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Oil

Oil is a viscous chemical hydrocarbon that is liquid at normal temperatures. Oil is used as a fuel and lubricant. It is refined to become gasoline, diesel, and jet fuel. Low oil prices are typically associated with the prevalence of economic globalization.

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

Plunging Oil Prices Next Big Investment Opportunity?

By for Profit Confidential

Declining Oil Prices the Market’s CatalystWhile corporate earnings continue to come in solid, stocks continue to be sold.

It’s not all the time that stocks follow oil prices, but they certainly have this time around and the selling momentum has gained on deflationary pressures from producer prices to declining expectations for global economic growth.

And the selling is happening to companies that beat consensus with their earnings, like J.B. Hunt Transport Services, Inc. (JBHT), which beat Wall Street estimates for sales and earnings in what was a very solid quarter for the trucking company.

For J.B. Hunt, sentiment just wasn’t strong enough to carry the stock materially higher, even in the face of declining prices for diesel fuel, which is a big bonus for that company’s bottom-line.

The autumn sell-off also flies in the face of reduced pressure on the Federal Reserve to begin raising rates as recent data shows a softening of economic activity on a global basis.

If oil was the catalyst and economic data the accelerator, it’s important to remember where stocks have come from. The equity market has been due for a material correction for a number of quarters. It didn’t even need a reason for a correction only because share prices have come so far over the last several years.

The breakdown in oil prices has been truly spectacular and is now seriously affecting the business case for many energy producers.

And the breakdown isn’t just due to increasing domestic production; it’s a breakdown in sentiment based on declining expectations for the global economy.

So stocks have sold off and they may go further, but a five to 10% price … Read More

Why Stock Prices Will Continue to Fall

By for Profit Confidential

Stock Prices Will Continue to FallNow that the Dow Jones Industrial Average has fallen 1,035 points (six percent) from its mid-September peak, the question investors are asking is “how far will she go?” For small-cap investors, the drama is greater, as the Russell 2000 Index has fallen 12.5% from its July peak.

Since 2009, every market pullback presented investors with an opportunity to get back into stocks at discounted prices. Even some editors here at Lombardi Publishing Corporation see the recent pullback in stocks as an opportunity.

But what happens if it is different this time? How about if stocks just keep falling?

If you have been a long-term follower of my column, you know I have been adamant about an economic slowdown in the global economy.

And let’s face it: the American stock markets have been addicted to the easy money policies of the Federal Reserve, namely money printing and record-low interest rates. But that is all coming to an end now. The Fed will be out of the money printing business soon and it has warned us on several occasions that interest rates will need to rise.

The International Monetary Fund (IMF) is now (or should I say, is finally) warning about an economic slowdown in the global economy. In its most recent global growth forecast, the IMF said, “With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialize or fall short of expectation.” The IMF also said the global economy may never see the kind of expansion it experienced prior to the financial crisis. (Source: “IMF says economic … Read More

Top Growth Areas Heading into 2015

By for Profit Confidential

Growth Areas Heading into 2015The stock market is clearly struggling to stay afloat at this juncture, balancing the domestic economic renewal with the global risk coming from ISIS, Russia, the eurozone, and economic stalling in China.

A major catalyst or a reason to buy is what investors are searching for. The focus later next week will shift to the third-quarter earnings season, which is carefully monitored by investors.

The start of the third-quarter earnings season will officially begin with Alcoa Inc. (NYSE/AA) reporting next Wednesday. Alcoa is a decent barometer of the global economy. The company reported an excellent second-quarter earnings season, albeit the quarter was relatively average.

All eyes will focus not only on the ability of CEOs to control the expense side to drive revenues, but also on the actual revenue growth. The strong second-quarter gross domestic product (GDP) growth will help.

For the third-quarter earnings season, the earnings growth is estimated at 4.7%, well down from a much higher 8.9% as of June 30, according to a report from FactSet. (Source: “Earnings Insight: S&P 500,” FactSet web site, September 26, 2014.)

Worse yet, the report suggests that nine of the 10 sectors have reduced their earnings season expectations. This is not supportive of the recent record moves by the DOW and S&P 500.

Only the healthcare sector appears to have increased its expected earnings growth, bumping it up to 10.6% for the third-quarter earnings season, up from 9.4% as of June 30. Investors could consider buying an exchange-traded fund (ETF) to benefit, such as the SPDR S&P Health Care Equipment ETF (NYSEArca/XHE). On the small-cap stocks side, a healthcare ETF to … Read More

My Top Value Play in Bakken Oil

By for Profit Confidential

Top Value Play in Bakken OilThe weakness in oil prices was pretty sudden and has changed the financial dynamics for many producers. Typically, weaker oil prices are slow to translate into lower prices at the pumps.

Domestic junior oil stocks have been hot commodities until recently. Many of the market’s best growth stocks in this sector continue to be expensively priced and finding value has been a difficult endeavor.

One company we’ve considered before in these pages is Northern Oil and Gas, Inc. (NOG). (See “My Favorite Bakken Oil Play.”) This outfit is based in Minnesota and operates in North Dakota and Montana. The stock is not expensively priced, and the company is back online with solid sequential growth in production.

Northern has experienced infrastructure problems and weather-related issues that have hampered well completions, but the company’s latest quarter was a big success and full-year 2014 production guidance was upgraded to between 20% and 25% growth over 2013, compared to previous guidance of 15%.

According to Northern, its 2014 second-quarter production grew 17% sequentially and 41% year-over-year to 1.4 million barrels of oil equivalent (boe), averaging 15,369 boe per day.

The company’s total oil and gas sales in the second quarter of 2014 increased dramatically to $121 million, compared to $80.0 million in the second quarter of 2013.

But management incurred a significant loss on the mark-to-market of a derivative instrument and on the settlement of a derivative instrument, which resulted in actual second-quarter revenues being knocked down to $74.6 million, compared to $96.0 million in the second quarter of 2013.

As a result of the derivative loss (perhaps the reason why the stock is … Read More

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