. Net earnings grew to $12.9 million for a comparable quarterly gain of 22%, while net earnings per diluted share improved 26% to $0.48.

All in all, it was another very good financial report from Winnebago Industries and the company just reinstated … Read More

The Biggest Risk This Coming Earnings Season

By for Profit Confidential

Biggest Risk This Coming Earnings SeasonFinancial reporting is ramping up and what corporations actually say about their businesses is the best market intelligence available to investors.

Acuity Brands, Inc. (AYI) is in the business of making lights for indoor and outdoor applications. Based in Atlanta, it’s highly likely you’re already using this company’s products without even knowing it.

The business of manufacturing lighting is not front-page news, but that doesn’t matter because for this company, it’s a very good business to be in.

Acuity just announced another quarter of double-digit growth and the company’s outlook remains strong, based on solid activity in the renovation and retrofit markets.

According to the company, its latest quarter produced 15% in total sales growth, hitting $668.7 million. Earnings and earnings per share increased 22% to $54.8 million and a record $1.26 per share, respectively.

Driving the company’s growth is the adoption of LED lighting, which now represents approximately 40% of Acuity’s total sales. Plus, management reported a 17% overall comparative quarterly gain in total sales volume, and the company’s cash position improved substantially in its most recent quarter.

So business conditions for Acuity are pretty good. Company management expects the North American lighting market to grow by the mid- to high single-digits in the upcoming year.

Corporate reporting, while only at a trickle as earnings season is just about to begin, has mostly been decent so far.

There have been good numbers from Bed Bath & Beyond Inc. (BBBY), NIKE, Inc. (NKE), Carnival Corporation (CCL), FedEx Corporation (FDX), Steelcase Inc. (SCS), and Paychex, Inc. (PAYX).

Of course, share prices have already gone up tremendously and good earnings are playing … Read More

Top Stock to Watch Among These Three Winning Techs

By for Profit Confidential

Top Three Winning Techs, but Only One to WatchFor years Micron Technology, Inc. (MU) struggled on the stock market as both competition and demand in the personal computer (PC) market took its toll on the chip maker.

Now the company is experiencing a bit of a renaissance, and the stock has been trending higher on genuine business growth.

In my mind, if Micron Technology is experiencing improved business conditions, it’s a positive indicator for almost everything else. This $34.0-billion company has really had a tough time since the technology bubble burst in 2000.

But the position broke out strongly at the beginning of last year. In January of 2013, the stock was trading for just less than $7.00 a share. Now, it’s more than $30.00 and is in a solid uptrend.

The company’s stock chart is featured below:

Micron Technology Inc Chart

Chart courtesy of www.StockCharts.com

In its most recent quarter, the company’s third fiscal quarter of 2014 (ended May 29, 2014), revenues grew 72% over the same quarter of the previous fiscal year to $3.98 billion.

Earnings were $806 million compared to $43.0 million.

Micron Technology recently acquired a Japanese chip maker, and as the company’s share price action illustrates, investors are more enthusiastic about the memory chip business.

This stock is not expensively priced, and it likely has more near-term legs in this market.

The business cycle is slowly changing, and so is investor sentiment. The semiconductor industry is notoriously volatile and boom-and-bust, but if business conditions are improving for Micron Technology, then there certainly is more optimism regarding the dynamic random access memory (DRAM) market.

Intel Corporation (INTC) recently surged on the stock market after the company raised its … Read More

The Downside to Dow 20,0000

By for Profit Confidential

Where the Stock Market Could Head NextWith the Dow Jones hitting 17,000 being pretty likely in the not-too-distant future, from there, it’s only another 18% or so until the Dow hits 20,000, which is pretty incredible.

These numbers seemed so unrealistic just a few years ago but now, it’s not too farfetched. The most amazing thing to me is that stocks still haven’t experienced a material price correction since the financial crisis.

Stocks aren’t necessarily stretched in terms of valuation, especially with corporate earnings outlooks holding up for this year and going into 2015. What is stretched is investor determination with a market at its high.

Johnson & Johnson (JNJ) is a great company and a worthy long-term investment (see “Three Blue Chips Set to Drive Higher”), but it’s tough to buy stocks at all-time record-highs. In Johnson & Johnson’s case, the position’s up almost 20 points since the beginning of February, and this is on top of a previous 20-point gain in 2013.

One of these days, stocks are going to get walloped. But there’s got to be some sort of catalyst for it to happen.

The Federal Reserve can be a catalyst if it decides to suddenly change its outlook for interest rate certainty. The catalyst could also be a geopolitical event or something that comes out of nowhere, like a big derivatives trade gone bad.

In any event, there will have to be a shock that is perceived to have a lasting effect on capital markets.

In the lull between earnings seasons, which we’re currently experiencing, stocks reaccelerated on the back of very modest economic news and that in itself is telling about … Read More

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