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

Monetary Policy

Monetary policy is the mechanism through which the supply of money is controlled by monetary authorities. The goal of almost every monetary authority around the world is stability of prices. If prices are unstable—either too high or, in some circumstances, decreasing—this causes unforeseen and unwanted consequences for the economy as a whole. Monetary authorities usually enact changes to interest rates for the purpose of changing the demand for money. Monetary policy can be either expanding, when interest rates are lowered and more money is available at a cheaper, or contracting, when interest rates are raised to make money more expensive to slow price increases.

Markets Asking a Lot from Blue Chips; Can They Deliver?

By for Profit Confidential

Wall Street Earnings are beginning to roll in and quite a few companies are missing Wall Street consensus.

This doesn’t mean, however, that there isn’t growth out there; only that estimates have so far been a little optimistic.

CarMax, Inc. (KMX) is a well-known used-car dealer. The company’s latest numbers were decent, but they came in below what Wall Street was looking for.

Fiscal fourth-quarter sales grew nine percent to $3.08 billion, which is pretty good. Comparable store unit sales grew seven percent in the fourth quarter and 12% year-over-year.

The company had to correct some accounting procedures related to extended service plans and warranties, and it took a hit on earnings because of this.

CarMax is buying back its own stock and just authorized another $1.0-billion repurchase plan that expires at the end of the 2015 calendar year. The stock only dropped marginally on the news.

Another company that missed consensus but is very much a growing enterprise is AZZ Incorporated (AZZ) out of Fort Worth, Texas. We looked at this company last year. (See “Things Are Looking Up! Let’s Hope They Don’t Wreck It.”)

This is a good business. The company manufactures electrical equipment and components for power generation and transmission. Management recently said that business conditions are improving and new quoting activity is noticeably stronger.

Fiscal 2014 fourth-quarter revenues came in at $180 million, compared to $140 million in the fourth quarter of 2013. Earnings were $10.2 million, or $0.40 per diluted share, compared to earnings of $13.2 million, or $0.52 per diluted share.

While the company actually missed Wall Street consensus earnings by $0.02 a share … Read More

The Only Company That Will Have a Really Good Year in 2014

By for Profit Confidential

Future Expectations Trump Valuations as Stocks Drive HigherThere’s one company that is likely to have a very good year in 2014.

As my readers will know, the most valuable information going as an equity investor (businessperson) is what an enterprise says about its business conditions. And according to this company, business conditions are looking up.

Acuity Brands, Inc. (AYI) is a well-known lighting company out of Atlanta that serves mostly commercial and industrial markets. The company operates a number of brands, selling through independent agents, electrical wholesalers, and sales reps.

Total sales for the company’s fiscal second quarter (ended February 28, 2014) grew a solid 12% over the comparable quarter to $546 million.

Earnings grew substantially, up 32% in the quarter to $32.7 million. Earnings per share also grew 32% over the comparable quarter to $0.75.

Sales in the most recent quarter actually grew 13%, but this growth was reduced by one percent due to unfavorable currency translation.

Company management cited an improving marketplace for retrofit and renovation lighting applications. Fiscal 2014 should experience mid- to high-single-digit growth over the last fiscal year, with March order rates showing solid improvement.

Acuity Brands actually missed Wall Street consensus on both revenues and earnings, but the stock went up anyway after management said its order trend was improving. The company’s one-year stock chart is featured below:

Acuity Brands ChartChart courtesy of www.StockCharts.com

But even with the relative good news and positive market reaction to the company’s latest results, Acuity Brands remains one expensive stock. And this is the dilemma for a good portion of this market.

Stocks have already gone up. Many good businesses have seen their valuations and share prices … Read More

Increasing Stock Buybacks a Signal to Cash Out?

By for Profit Confidential

What the Increase in Share Buybacks Means for InvestorsStocks are churning without any notable trend, influenced by geopolitical events, the lack of corporate reporting, and a recent change in investor sentiment regarding valuations. The fact is that a lot of stocks are ahead of themselves, and this is why we may very well get a lot of profit-taking over the next couple of months.

Aside from monetary policy, the most valuable information in the marketplace is what corporations report about their business. While the calendar first quarter will soon be over, a number of companies are now reporting their numbers.

Sonic Corp. (SONC) operates the largest chain of drive-in restaurants and the company’s results for its fiscal second quarter (ended February 28, 2014) weren’t that bad.

