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

Why Getting the Business Cycle Right Is the Only Thing That Pays

Wednesday, June 13th, 2012
By for Profit Confidential

dividend paymentTwo decades ago, everyone was making money from the stock market. There was a boom, and some of the best stocks were in the technology sector, mostly due to the proliferation of the Internet. You didn’t even need to own the best stocks; just owning the index was a profitable investment strategy. Then, the best stocks and the rest of the market came apart, because valuations got too extreme for the amount of earnings being generated. Many companies in the technology sector are still today recovering from the stock market bubble that burst.

Take Intel Corporation (NASDAQ/INTC), for example. This company is still growing its revenues and earnings, but what used to be one of the market’s best stocks turned out to be a big dud. The company’s stock price hasn’t done anything for years. In fact, Intel’s stock market price on a split-adjusted basis is the same now as it was in November 1998. That’s 13 1/2 years of dividend payments, but no bankable capital appreciation for long-term holders of the shares.

Another company with a similar story is Cisco Systems, Inc. (NASDAQ/CSCO), which is now trading at the same split-adjusted price as in October 2008. Even if the company’s dividend payments covered the inflation rate, if you still owned the stock from that time, you wouldn’t have made a dime.

The notion that long-term investing in the stock market is the only way to go is a total bust as far as I’m concerned. Long-term investing works—but only if you own the right businesses at the right time during the business cycle. Things happen; industries change and so do investor expectations. Just like the business cycle, the best stocks in any given stock market environment are going to change.

Compared to the best stocks in the 1990s, a lot of money was made over the last 12 years from companies like railroad Union Pacific Corporation (NYSE/UNP) and consumer goods provider Colgate-Palmolive Company (NYSE/CL). Some of the best stocks in the stock market over the last few years have been old-school, blue-chip names that are known for their conservative management. International Business Machines Corporation (NYSE/IBM) and The Procter & Gamble Company (NYSE/PG) come to mind. (See Dividend Increases Soar as Companies Return Excess Cash.)

All the shocks the stock market experienced over the last dozen years serve to remind us that the business cycle is very real and, if you’re on the wrong side of it, you’d better be prepared to lose money (and not just on the stock market). Right now, the U.S. economy is in the process of stabilizing itself after a major housing bubble. The best stocks currently are the ones that pay high dividends. I think the foundation is being set for a new, upward business cycle in a couple years’ time. The U.S. economy may experience a recession beforehand and there will be cracks in the eurozone. But interest rates continue to be artificially low and, eventually, the U.S. economy is going to experience a major acceleration. When this happens, the next business cycle will bring about one major investment theme: price inflation.

  • Double your money every year for 24 years running?

    Since 1989, we've made 912 option picks, with an average annualized profit of 166.17% per recommendation.

    All from Lombardi's best option picks!

    Click here to learn more.

Next year or the year after is probably going to be a great new entry point in the stock market and I think the best stocks for the rest of this decade will be those that benefit from inflation, which is simmering, just waiting to boil over. Now would be a good time to be looking for the best stocks that will be the new market leaders.

VN:F [1.9.22_1171]
Rating: 7.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)
Why Getting the Business Cycle Right Is the Only Thing That Pays, 7.0 out of 10 based on 1 rating
  • Kalsoom

    in the past that the great depression was caseud due to lack of aggressive monetary policy and the fed is currently solving the problem by increasing consumer demand and following and expansionary policy by providing more liquidity. since 1913 the us dollar index has been lowered and the commodities have still not reflected this.

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Mitchell Clark - Equity Markets Specialist, Financial AdvisorMitchell Clark, B. Comm. is a Senior Editor at Lombardi Financial specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Income for Life and Micro-Cap Reporter. Mitchell, who has been with Lombardi Financial for 17 years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. Add Mitchell Clark to your Google+ circles

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.