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

Long-term Investing

Long-term investing an investment strategy where a position is taken in a stock, a market, a currency or a commodity and is not sold for at least a few years. Long-term investing is creating an investment thesis on taking a position and why this position will pay off in the long run. The danger with long-term investing is staying with a position that continues to lose money. The most important aspect of long-term investing is to evaluate the investment thesis constantly. Things change. If the change alters the investment thesis, then an investor needs to sell and move on. If the thesis still works, then the difficult part is staying with a losing position until the market turns and proves the thesis right.

Why the Huge Move Upward in Ford and GM Isn’t Temporary

By for Profit Confidential

Why the Huge Move Upward in Ford and GM Isn’t TemporaryWhen it comes to long-term investing, it’s important to have a solid investment strategy that looks past the short-term fluctuations and focuses on the horizon. While many have been quite negative on the U.S. economy—and for good reason over the short term—this means many people have missed a good investment strategy involving the accumulation of the domestic carmakers before the latest move upward in their stock prices.

The recent results from the two American car-making giants show that the domestic market is actually quite strong. Ford Motor Company (NYSE/F) announced quarterly earnings that beat analyst estimates. The stock not only rose 8.2% that day, but it has continued to move upward. With 19 analysts estimating $0.30-per-share earnings, Ford came in at $0.40 per share, excluding one-time items. (Source: “Ford Advances After Outpacing Profit Estimates,” Bloomberg, October 31, 2012.)

The investment strategy for Ford has been to move away from the European division and move into markets in which the company is quite strong. The company expects to lose $1.5 billion in Europe this year and next. The long-term investing strategy for the company is to continue eliminating jobs in Europe and reducing that division, as weakness is expected on that continent for an extended period of time. This is certainly a prudent investment strategy for the company, as the American, South American, and Asian markets are far more attractive than Europe over the next decade.

f stock market quotes

Chart courtesy of www.StockCharts.com

As is quite evident from the chart, those interested in Ford for long-term investing had plenty of opportunity to enter the stock before its recent breakout. Even following the breakout, … Read More

Proof That Big Funds Have the Edge
Over the Average Retail Stock Investor

By for Profit Confidential

Average Retail Stock Investor There has been a lot written over the past couple of years regarding the lack of investor sentiment with the decline in participation from retail investors. We’ve heard over and over about how the investor sentiment has generally been negative by the retail customer. This is best seen by the average volume drop, especially this year. There are several reasons that are certainly justified for this poor investor sentiment, but the average retail client should focus on long-term investing and not on competing with large institutions over short-term trading.

One recent development that will hurt investor sentiment once again, as the big guys are receiving preferential treatment, is that the parent of the New York Stock Exchange (NYSE), NYSE Euronext (NYSE/NYX), has just paid $5.0 million to settle allegations by the Securities and Exchange Commission (SEC) that the NYSE Euronext delivered trading data to preferential customers who paid for it.

The NYSE Euronext had essentially two streams of trading data; the regular data stream that the average retail long-term investing customer sees and the paid-for data stream that was delivered faster, primarily to high-frequency traders (HFTs). This is yet another blow to investor sentiment against the exchanges, who are trying to bring back the retail client. As we’ve seen for months with the Occupy Wall Street movement, people aren’t thinking about long-term investing; people are thinking about the fact that they are losing out to the large institutions, upsetting independent investors. And it appears that the playing field has indeed been unfair over the short term.

The problem has always been with the exchanges and how to balance new … Read More

An American Success Story: Innovation Driving Profits

By for Profit Confidential

Innovation Driving ProfitsWhen it comes to investment strategy, many U.S.-based firms simply take the approach of blaming cheap foreign labor everywhere else and throwing up their hands as if there’s nothing they can do. That’s not much of a long-term investing strategy. There are some examples of U.S.-based firms that are generating strong corporate profits with a unique investment strategy—providing innovative products that customers really want.

Cummins Inc. (NYSE/CMI) is one such American firm that has seen rising corporate profits and has an intelligent investment strategy. Cummins produces engines for trucks and machines. Some might think: how can a U.S.-based firm increase corporate profits by building an engine when foreign competitors must be able to do it cheaper? The answer is: good old-fashioned innovative designs developed with an investment strategy to provide customers with a superior product. Demand for engines built by Cummins continues to grow around the world.

Cummins’ investment strategy is to become the leader in producing innovative, high-quality goods. This vision is not short-term thinking, but rather an investment strategy built carefully over time that is now paying off in strong corporate profits.