Same-store sales for the company grew 1.4%, but total revenues dropped slightly to $109.7 million, down from $111.1 million in the same quarter of last year.

Earnings were $4.1 million, or $0.07 per diluted share, compared to $3.6 million, or $0.06 per diluted share.

In a trend that’s so prevalent these days, the company repurchased $51.0 million of its own shares during the most recent fiscal quarter at an average price of $19.14 per share. This represents approximately five percent of the company’s total shares outstanding. Since the beginning of fiscal 2012, the company has bought back $125 million of its own stock, or 17% of total shares outstanding.

Management anticipates earnings will grow 14% to 15% this fiscal year (compared to adjusted non-GAAP earnings). They also expect to buy back another $80.0 million of the company’s shares this fiscal year. Sonic’s five-year stock chart is featured below:

Sonic Corp ChartChart courtesy of Read More

Risk vs. Reward: Is It Time to Cash Out of This Bull Market?

By for Profit Confidential

Time to Cash Out of This Bull MarketEver since Janet Yellen, the new Chair of the Federal Reserve, made her first speech reiterating a stay-the-course policy regarding monetary policy, stocks got a whole new lease on their financial life.

This market is holding up extremely well, and the action proves that institutional investors will bid stocks if there is certainty. It’s a bull market characteristic. So long as Fed policy stays the course (which includes the tapering of quantitative easing) and there are no major external shocks, the “great reflation” should continue, if not more modestly than last year. (See “Making Sense of the U.S. Economy in 10 Short Points.”)

Fighting the Fed as an investor in stocks is typically not profitable. The current business and monetary cycles are going to change, but it’s not going to happen overnight.

The first quarter of 2014 is almost over and another earnings season is on the horizon. While quarterly earnings results are managed, after monetary policy, corporate numbers are the big news.

Playing a market that’s at an all-time high is extremely difficult. Price momentum can often surprise with its duration, especially in an environment of tremendous monetary ease.

But practically, it’s difficult to consider loading up on new positions after a five-year period of very respectable capital gains from the March low in 2009.

Optimism is a key attribute for any successful entrepreneur, and the expectation for positive outcomes is most certainly a real component of capital markets, especially with stocks.

My sense is that first-quarter earnings results will be quite lackluster, with domestic companies especially reflecting a tough winter.

Buying stocks is all about the … Read More

Former Momentum Stocks Signpost to Sell?

By for Profit Confidential

Price Momentum Suggests Portfolio RebalancingA good amount of speculative fervor has come out of this market so far this year, but there’s still quite a bit of valuation froth around.

Across the board, 3D-printer stocks have come back. 3D Systems Corporation (DDD) still boasts a trailing price-to-earnings (P/E) ratio of around 150.

Tesla Motors, Inc. (TSLA) is still going strong. It’s one of few super-hyped stocks that made a strong recovery in January after a material sell-off months before. (See “Buy High, Sell Higher: Top Investment Strategy for Buoyant Markets?”) The position just bounced off $265.00 per share. Next year, Wall Street estimates the company will do more than $5.0 billion in sales.

Looking at the stock market currently, there’s a lot of indecisiveness and geopolitical events are overshadowing the action.

Watch large-cap biotechnology stocks (or the NASDAQ Biotechnology Index) for their trading action specifically. This group of stocks reaccelerated strongly in February and is very much overdue for a material correction.

I’ve noticed several key momentum stocks within the group have started rolling over. This should be a strong contributing indicator to the short-term action unrelated to specific events happening in Ukraine.

Gold is holding up well with the geopolitical tensions, and oil prices are too, but to a lesser degree.

Stocks are due for a break. What looked like the makings of a material correction in January, equities reversed direction after the Federal Reserve, once again, reiterated its willingness to be highly accommodative to capital markets.

This kind of market (after such a strong 2013 for stocks) warrants a significant degree of caution. I wouldn’t be jumping onto any bandwagons. … Read More

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Markets Asking a Lot from Blue Chips; Can They Deliver?

By for Profit Confidential

Wall Street Earnings are beginning to roll in and quite a few companies are missing Wall Street consensus.

This doesn’t mean, however, that there isn’t growth out there; only that estimates have so far been a little optimistic.

CarMax, Inc. (KMX) is a well-known used-car dealer. The company’s latest numbers were decent, but they came in below what Wall Street was looking for.

Fiscal fourth-quarter sales grew nine percent to $3.08 billion, which is pretty good. Comparable store unit sales grew seven percent in the fourth quarter and 12% year-over-year.

