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

Stock Analysis

Stock analysis is the application of a method or set of criteria to evaluate a company’s stock. This analysis can fall into several areas; more broadly this encompasses fundamental analysis, technical analysis, and quantitative analysis. Fundamental analysis covers the research of a company’s financial statements, its management, the marketplace, the firm’s competitors, and forecasts for the future of the business. Technical analysis is the study of a stock’s chart. Someone using technical analysis wouldn’t look at the income statement, but would spend their time looking at the chart and indicators, such as volume, moving averages, and past market moves to forecast future stock moves. Quantitative analysis is when a computer is programmed to look for patterns using mathematics. Some examples of quantitative analysis can be found in statistical arbitrage or algorithmic trading.

Best Buy’s New Strategy a Buying Opportunity?

By for Profit Confidential

stock analysisThe sector that will be the topic of focus for the stock market over the next month is, of course, the retailers as we march on from Black Friday and Cyber Monday toward the key holiday shopping season.

To tell the truth, I’m not much of a shopper. I hate going to the malls and fighting the congestion of other shoppers scrambling for deals, especially on the crazy shopping days, like Black Friday.

I did, however, happen to venture out to Best Buy Co., Inc. (NYSE/BBY) recently and noticed the store looked fresh, the workers were energetic and eager to help, and there were excellent discounts.

Now I must admit that based on my stock analysis, I really believed Best Buy would have been privatized by now, especially following the previous attempt to do so by former CEO and founder Richard Schulze. Now, the company is under the leadership of Hubert Joly, who has had decades of success working at Electronic Data Systems Corporation, Vivendi Universal, and Carlson Wagonlit Travel. Joly, who took hold of the reins in August 2012, appears to be getting Best Buy back on track, as my stock analysis suggests.

This former darling of Wall Street and the “Best of Breed” in electronic retailing has been hurt by the rise of fierce competition from both physical and online rivals, including Wal-Mart Stores, Inc. (NYSE/WMT) and Amazon.com, Inc. (NASDAQ/AMZN), according to my stock analysis. The threat of extreme competition and the intense pressure on margins has forced Best Buy to rethink its strategy, based on my stock analysis.

Armed with an aggressive pricing strategy and offensive attack, … Read More

Why the Small Home Supplies Stocks Offer Good Potential

By for Profit Confidential

Stocks Offer Good PotentialThe housing market looks like it may be ready to fall. While the homebuilders may face some hurdles, the area of housing that I feel is a buying opportunity is the home supplies and services stocks. The Home Depot, Inc. (NYSE/HD) is the “Best of Breed” in the housing market, with Lowes Companies, Inc. (NYSE/LOW) trailing in second.

While I like the Home Depot in the housing market, the reality is that the company is too big for my liking, with its market cap at a whopping $112 billion. Even Lowe’s, with a market-cap of $53.0 billion, is too large for my liking and the current valuations are fair.

A small-cap stock that I would look at as an alternative in the housing market supplies sector is Dallas-based Builders FirstSource, Inc. (NASDAQ/BLDR), with a much smaller market cap of $728 million. But unlike the Home Depot and Lowe’s, Builders FirstSource primarily deals with the residential new homes construction housing market as a manufacturer and seller of structural and related building products. The company’s products include roof and floor trusses, wall panels, stairs, aluminum and vinyl windows, custom millwork, and pre-hung doors.

The company runs 53 distribution centers along with 47 manufacturing facilities in nine states that are situated mainly in the southern and eastern United States housing market.

Builders FirstSource has outperformed the S&P 500 over the past year with a 29.91% advance, versus 23.52% by the S&P 500.

The company recorded sequential annual revenue growth from 2004 to 2006, but then struggled on the charts with three straight down years. Builders FirstSource appears to be on the right path … Read More

Small Game Developer Set to Generate Short-Term Gains

By for Profit Confidential

Small Game Developer Set to Generate Short-Term GainsThere’s some buzz surrounding the video gaming market again with the pending releases of the “PlayStation 4” by Sony Corporation (NYSE/SNE) and the “Xbox One” by Microsoft Corporation (NASDAQ/MSFT).

As I recently discussed, the release of new gaming and entertainment consoles generate excitement and drive up the demand for games. (Read “Why the Gaming Sector Should Be on Your Radar.”) In this column, I wrote about Electronic Arts Inc. (NASDAQ/EA) and Activision Blizzard, Inc. (NASDAQ/ATVI), but a much smaller gaming software maker that I expect could deliver some impressive numbers, based on my stock analysis, is Take-Two Interactive Software, Inc. (NASDAQ/TTWO).