Thirty-five percent of sales for Cummins came from emerging markets like India, China, Brazil and other smaller nations. In 2007, this number was 27%. While corporate profits have been strong, the latest quarterly results are showing some weakness in these emerging markets, as revenue declined 16% in China and 18% in Brazil. While these declines will hurt short-term corporate profits, the firm has a long-term investment strategy with a long-term vision over the next decade.

In the short term, cautious comments by the CEO, N. … Read More

Rising Demand to Power Uranium Industry

By for Profit Confidential

uranium investingUranium investing has been severely hurt by all the bad news regarding nuclear power plants following the Fukushima Daiichi disaster in Japan last year. Immediately following this horrific accident, many investors got out of uranium investing and went to the sidelines until the future of the industry was clearer. Recent events are now allowing the clouds to part for uranium investing and perhaps the tide may be turning for those interested in long-term investing.

Nuclear energy and uranium investing are here to stay. Demand for electricity, especially for the manufacturing sector, is going to continue for decades, which is what you want to see when committed to long-term investing. The International Energy Agency forecasts global electricity demand to grow 2.4% a year for the next two decades, but emerging markets are growing much faster than that. India’s electricity consumption will grow 5.4% per year, while China’s will grow four percent per year for the next couple of decades. In total, the International Energy Agency estimates that global electricity demand will grow over 80% by 2035. When looking at long-term investing, I want to see consistent demand for decades to come.

Part of this push to electricity generation will come from natural gas, especially in North America where gas prices are cheap. I recently wrote an article detailing how an investor can profit with long-term investing in this sector (How to Profit from Low Natural Gas Prices). But, internationally, natural gas is not cheap everywhere. This leads us back to uranium investing to profit from the growth in nuclear energy with long-term investing over the next few decades…. Read More

Oil Stocks Face a Cloudy Future in Brazil

By for Profit Confidential

oil stocksWith the continued strength of oil prices, many investors are looking at a long-term investing strategy of putting their money in oil stocks. There could be some issues with specific country risk for oil stocks that many investors might not have thought about before when considering their long-term investing strategy. While we all are aware of Venezuela and the Chavez regime being not very friendly at all to international corporations, the recent news of Chevron Corporation (NYSE/CVX) executives being denied the ability to leave and facing prosecution for criminal charges in Brazil is definitely a new twist for oil stocks and their investors.

Let’s start with where oil prices are headed. The pullback in some of the other commodities has led some people to believe that oil prices are setting up for a sell-off. While there are some fundamental characteristics that might lead some to believe that to be the case, with geopolitical risk in the markets high and demand increasing, it looks highly likely that oil prices will stay elevated for some time. If this were to be the case, it should be good news for oil stocks and those interested in long-term investing, as the high oil prices will maintain earnings growth and fund new exploratory work to develop new oil fields.

Of course, I’m not the only one who believes this, as the technical situation with oil prices is telling us that the big money funds are positioning themselves for a spike upwards. Of course, no one can predict the future for oil stocks, but if oil prices break above current resistance levels, then look … Read More

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Why the Huge Move Upward in Ford and GM Isn’t Temporary

By for Profit Confidential

Why the Huge Move Upward in Ford and GM Isn’t TemporaryWhen it comes to long-term investing, it’s important to have a solid investment strategy that looks past the short-term fluctuations and focuses on the horizon. While many have been quite negative on the U.S. economy—and for good reason over the short term—this means many people have missed a good investment strategy involving the accumulation of the domestic carmakers before the latest move upward in their stock prices.

The recent results from the two American car-making giants show that the domestic market is actually quite strong. Ford Motor Company (NYSE/F) announced quarterly earnings that beat analyst estimates. The stock not only rose 8.2% that day, but it has continued to move upward. With 19 analysts estimating $0.30-per-share earnings, Ford came in at $0.40 per share, excluding one-time items. (Source: “Ford Advances After Outpacing Profit Estimates,” Bloomberg, October 31, 2012.)

The investment strategy for Ford has been to move away from the European division and move into markets in which the company is quite strong. The company expects to lose $1.5 billion in Europe this year and next. The long-term investing strategy for the company is to continue eliminating jobs in Europe and reducing that division, as weakness is expected on that continent for an extended period of time. This is certainly a prudent investment strategy for the company, as the American, South American, and Asian markets are far more attractive than Europe over the next decade.

f stock market quotes

Chart courtesy of www.StockCharts.com

As is quite evident from the chart, those interested in Ford for long-term investing had plenty of opportunity to enter the stock before its recent breakout. Even following the breakout, … Read More

Proof That Big Funds Have the Edge
Over the Average Retail Stock Investor

By for Profit Confidential

Average Retail Stock Investor There has been a lot written over the past couple of years regarding the lack of investor sentiment with the decline in participation from retail investors. We’ve heard over and over about how the investor sentiment has generally been negative by the retail customer. This is best seen by the average volume drop, especially this year. There are several reasons that are certainly justified for this poor investor sentiment, but the average retail client should focus on long-term investing and not on competing with large institutions over short-term trading.