The company had to correct some accounting procedures related to extended service plans and warranties, and it took a hit on earnings because of this.

CarMax is buying back its own stock and just authorized another $1.0-billion repurchase plan that expires at the end of the 2015 calendar year. The stock only dropped marginally on the news.

Another company that missed consensus but is very much a growing enterprise is AZZ Incorporated (AZZ) out of Fort Worth, Texas. We looked at this company last year. (See “Things Are Looking Up! Let’s Hope They Don’t Wreck It.”)

This is a good business. The company manufactures electrical equipment and components for power generation and transmission. Management recently said that business conditions are improving and new quoting activity is noticeably stronger.

Fiscal 2014 fourth-quarter revenues came in at $180 million, compared to $140 million in the fourth quarter of 2013. Earnings were $10.2 million, or $0.40 per diluted share, compared to earnings of $13.2 million, or $0.52 per diluted share.

While the company actually missed Wall Street consensus earnings by $0.02 a share … Read More

The Only Company That Will Have a Really Good Year in 2014

By for Profit Confidential

Future Expectations Trump Valuations as Stocks Drive HigherThere’s one company that is likely to have a very good year in 2014.

As my readers will know, the most valuable information going as an equity investor (businessperson) is what an enterprise says about its business conditions. And according to this company, business conditions are looking up.

Acuity Brands, Inc. (AYI) is a well-known lighting company out of Atlanta that serves mostly commercial and industrial markets. The company operates a number of brands, selling through independent agents, electrical wholesalers, and sales reps.

Total sales for the company’s fiscal second quarter (ended February 28, 2014) grew a solid 12% over the comparable quarter to $546 million.

Earnings grew substantially, up 32% in the quarter to $32.7 million. Earnings per share also grew 32% over the comparable quarter to $0.75.

Sales in the most recent quarter actually grew 13%, but this growth was reduced by one percent due to unfavorable currency translation.

Company management cited an improving marketplace for retrofit and renovation lighting applications. Fiscal 2014 should experience mid- to high-single-digit growth over the last fiscal year, with March order rates showing solid improvement.

Acuity Brands actually missed Wall Street consensus on both revenues and earnings, but the stock went up anyway after management said its order trend was improving. The company’s one-year stock chart is featured below:

Acuity Brands ChartChart courtesy of www.StockCharts.com

But even with the relative good news and positive market reaction to the company’s latest results, Acuity Brands remains one expensive stock. And this is the dilemma for a good portion of this market.

Stocks have already gone up. Many good businesses have seen their valuations and share prices … Read More

Increasing Stock Buybacks a Signal to Cash Out?

By for Profit Confidential

What the Increase in Share Buybacks Means for InvestorsStocks are churning without any notable trend, influenced by geopolitical events, the lack of corporate reporting, and a recent change in investor sentiment regarding valuations. The fact is that a lot of stocks are ahead of themselves, and this is why we may very well get a lot of profit-taking over the next couple of months.

Aside from monetary policy, the most valuable information in the marketplace is what corporations report about their business. While the calendar first quarter will soon be over, a number of companies are now reporting their numbers.

Sonic Corp. (SONC) operates the largest chain of drive-in restaurants and the company’s results for its fiscal second quarter (ended February 28, 2014) weren’t that bad.

Same-store sales for the company grew 1.4%, but total revenues dropped slightly to $109.7 million, down from $111.1 million in the same quarter of last year.

Earnings were $4.1 million, or $0.07 per diluted share, compared to $3.6 million, or $0.06 per diluted share.

In a trend that’s so prevalent these days, the company repurchased $51.0 million of its own shares during the most recent fiscal quarter at an average price of $19.14 per share. This represents approximately five percent of the company’s total shares outstanding. Since the beginning of fiscal 2012, the company has bought back $125 million of its own stock, or 17% of total shares outstanding.

Management anticipates earnings will grow 14% to 15% this fiscal year (compared to adjusted non-GAAP earnings). They also expect to buy back another $80.0 million of the company’s shares this fiscal year. Sonic’s five-year stock chart is featured below:

Sonic Corp ChartChart courtesy of Read More

Risk vs. Reward: Is It Time to Cash Out of This Bull Market?

By for Profit Confidential

Time to Cash Out of This Bull MarketEver since Janet Yellen, the new Chair of the Federal Reserve, made her first speech reiterating a stay-the-course policy regarding monetary policy, stocks got a whole new lease on their financial life.