If you are a fan of the infamous “Grand Theft Auto” series, you also probably know that the creator is Take-Two Interactive. The recent launch of its latest version, “Grand Theft Auto V,” is breaking all records for the series, as the company said it has already sold 29 million copies in the first six weeks of sales. That’s impressive and will generate well over $1.5 billion in revenues, which is more than the company’s trailing 12 months of sales, according to my stock analysis.

In addition to Grand Theft Auto, Take-Two Interactive publishes games under two labels: Rockstar Games and 2K. The 2K label publishes under three more labels: 2K Games, 2K Sports, and 2K Play.

My stock analysis suggests that the stock should be doing better with the projected sales. Take-Two Interactive is still up 61% over the past 52 weeks, easily beating the 25.5% return of the S&P 500. But in comparison, over the same period, Electronic Arts is up 95%!

On a … Read More

Why the Gaming Sector Should Be on Your Radar

By for Profit Confidential

Gaming Sector Should Be on Your RadarWith the upcoming release of new video consoles from Sony Corporation (NYSE/SNE) and Microsoft Corporation (NASDAQ/MSFT), the video game sector appears to be set to experience a revival, as my stock analysis indicates.

According to NPG Group, the U.S. sales of video game-related hardware, software, and accessories surged by 27% year-over-year to $1.08 billion in September. (Source: The NPD Group, Inc. web site, last accessed October 22, 2013.) The sale of software, specifically, surged 52% to $754 million, accounting for 70% of total sales. Yet with the debut of two new consoles in November (Sony’s “PlayStation4” and Microsoft’s “Xbox One”), my stock analysis indicates that sales in the hardware sector will pick up, giving a boost to the share prices of Microsoft and Sony.

In the hardware area, Microsoft has done well with its Xbox console in spite of its lag in sales compared to Sony’s PlayStation console, based on my stock analysis. Yet the move by Microsoft into the gaming and entertainment console market is a big selling point for the company, as my stock analysis points out. (Read “Why Microsoft May Finally Be Set to Turn Its Fortune Around.”)

I know my son is anxiously anticipating the release of the PS4 and, in particular, the “NBA Live 14” game that is made by one of the top games developers Electronic Arts Inc. (NASDAQ/EA). Electronic Arts (EA) develops games for the Xbox, PlayStation, and “Nintendo Wii” consoles. The company also develops games for mobile phones and tablets.

EA games are broad in scope and include action, military, sports, racing, simulation, strategy, family, kids, music, and puzzle-based games. … Read More

The McDonald’s Alternative for Small-Cap Investors

By for Profit Confidential

The McDonald’s Alternative for Small-Cap InvestorsThe restaurant and fast food sectors are fickle, and can easily turn lower without much warning. It happened to burrito maker Chipotle Mexican Grill, Inc. (NYSE/CMG), when it got hammered between April and early October 2012 following its reports of soft results. The stock has since staged a steady rally back to above its previous high in April 2012.

The same thing happened to Ruby Tuesday, Inc. (NYSE/RT), with the stock plummeting around 16% after reporting a soft first quarter that saw continued declines in many key metrics, according to my stock analysis. Ruby could and will likely rally, based on my stock analysis, but it’s not in the same ballpark as Chipotle, so be careful if you are looking to trade the stock.

If you are looking for small-cap growth in the restaurant and fast food sector, you may want to consider a play like Denny’s Corporation (NASDAQ/DENN), as my stock analysis suggests. This sit-in family diner is known for its “Grand Slam” breakfast. The company has superior valuation to its peers, as my stock analysis indicates.

Take a look at the table below, and see how Denny’s sizes up:

Forward P/E P/S PEG
Denny’s 16.69X 1.17 1.15
Ruby Tuesday 33.16X 0.36 13.98
McDonald’s 15.41X 3.35 2
Burger King 20.77X 4.56 1.49

The big Wall Street shops focus on the big-name stocks that bring up tons of investment banking and advisory fees. While McDonalds Corporation (NYSE/MCD) is clearly the “Best of Breed” in the restaurant and fast food group, my stock analysis suggests smaller companies, like Denny’s, offer an alternative for investors along with better upside potential; albeit, … Read More

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The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

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