One recent development that will hurt investor sentiment once again, as the big guys are receiving preferential treatment, is that the parent of the New York Stock Exchange (NYSE), NYSE Euronext (NYSE/NYX), has just paid $5.0 million to settle allegations by the Securities and Exchange Commission (SEC) that the NYSE Euronext delivered trading data to preferential customers who paid for it.

The NYSE Euronext had essentially two streams of trading data; the regular data stream that the average retail long-term investing customer sees and the paid-for data stream that was delivered faster, primarily to high-frequency traders (HFTs). This is yet another blow to investor sentiment against the exchanges, who are trying to bring back the retail client. As we’ve seen for months with the Occupy Wall Street movement, people aren’t thinking about long-term investing; people are thinking about the fact that they are losing out to the large institutions, upsetting independent investors. And it appears that the playing field has indeed been unfair over the short term.

The problem has always been with the exchanges and how to balance new … Read More

An American Success Story: Innovation Driving Profits

By for Profit Confidential

Innovation Driving ProfitsWhen it comes to investment strategy, many U.S.-based firms simply take the approach of blaming cheap foreign labor everywhere else and throwing up their hands as if there’s nothing they can do. That’s not much of a long-term investing strategy. There are some examples of U.S.-based firms that are generating strong corporate profits with a unique investment strategy—providing innovative products that customers really want.

Cummins Inc. (NYSE/CMI) is one such American firm that has seen rising corporate profits and has an intelligent investment strategy. Cummins produces engines for trucks and machines. Some might think: how can a U.S.-based firm increase corporate profits by building an engine when foreign competitors must be able to do it cheaper? The answer is: good old-fashioned innovative designs developed with an investment strategy to provide customers with a superior product. Demand for engines built by Cummins continues to grow around the world.

Cummins’ investment strategy is to become the leader in producing innovative, high-quality goods. This vision is not short-term thinking, but rather an investment strategy built carefully over time that is now paying off in strong corporate profits.

Thirty-five percent of sales for Cummins came from emerging markets like India, China, Brazil and other smaller nations. In 2007, this number was 27%. While corporate profits have been strong, the latest quarterly results are showing some weakness in these emerging markets, as revenue declined 16% in China and 18% in Brazil. While these declines will hurt short-term corporate profits, the firm has a long-term investment strategy with a long-term vision over the next decade.

In the short term, cautious comments by the CEO, N. … Read More

Rising Demand to Power Uranium Industry

By for Profit Confidential

uranium investingUranium investing has been severely hurt by all the bad news regarding nuclear power plants following the Fukushima Daiichi disaster in Japan last year. Immediately following this horrific accident, many investors got out of uranium investing and went to the sidelines until the future of the industry was clearer. Recent events are now allowing the clouds to part for uranium investing and perhaps the tide may be turning for those interested in long-term investing.

Nuclear energy and uranium investing are here to stay. Demand for electricity, especially for the manufacturing sector, is going to continue for decades, which is what you want to see when committed to long-term investing. The International Energy Agency forecasts global electricity demand to grow 2.4% a year for the next two decades, but emerging markets are growing much faster than that. India’s electricity consumption will grow 5.4% per year, while China’s will grow four percent per year for the next couple of decades. In total, the International Energy Agency estimates that global electricity demand will grow over 80% by 2035. When looking at long-term investing, I want to see consistent demand for decades to come.

Part of this push to electricity generation will come from natural gas, especially in North America where gas prices are cheap. I recently wrote an article detailing how an investor can profit with long-term investing in this sector (How to Profit from Low Natural Gas Prices). But, internationally, natural gas is not cheap everywhere. This leads us back to uranium investing to profit from the growth in nuclear energy with long-term investing over the next few decades…. Read More

Oil Stocks Face a Cloudy Future in Brazil

By for Profit Confidential

oil stocksWith the continued strength of oil prices, many investors are looking at a long-term investing strategy of putting their money in oil stocks. There could be some issues with specific country risk for oil stocks that many investors might not have thought about before when considering their long-term investing strategy. While we all are aware of Venezuela and the Chavez regime being not very friendly at all to international corporations, the recent news of Chevron Corporation (NYSE/CVX) executives being denied the ability to leave and facing prosecution for criminal charges in Brazil is definitely a new twist for oil stocks and their investors.