This market is holding up extremely well, and the action proves that institutional investors will bid stocks if there is certainty. It’s a bull market characteristic. So long as Fed policy stays the course (which includes the tapering of quantitative easing) and there are no major external shocks, the “great reflation” should continue, if not more modestly than last year. (See “Making Sense of the U.S. Economy in 10 Short Points.”)

Fighting the Fed as an investor in stocks is typically not profitable. The current business and monetary cycles are going to change, but it’s not going to happen overnight.

The first quarter of 2014 is almost over and another earnings season is on the horizon. While quarterly earnings results are managed, after monetary policy, corporate numbers are the big news.

Playing a market that’s at an all-time high is extremely difficult. Price momentum can often surprise with its duration, especially in an environment of tremendous monetary ease.

But practically, it’s difficult to consider loading up on new positions after a five-year period of very respectable capital gains from the March low in 2009.

Optimism is a key attribute for any successful entrepreneur, and the expectation for positive outcomes is most certainly a real component of capital markets, especially with stocks.

My sense is that first-quarter earnings results will be quite lackluster, with domestic companies especially reflecting a tough winter.

Buying stocks is all about the … Read More

Former Momentum Stocks Signpost to Sell?

By for Profit Confidential

Price Momentum Suggests Portfolio RebalancingA good amount of speculative fervor has come out of this market so far this year, but there’s still quite a bit of valuation froth around.

Across the board, 3D-printer stocks have come back. 3D Systems Corporation (DDD) still boasts a trailing price-to-earnings (P/E) ratio of around 150.

Tesla Motors, Inc. (TSLA) is still going strong. It’s one of few super-hyped stocks that made a strong recovery in January after a material sell-off months before. (See “Buy High, Sell Higher: Top Investment Strategy for Buoyant Markets?”) The position just bounced off $265.00 per share. Next year, Wall Street estimates the company will do more than $5.0 billion in sales.

Looking at the stock market currently, there’s a lot of indecisiveness and geopolitical events are overshadowing the action.

Watch large-cap biotechnology stocks (or the NASDAQ Biotechnology Index) for their trading action specifically. This group of stocks reaccelerated strongly in February and is very much overdue for a material correction.

I’ve noticed several key momentum stocks within the group have started rolling over. This should be a strong contributing indicator to the short-term action unrelated to specific events happening in Ukraine.

Gold is holding up well with the geopolitical tensions, and oil prices are too, but to a lesser degree.

Stocks are due for a break. What looked like the makings of a material correction in January, equities reversed direction after the Federal Reserve, once again, reiterated its willingness to be highly accommodative to capital markets.

This kind of market (after such a strong 2013 for stocks) warrants a significant degree of caution. I wouldn’t be jumping onto any bandwagons. … Read More

Strong Balance Sheets, Fed Liquidity; What’s Not to Love About This Stock Market?

By for Profit Confidential

Things Looking Rosy for the Stock MarketThere is a lot of liquidity out there, and all kinds of stocks are experiencing significant price momentum.

It’s a bull market still, and no matter how long it has to run, it seems that valuations aren’t as important as owning the right stocks for institutional investors. Countless names have fought back in price from recent sell-offs and are now pushing new record-highs once again.

These stocks include Netflix, Inc. (NFLX), priceline.com Incorporated (PCLN), and Google Inc. (GOOG), among others. You could buy a basket of these stocks and if nothing were to change in terms of monetary policy, they probably would be higher in a month’s time.

But while momentum remains strong and existing winners keep outperforming, stocks haven’t really experienced a material price correction in more than two years and because of this, investment risk remains high.

Previously in these pages, we looked at some top-ranked biotechnology stocks that continue to be tremendous wealth creators for shareholders. (See “Can the Rally in Biotechs Keep Its Momentum?”) But their amazing price-performance also illustrates the froth in the stock market. While speculative fervor for initial public offerings (IPOs) has diminished since the beginning of the year, existing winners just keep on plowing higher.

Investor sentiment can always change on a dime, but it needs a catalyst to do so. This could include a change in monetary or fiscal policies, a geopolitical event, a derivatives trade gone bad, currency destabilization—the list is endless.

The Federal Reserve recently gave the marketplace the certainty it was looking for: quantitative easing is going to continue to be reduced and short-term interest rates … Read More

Where to Find Value in an Overbought Market

By for Profit Confidential

What Stocks to Buy in an Overbought MarketMany smaller companies are now reporting their financial results, and very soon, it will be the lull between earnings seasons, when the only fuel the marketplace has to go on is monetary policy and economic news.

