Posts Tagged ‘blue chips’
Wanted: Market Seeking Catalyst in 2Q13 Earnings
By Mitchell Clark, B.Comm. for Profit Confidential
This week marks the unofficial beginning of second-quarter earnings season as Oracle Corporation (ORCL) reports. Next week, it’s NIKE, Inc. (NKE).
These two benchmark companies offer the first glimpse of business conditions for multinational corporations. What they report is material.
Last quarter, NIKE surprised Wall Street with excellent relative growth in revenues and earnings, particularly in the North American market. Oracle came in just under consensus. The stock’s been treading water for the last several months.
Corporations have been coy with their earnings guidance, both out of the collective uncertainty regarding the economy and to make it easier to beat the Street. It’s always a delicate dance that corporations play with investors. Earnings are definitely managed, which is why it’s important to look at cash flow and other financial metrics to get a better understanding of a company’s performance.
If there’s one trend apparent in the financial results of large corporations, it’s that balance sheets have been getting stronger. And this bodes extremely well for dividend-seeking investors. I have a strong inclination this earnings season that we’re going to see continued increases in dividends and expanded share buyback programs to pay for them.
Generally speaking, I wouldn’t be buying this market, but I wouldn’t sell blue chip positions either. Market timing is always extremely difficult, but it’s pretty tough to make the case that stocks aren’t due for a break.
While there’s been some peculiar trading action over the last week in global capital markets, there is still an appetite on the part of big investors to buy stocks if earnings meet or beat consensus.
First-quarter earnings season saw … Read More
How the Old Economy Can Pay More Than You Might Think
By Mitchell Clark, B.Comm. for Profit Confidential
With all the financial engineering that’s been going on over the last several years, it’s great to actually find good businesses that are growing based on their own fundamentals.
There’s always a continuing flow of earnings reports, and one company I’ve followed for years just beat the Street again.
Earnings growth rates might not be as robust as they once were, but modest business growth is out there.
One growing company that continues to execute well is AAON, Inc. (NASDAQ/AAON) out of Tulsa, Oklahoma. This company manufactures and installs heating, ventilation, and air conditioning (HVAC) equipment for commercial and residential customers.
The company was founded in 1988 and now has approximately 1.5 million square feet of office and manufacturing facilities, with over 1,300 employees at two plants.
AAON’s first-quarter revenues grew three percent to $66.8 million, mostly based on higher prices. Earnings grew a substantial 56% to $7.1 million, or $0.29 per diluted share, compared to earnings of $4.6 million, or $0.18 per diluted share.
The company said that both its revenues and earnings made new records in the first quarter of 2013.
AAON’s cash balance tripled and the company’s backlog increased 22% to a record $71.7 million comparatively.
On top of this modest but successful business growth, the company boosted its semi-annual cash dividend by 25% and declared a new three-for-two stock split.
I like these kinds of small businesses.
AAON is a company making real products that the marketplace requires. The HVAC industry isn’t the fastest-growing sector, but AAON’s ability to grow its business in a diligent and consistent manner is demonstrable.
The company’s stock market performance is … Read More
Equity Flux: The Stock Market’s Latest Problem
By Mitchell Clark, B.Comm. for Profit Confidential
Blue chips need a big retrenchment.
I never root for losses, but with equities having gone up so much, a correction would be beneficial from a technical perspective.
Action in the stock market and blue chips, specifically, has been spectacular this year. But it’s time for a break.
While history proves it’s not wise to fight the Fed or the ticker tape, the stock market is most definitely a leading indicator.
As a fan of dividend-paying blue chips, utilities and consumer staples are good multiyear investment themes. But being at their cyclical highs, I would not be a buyer right now. These stocks are frothy.
I think it’s probable this year that the U.S. economy will outperform other developed economies. I also see the formation of an equity universe, in which big investors are still buying blue chips.
Corporations do have to perform. But with excellent balance sheets among most blue chips, the stock market can finish the year higher than its current level (save for a shock).
The end of quantitative easing is slowly being priced into the stock market. While more news on the subject from the Fed would result in a sell-off, this is not an unexpected reality.
The one shock that this market is not ready for is a rise in short-term interest rates. This is a possibility, perhaps even by the end of this year, depending on economic news.
Long-term cycles are in a state of fluctuation. (See “Stock Market Fake-Out: Where Is the Retrenchment?”)
I remember Black Monday on October 19, 1987. It was an accident waiting to happen. The stock … Read More
What Was Behind the Stock Market’s Massive Breakout?
By Mitchell Clark, B.Comm. for Profit Confidential
Something big happened at the beginning of the year—Wall Street gave up on Washington.
I’ve been trying to figure out how this incredible stock market action started at the beginning of the year. Things were trending fairly normally, and then institutional investors just started buying—blue chips first, a little break in February, then blue chips again, with a broadening out into the NASDAQ.
But there wasn’t any big catalyst that suddenly galvanized a change in investor sentiment. There wasn’t anything new from the Federal Reserve, and fourth-quarter earnings season hadn’t started yet.
But the Dow Jones Transportation Average and blue chips just took off.
It’s as if big investors just threw up their hands and said, “Forget policymakers; we’re going ahead anyway.”
The Dow Jones Transportation Average continues to be one of the key indices for the stock market. This is nothing new. The stock market run-up was led by this index and followed by blue chips.
Chart courtesy of www.StockCharts.com
The action in this index now is similar to the break it took in the last half of March. The index didn’t re-accelerate until the beginning of May.
Both transportation stocks and blue chips are definitely due for an extended break after this big run-up. It could very well last until second-quarter earnings season begins, or right into the fourth quarter.
But while the stock market needs to experience a retrenchment, there is still buying on the part of institutional investors. On a number of occasions, when the stock market opened down recently (either technically or on bad news), the main indices fought their way higher, often closing … Read More
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