Let’s start with where oil prices are headed. The pullback in some of the other commodities has led some people to believe that oil prices are setting up for a sell-off. While there are some fundamental characteristics that might lead some to believe that to be the case, with geopolitical risk in the markets high and demand increasing, it looks highly likely that oil prices will stay elevated for some time. If this were to be the case, it should be good news for oil stocks and those interested in long-term investing, as the high oil prices will maintain earnings growth and fund new exploratory work to develop new oil fields.

Of course, I’m not the only one who believes this, as the technical situation with oil prices is telling us that the big money funds are positioning themselves for a spike upwards. Of course, no one can predict the future for oil stocks, but if oil prices break above current resistance levels, then look … Read More

Stock Market: What You Can
Expect From It in 2012

By for Profit Confidential

It’s that time of the year…investors want to know where the stock market is headed in 2012. And I don’t blame them for their anticipation. It’s been three great years for stocks; what will we see next year?

Making Money with Stocks: Two Big
Things That Make All the Difference

By for Profit Confidential

Being long the stock market is certainly paying off. In fact, it’s been paying off quite handsomely since the financial crisis low set in March 2009. Of course, the stock market is still in recovery mode. Share prices still aren’t back to their highs set over a decade ago. They’re getting closer, but, really, we’re only talking about breaking even. If it weren’t for dividends, most equity investors would have been in the red over the last 10 years.

You a More Conservative Investor? Here’s a Great Strategy

By for Profit Confidential

In my previous commentary, I talked about the concept of stock or market reversals and the need to be aware of several chart patterns that could arise.

Given the current strong rally in stocks, you should be careful about chasing stocks higher, as there is always the risk of a correction. Yet, at the same time, you do not want to miss out on any upside.

The Housing Market Will Continue to Be Soft

By for Profit Confidential

The February housing market data was mixed. Readers here know how I have been negative on the housing market, despite those who say the sector is ripe for a rebound. I say, “no,” at least not in the foreseeable future. The softness in the housing market continues as both housing starts and building permits continue to slide. Add in the woes in the subprime mortgage market and the concerns intensify.

The upward move of rates has been a detriment for the housing market, especially the subprime lenders who give loans to those with less-than-ideal credit. As rates rise, these borrowers are faced with a significant increase in monthly mortgage costs, making them vulnerable to delinquencies. People’s Choice Financial Corp. filed for Chapter 11 bankruptcy protection. Former Fed Chairman Alan Greenspan believes weakness in the subprime market will not impact the broader economy if the housing market does not weaken significantly. This is a big “if.”

The picture for housing continues to look relatively bleak at this time. The monthly housing starts have been below estimates in seven of the last 12 months. The February reading of 1.525 million starts was better than the estimate of 1.445 million and above January’s dismal reading of 1.399 million, but it was still the second worst reading in over three years. The trend for building permits equally looks bad. The monthly building permits have been below estimates in 11 of the last 12 months back to March 2006 and have declined in 11 of the last 12 months.

What make me believe the softness will continue are the higher interest rates, and the subprime … Read More

Long-Term Wealth-Creators

By for Profit Confidential

I’d like to spend this column going over a few mid-cap companies that I really like. Three in particular stand out as solid, long-term wealth-creators for investors, in my opinion.

Long-time readers of this column will know of my affinity for investment themes. Two investment themes that I like very much are the eye care business and the pet care business. No matter what happens to the economy, people still need to feed and vaccinate their pets, and everyone needs to be able to see correctly.

I’ve always had an affinity for VCA Antech (NASDAQ/WOOF). This company operates the largest network of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country. Based in Los Angeles, the company operates as Veterinary Centers of America Inc., offering a full range of medical and surgical services for small and companion animals. The company’s veterinary diagnostic laboratory network serves all 50 states, providing sophisticated testing and consulting services to other small veterinarians.

Another favorite is Luxottica Group (NYSE/LUX). This Italian company operates nearly 5,500 optical retail stores mainly in North America and the Asia-Pacific region, selling premium eye glasses brands. The company’s brands include”Ray-Ban, Vogue, Persol, Arnette and REVO and licenses Bvlgari, Chanel, Donna Karan, Prada, Ralph Lauren, and Versace. Retail distribution is done through the company’s own subsidiaries that include LensCrafters Inc., Sunglass Hut International Inc., and O.P.S.M. Group Limited.