It wouldn’t surprise me at all if stocks took a break for the entire second quarter. Fourth-quarter financial results were decent, but they weren’t the kind of numbers that justify loading up on positions. Stocks seem to be about fully priced and there’s no real reason why they should go up near-term, especially considering last year’s performance.

The market had a tough time at the very beginning of the year but recovered strongly after the Federal Reserve provided certainty on monetary policy and the outlook for quantitative easing. There were some material corporate events in terms of new share buyback programs and select dividend increases, but most companies announce dividend news in the bottom half of the year; this is when we might see stocks generate further capital gains, if any.

Last year’s performance on the stock market was just so exceptional that stocks will be doing well if they close flat for this year.

Turning to blue chips for their corporate outlooks always yields useful information, even if an investor is not interested in the company’s shares. A lot of blue-chip stocks reported, in their fourth-quarter financial reports, that they expect high-single-digit sales growth in 2014 and high-single- to low-double-digit growth in earnings. This is pretty solid for mature, slow-growth enterprises, and it helps validate the market’s recent run as earnings per share catch up to share prices.

But if an investor was … Read More

Can the Rally in Biotechs Keep Its Momentum?

By for Profit Confidential

Can Biotechnology Stocks Keep Their MomentumThe last time we looked at Alexion Pharmaceuticals, Inc. (ALXN), the position was trading around $121.00 a share. Now, it’s $175.00 a share, and once again, the company reported outstanding financial results from its “Soliris” wonder-drug.

This stock has been a powerhouse wealth creator, and virtually every time we take a look at it, the share price is higher.

There has been and continues to be tremendous momentum with biotechnology stocks in this market. And a great deal of it is happening in the large-cap space, where price momentum, thanks to institutional investors, has been robust and often very consistent.

Previously in these pages when looking at Alexion Pharmaceuticals, we also considered Biogen Idec Inc. (BIIB). (See “How Risk-Averse Investors Can Capitalize on 2014’s Expected Record Drug Approvals.”) It’s a similar story in terms of the price momentum being experienced on the stock market. In our last update, the position was treading around $290.00 a share; now, it’s $325.00, representing another new record-high.

Strong trading action in biotechnology stocks is partially due to economic success within this specific sector, but it’s also a reflection of buoyant capital markets, or equities in particular. The speculative fervor that investors have for this sector has been unmatched in recent history.

The NASDAQ Biotechnology Index broke out of a 12-year price consolidation in 2011 and has almost tripled since. While there were some retrenchments in this index in the last few years, considering the inherent volatility in biotechnology stocks, the pullbacks have been minimal.

While monetary policy is favorable to equities, like it is currently, I’d say there’s further price momentum in … Read More

Pullback in Stock Prices Makes These Dividend Payers Attractive Again

By for Profit Confidential

Blue Chip Stocks Getting into the Buy ZoneWith the turmoil in global capital markets, the sell-off in stocks is serving as the consolidation/correction that we did not experience in 2013, which was an exceptionally strong year.

But stepping back from historical share price action, we have continued certainty regarding the Fed funds rate this year. The low interest rate environment remains a very positive catalyst for the equity market and the medium-term trend.

Stocks may very well have a difficult year in 2014, but that doesn’t mean that current fundamentals aren’t laying the groundwork for more capital gains over the next several.

The marketplace fully expects continued tapering of quantitative easing to occur over the coming quarters. There’s likely to be continued pressure on longer-term interest rates, but this is a market-driven precursor to economic activity; it’s perfectly normal and is a positive, market-driven reflection of financial market sentiment.

With this backdrop and so many large-cap companies boasting very good balance sheets, strong cash positions, and the expectation that cash flows will contribute to increasing dividends, a good buying opportunity for new positions may soon present itself.

Dividend paying stocks like 3M Company (MMM) are becoming increasingly attractive as their share prices retreat. The company missed Wall Street consensus just slightly in its most recent quarter, but growth expectations are still decent for such a large conglomerate, and the company’s valuation is not unreasonable. (See “The Stocks to Own Right Now…”)

According to 3M, its fourth-quarter earnings per share increased a solid 15% to $1.62. Sales growth was in the single digits, as expected, at 2.4% to $7.6 billion. Currencies impacted sales negatively by 1.7%…. Read More

Future Looks Bright for This Little-Known Niche Market

By for Profit Confidential

Future Looks Bright for This Niche Market StockAcuity Brands, Inc. (AYI) manufactures lighting, and business is really good. The Atlanta-based company just reported an excellent quarter and the stock blasted higher after handily beating consensus on earnings and revenues.

