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

Stocks

Stocks are any equity securities traded on a stock exchange, the value of which fluctuates due to the supply and demand for such securities. Stocks are often grouped in a specific sector and can be representative of the broader marketplace.

Why I Expect a Big Boost in This Company’s 2015 Dividend Payout

By for Profit Confidential

Company 2015 Dividend PayoutEven with the recent price retrenchment, there’s not a lot of value circulating in this stock market. Everything’s already gone up and the capital gains have been great the last few years. But it’s still a slow-growth environment in the global economy, and despite a very accommodative monetary policy, stocks can’t go up forever without experiencing a meaningful retrenchment.

Company earnings are pouring in and there have been some disappointments. But for a lot of mature large-cap businesses, this is a reflection of their industries’ cycles. Large companies in mature industries don’t grow by very much more than the low single-digits.

Which is why a company’s dividends are so important in a stock market that’s at a high but offering little value.

It’s difficult to imagine stocks this year serving up double-digit returns on the back of 2013’s standout performance.

And investor sentiment has changed, too, with oil prices being the catalyst for the recent “deflation worry” sell-off. (See “Is This Stock Sell-Off Just a Blip?”)

The stock market’s existing winners are the way to go going into 2015. There’s plenty of cash in company coffers for more dividends and more share repurchases. It’s a formula that’s worked for large corporations over the last several years, and there’s no reason why it won’t keep working in a slow-growth environment.

Texas Instruments Incorporated (TXN) had a good quarter. The company beat Wall Street consensus, producing substantial double-digit gains in comparable earnings on eight-percent year-over-year revenue growth.

Texas Instruments achieved a new record in gross margin as both analog and embedded processors (which comprise just over 80% of the company’s total sales) … Read More

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

Another Solid Earnings Season Ahead for Existing Winners?

By for Profit Confidential

Solid Earnings SeasonOne large-cap that always reports early is Costco Wholesale Corporation (COST). The company’s numbers came in solid.

Costco hit a wall not too long ago and was hard pressed to produce growth. But the company’s latest quarter beat the Street with considerable sales strength in the month of September.

In its most recent quarter, there was considerable growth in the company’s cash position and shareholders’ equity improved significantly.

For the 16 weeks ended August 31, 2014, Costco’s total sales grew nine percent to $35.5 billion, which is an impressive performance in retail. Of these total sales, membership fees (which are total gravy) grew 7.3% to $768 million.

Comparative store sales in the most recent quarter grew six percent in the U.S. market and the same internationally. If it weren’t for weaker gasoline prices and the stronger U.S. dollar, international comparative store sales would have improved by eight percent.

Earnings in the company’s fiscal fourth quarter grew to $687 million, or $1.58 per diluted share, representing a 13% gain on a per share basis compared to the same quarter last year.

Costco has been consistently ticking higher on the stock market since this time in 2010. The position hit a high in late 2013, then retreated commensurately with its financial growth. It’s only in the last couple of months that the company’s stock has reaccelerated.

For a new price trend, the stock needs to convincingly break out above $130.00 a share, which I think is probable.

The company’s latest quarter was very good and a reflection of solid management execution.

On the day that Costco reported, the Federal Reserve released the … Read More

The Nine-Month Check-Up

By for Profit Confidential

Nine-Month Check-UpWith nine months behind us this year, today we look at how two popular forms of investment have done in 2014 and where I think they are headed for the remainder of the year.

Starting with stocks, the Dow Jones Industrial Average closed yesterday up 2.8% for the year. Given the risk of the stock market, 2.8% is no big gain. I wrote at the beginning of 2014 that the return on stocks would not be worth the risk this year. I was on the money. When we look at the broad market, the Russell 2000 Index is down 5.4% for the year.

Going forward, as you know as a reader of Profit Confidential, I see stocks as risky. Plain and simple, stocks are overpriced in an environment where the Federal Reserve is putting the brakes on paper money printing and is warning that interest rates are going higher.

On a typical day, I see the Dow Jones up 100 points; the next day, it’s down 100 points. This is happening in an environment where trading volume has collapsed. I wouldn’t be surprised to see October deliver us a nasty stock market crash.

Moving to gold (and this is very interesting), gold is flat for the year in U.S. dollars. But if we look at gold in Japanese yen, gold is up 4.6% for 2014. If we look at gold in Canadian dollars, bullion is up 4.6% as well this year. And if we measure gold in euros, we find gold bullion prices are up 10.4% in 2014.

What explains this?

Yesterday, the U.S. dollar hit another six-year high … Read More

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