Finally, another mid-cap company that’s proven itself as a solid wealth creator is Daktronics Inc. (NASDAQ/DAKT). This company is in the business of manufacturing and installing display screens. The company makes everything from large, computer- programmed scoreboards that are installed in large … Read More

An American Icon With a Positive Trend

By for Profit Confidential

When I look at companies to evaluate, one of the first things I do is examine their long-term charts. Companies that have strong long-term positive trends immediately catch my interest. Take a look at Harley-Davidson, Inc. (NYSE/HDI), for instance. The maker of the “Harley,” a true American icon, has proven itself over time. Its long-term chart is what I like to see, in spite of some flatness over the last three years.

 Debuting in an initial public offering in November 1987 at $0.43, the stock has split five times and is up an astounding 10,807% or 108 times in just under two decades. A $10,000 investment in November 1987 would be worth a tidy $1.09 million based on last Wednesday’s close. Not too many stocks, especially outside of technology, have come close to matching a return such as this.

 The company just had a strong third quarter and expects to report its 20th straight year of record revenue and earnings in the FY05. The valuation appears attractive, trading at 12.85x its FY06 EPS and a PEG of 0.98. So, is it time to buy? From 1987 to 2002, the long-term price trend was bullish, but it has been a different story since 2002, as the stock has traded in a sideways channel with decent support at $40.

 After the selloff in the stock last April when it was trading over $60, Harley has failed to establish a clear trend. We saw a positive trend develop between a bottom in April and late July when the stock rallied to the mid-$50 range, but since then, the stock has slid.

 If the … Read More

An Eye Care Company for Your Radar Screen

By for Profit Confidential

Recently, I came across another attractive company that fits into my eye care investment theme. I know it’s a tough environment in which to consider buying stocks right now, but you might consider putting this company on your radar screen.

Luxottica Group SpA (NYSE/LUX) is a large-cap, Italian company with a long-term track record of success, both financially and as a stock market investment.

The stock has done very well over the last couple of decades. In 1992, it split two-for-one; in 1998, it split five-for-one; and in 2000, it split two-for-one again. In my view, the stock is due for another split, as the company continues to grow.

You may not be familiar with Luxottica, but you’ve probably heard of some of its operating subsidiaries. Currently, the company operates nearly 5,500 optical retail stores mainly in North America and the Asia-Pacific region, selling premium, licensed eye glass brands. The company’s brands include “Ray- Ban,” “Vogue,” “Persol,” “Arnette,” and “REVO,” and it also licenses “Bvlgari,” “Chanel,” “Donna Karan,” “Prada,” and “Versace.”

The company’s retail distribution network is vast and successful. Luxottica owns and operates LensCrafters Inc., Sunglass Hut International Inc., and O.P.S.M. Group Limited. Overall, the company maintains a wholesale network that reaches some 120 countries, with a direct presence in 28 of the main eyewear markets worldwide. Most of the company’s eye care products are designed and manufactured at six manufacturing plants in Italy and one in China.

From my perspective, Luxottica is another well managed company that should be studied by business students in MBA programs. The company isn’t in the business of betting the farm on new … Read More

Extraordinary Highs in This Sector

By for Profit Confidential

As many of you who have read my columns are aware, I view the Internet sector as an excellent long-term growth vehicle. Unlike brick and mortar businesses, the Internet is constantly fresh and full of changes. I believe the trend in Internet spending will continue to accelerate going forward.

 Come up with a unique Internet business concept, and you too  can be rich. Just ask Larry Page and Sergey Brin, the co- founders of Internet sensation Google Inc. (NASDAQ/GOOG). They have taken the stock to extraordinary heights with a current market-cap in excess of $81 billion. But trading at 39.84x its FY06 EPS and a PEG of 1.72, there are some investors that are questioning the valuation. And, while the valuation is not cheap, I do not think it is excessive either. As long as Internet advertising continues, Google will continue to report awesome growth.

 Last week, another Internet bellwether stock, Amazon.com (NASDAQ/AMZN), surged 21% to a new 52-week high after it reported a strong second quarter in which year-over-year sales growth was 26% to $1.75 billion, beating Wall Street by a small margin. Year-over-year pre-tax earnings came in at $108 million, up from $81 million in the prior year. The results helped drive up the share price of Amazon. And while this is an excellent long-term company with an impressive business model, I have to question the valuation that the market has assigned to Amazon versus that of its peer group.

 Take Google for instance. Google trades at 39.84x its FY06 EPS and a PEG of 1.72. Amazon, in comparison, trades at a more expensive 47.29x its FY06 and … Read More

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.

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