The stock has been a powerhouse, up five-fold since its 2009 low, and has been especially strong over the last 12 months, like so many other positions.

Acuity Brands provides all kinds of indoor and outdoor lighting and its products are sold all over the world. Any application you can name, this company likely makes a light for it. The company’s products are mostly for industrial/commercial use in offices and buildings, but the company also produces lighting for sports facilities, underwater applications, garages, emergency exits, decorative and landscape applications, and parking lots, along with some residential lighting.

Then there are all the controls and components required to make the lighting work. Acuity Brands manufactures these as well.

In its fiscal first quarter of 2014 (ended November 31, 2013), the company said it achieved all-time records in first-quarter sales, earnings, and diluted earnings per share.

Total sales for the quarter came to $574.7 million, representing a solid 20% gain over the first quarter of 2013.

Earnings were $44.5 million, representing a substantial 70% gain over the comparable quarter (including a $5.0 million insurance recovery gain).

Acuity Brands finished its fiscal first quarter with cash and cash equivalents of $398 million, for a gain of $39.0 million over the previous quarter. Management said it expects demand for its lighting products to improve and become more broad-based. The renovation and tenant (improvement) markets are expected to be growth areas.

On the … Read More

Where the Gains Will Be in 2014

By for Profit Confidential

New Year to Be Bullish for Stock Market InvestorsIn 2013, the Federal Reserve gave stock market investors some of the easiest gains in history as a result of its quantitative easing. Now, as we move into 2014, while I believe it will likely be another up year for the stock market, I doubt the gains will be as good as last year’s.

Let’s take a look at the situation in 2014.

Fed Chairman Ben Bernanke will be gone in a few weeks and in will come Janet Yellen, another dovish banker who loves to use easy monetary policy to drive the economy. This implies that the tapering process could be slow and could take into 2015 to complete—good news for the stock market.

But the reality is that the unprecedented flow of the Fed’s easy money into the stock market over the last four years is a thing of the past. The flow of money will now depend on the rate of economic renewal and, more specifically, the jobs market and whether the rate of job creation continues to move along at a steady pace.

Since the announcement of the Fed’s $10.0-billion-a-month cut in bond buying (which I believe is a sensible move at this point, given the current economic renewal and jobs market growth), some uncertainty has been removed from the stock market; as a result, the S&P 500 and Dow Jones Industrial Average (DJIA) have reached record highs. (See “Fed’s Move to Taper the Right Choice for the Stock Market in 2014?”)

If the economy continues to strengthen, jobs are created, and the Fed tapers slowly, the stock market could be rewarded for the … Read More

If Money Printing Failed in Japan, Why Would It Work in the U.S.?

By for Profit Confidential

Why Is the Japanese Economy Starting to Tank AgainWhat the Federal Reserve is doing in the U.S.—its effort to get the economy going via its money printing program—has already been tried by the second-largest economy in the world: Japan.

Unfortunately, the easy monetary policy implemented by the Bank of Japan didn’t spur the Japanese economy. So why would it work for the U.S. economy?

One of the core purposes of easy monetary policy by the Federal Reserve was to improve lending so businesses would borrow money and grow (hopefully creating jobs) and consumers would borrow and spend (creating economic activity). All of this would lead to improved consumer confidence.

The Bank of Japan started a scheme to increase lending in Japan in 2010. It gave funds to its biggest banks to lend to companies. It set aside 21.5 trillion yen for this scheme; but sadly, only 8 trillion yen has been used. (Source: Reuters, October 17, 2013.) Easy money policies, and a program specially designed to give money to banks to lend out to companies, did not work in the Japanese economy.

And consumer confidence in the Japanese economy remains bleak. The index that tracks consumer confidence in the country stood at 41.9 in November. At the beginning of the year, it hovered near 45.0. A subset of consumer confidence, an index tracking consumers’ willingness to buy durable goods, stood at the lowest level of the year in November at 42.4 compared to 44.9 in January. (Source: Japan’s Cabinet Office, December 10, 2013.) The bottom line: after years of easy money policies and with a national debt-to-GDP multiple of 205%, there’s been no improvement in consumer confidence … Read More

How Risk-Averse Investors Can Capitalize on 2014’s Expected Record Drug Approvals

By for Profit Confidential

biotechnology stocksOne of the most spectacular performances in the stock market over the last five years has come from biotechnology stocks, and the NASDAQ Biotechnology Index continues to soar.

There are approximately 118 component companies in this index, which makes its performance that much more impressive. Its return has been broad-based and substantial, and it’s likely to have continued momentum until monetary policy changes.

Biotechnology stocks are 100% risk-capital securities. But because there’s so much money in pharmaceuticals, it’s an equity market sector that’s worthy of some effort if you’re a speculator.

There are two unique features to biotechnology stocks that are not necessarily as prevalent in the rest of the equity market: 1) they have a tendency to trade on their own corporate developments, with less correlation to the action in the broader market; and 2) because so many biotechnology stocks are not going concerns, meaning that they are not established businesses but development companies that have little prospect of immediate profitability, extreme price volatility is a certainty.

Over the years, I’ve considered a number of biotechnology stocks in this column. There are several standouts in this market that continue to provide excellent returns to stockholders.

One large-cap company that continues to distinguish itself is Biogen Idec Inc. (BIIB). This company developed a treatment for multiple sclerosis (MS), and while it is nowhere near a cure, the drug is helping treat patients with MS.

We first considered this stock near the end of April at $219.00 a share. The position consolidated for a while, then took off once again. Last month, when we looked at it, the stock was … Read More

Prices Long in the Tooth; Buying Opportunity on Horizon

By for Profit Confidential

equity marketThe equity market is looking pretty tired these days and many professional investors seemingly don’t have a sense as to where share prices will go in the near term.

Valuations have been extreme at many fast-growing companies, but this isn’t unusual. The fastest-growing companies are often overbought by institutional investors who can afford to trade on momentum. Closer to quarter-end, much of the action actually is just window dressing.

The vast majority of brand-name stocks are due for a meaningful correction. That would be a healthy development for an equity market that’s up around 25% year-to-date.

I think investors need to be highly cautious and very conservative with their holdings. Dividend-paying blue chips are my favorites going into 2014 because they have the cash, the healthy balance sheets, and the pricing power to keep earnings elevated, even if the U.S. economy experiences its next recession (which is a very plausible development next year).

I recently wrote about The Walt Disney Company (DIS), which has been reporting great earnings results all year. The company just announced a 15% increase to its annual dividend.

Two weeks ago, NIKE, Inc. (NKE), another company that I like, announced a 14% increase in its quarterly dividends. The position just broke $80.00 a share, a record high. NIKE has pretty much doubled in value on the equity market over the last three years. (See “These Two Proven Wealth Creators Should Be at Top of Investors’ Wish Lists.”)

But investment risk is equally—if not more—important than expected returns, and this equity market is overbought. It’s hard to imagine stocks not experiencing a profound sell-off, even … Read More

Why Stocks Likely to Head Higher into the New Year

By for Profit Confidential

retail sectorToday is Cyber Monday, when consumers will flock online and spend over a billion dollars. In 2012, $1.47 billion in sales occurred on this day and the expectations are that the number could swell to $1.68 billion today. (Dengler, P., “Cyber Monday Predictions For 2013,” Business2Community.com, October 28, 2013.) We will also find out today how Black Friday and the key weekend shopping period were for the retail sector. A big surprise and the stock market will reach higher.

The stock market has shown little signs of wanting to slow and is continuing to show bullish investor sentiment and the ability to move higher this month and into 2014.

The S&P 500 is at 1,800 and the DOW Industrial at 16,000. The positive momentum is in place for additional gains. The S&P 500 moving to 2,000 next year, up 11.11%, is realistic depending on what the Federal Reserve does and how the economy behaves. The Dow 20,000 may have to wait a few years. Of course, this is contingent on the five-year bull market holding.

On the charts, technology and small-caps continue to lead the broader stock market higher. The NASDAQ closed above 4,000 for the first time since September 2000, when the index was on the decline after trading at a record 5,132 in March. The buying in technology and growth is not a surprise, as buyers have chased risk and potential this year. The top sectors offering the most sizzle at this time are Internet services, mobile, and social media.

COMPQ Nasdaq Composite Chart

Chart courtesy of www.StockCharts.com

Small-cap stocks continue to lead the pack this year as the economy recovers, albeit … 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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