Posts Tagged ‘blue chips’
Earnings estimates for Microsoft Corporation (MSFT) are going up and the stock, which recently accelerated, finally looks like it has broken out of a 13-year consolidation.
Microsoft has been an income play for quite a while. Currently yielding three percent, the company’s forward price-to-earnings ratio is around 12.5 and is not dissimilar from many other blue chips.
Then there’s Intel Corporation (INTC). This company has been struggling for capital gains, but it’s yielding 3.6% and isn’t expensively priced.
What these technology companies illustrate so well is the business cycle, both in terms of operational growth and also as equity securities. Getting the cycle correct (the right place/stock at the right time) is the toughest thing for any investor or businessperson.
Regarding stocks, both Microsoft and Intel’s long-term charts clearly show how extremely overpriced their share prices were during the bull market of the 90s. Intel’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
The benefit of the very long term is that it provides a normalized but still decent rate of return with these kinds of stocks. No enterprise or investor can escape the business cycle, whether it is industry-specific, a local reality, or the general economy.
Railroad stocks have been super hot over the last several years, but for long periods of time, they were not. The solid dividend-payers that they are, you’d be hard-pressed to find Union Pacific Corporation (UNP) competing with Apple Inc. (AAPL) or Google Inc. (GOOG) for headlines.
I feel that stocks have broken out of their previous consolidation phase in favor of a new long-term cycle. But while last year’s stunning … Read More
There is a lot of liquidity out there, and all kinds of stocks are experiencing significant price momentum.
It’s a bull market still, and no matter how long it has to run, it seems that valuations aren’t as important as owning the right stocks for institutional investors. Countless names have fought back in price from recent sell-offs and are now pushing new record-highs once again.
These stocks include Netflix, Inc. (NFLX), priceline.com Incorporated (PCLN), and Google Inc. (GOOG), among others. You could buy a basket of these stocks and if nothing were to change in terms of monetary policy, they probably would be higher in a month’s time.
But while momentum remains strong and existing winners keep outperforming, stocks haven’t really experienced a material price correction in more than two years and because of this, investment risk remains high.
Previously in these pages, we looked at some top-ranked biotechnology stocks that continue to be tremendous wealth creators for shareholders. (See “Can the Rally in Biotechs Keep Its Momentum?”) But their amazing price-performance also illustrates the froth in the stock market. While speculative fervor for initial public offerings (IPOs) has diminished since the beginning of the year, existing winners just keep on plowing higher.
Investor sentiment can always change on a dime, but it needs a catalyst to do so. This could include a change in monetary or fiscal policies, a geopolitical event, a derivatives trade gone bad, currency destabilization—the list is endless.
The Federal Reserve recently gave the marketplace the certainty it was looking for: quantitative easing is going to continue to be reduced and short-term interest rates … Read More
Among blue chips, 3M Company (MMM) is getting a lot of increased earnings estimates from analysts. For such a mature company, 3M’s been doing very well on the stock market, and it looks to be well-positioned for more capital gains.
At the end of 2013, 3M had approximately 89,000 employees (full-time equivalent), of which 60% were based abroad. The company spends a lot on new research and development, and while many blue chips have been doing everything they can to squeeze costs, 3M keeps spending on new scientific and technology development ($1.57 billion in 2011, $1.63 billion in 2012, and $1.72 billion in 2013).
The largest component of the company’s sales is its industrial business, which makes a lot of product for automotive original equipment manufacturers (OEMs) and the automotive aftermarket. Products like tapes, sealants, ceramics, vinyl, polyester, and adhesives are sold to this market, but they’re also sold to electronics, appliance, food and beverage, construction, and paper and printing customers.
Thanks to the acquisition of Ceradyne Inc. in the fourth quarter of 2012, 3M is now one of the top manufacturers of advanced ceramics used for solar, electronics, and defense applications.
The company’s industrial business was 34% of last year’s total sales, growing the most over other operating divisions at 6.5% in U.S. dollars comparatively.
3M has paid a dividend to stockholders since 1914 and just recently increased its first-quarter dividend 34.6% to $0.855 per share, representing the 56th consecutive year of dividend increases. (See “The Six Things I Look for in a Company Before Buying Its Stock.”)
No wonder this stock is doing well. Its … Read More
The NASDAQ Composite index sold off significantly in January to around 4,000. Then it recovered to its current level at 4,300, which is a pretty substantial move.
For a number of months now, the NASDAQ has been outperforming both the S&P 500 and Dow Jones Industrial Average. This relative outperformance continues to be a positive overall sign regarding sentiment.
I don’t really expect much from stocks this year, although the prospect of rising dividends still remains very good in the bottom half. 2013’s stock market performance was so exceptional and so substantial, especially among blue chips, that it’s time for earnings to catch up with share prices.
Not to be excluded, the performance of the Russell 2000 index has also been relatively strong compared to larger-caps. But this index still can’t quite keep up to the outperformance of the NASDAQ.
Stock market leadership from large-cap technology stocks is always a good thing. And a lot of it has been from older brand-name companies, the kind of former fast-growing stocks that are now almost income plays.
Oracle Corporation (ORCL) has been on the comeback trail after several quarters of disappointing results. This position has been treading water since the beginning of 2011, and its recent breakout on the stock market is not immaterial. The company’s five-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Following a similar trading pattern over the last several years, Microsoft Corporation (MSFT) has recently been strong. The stock is up $10.00 a share over the last 12 months, and Wall Street earnings estimates have been going up across the board for this fiscal year and … Read More
The single greatest certainty capital markets are looking for is policy stability from the Federal Reserve, and Janet Yellen, the new Chair of the Federal Reserve, delivered the goods for Wall Street.
With certainty in regards to short-term interest rates and the expectation that quantitative easing will continue to be reduced over the coming quarters, the fundamental backdrop for the stock market remains positive.
Many companies sold off after reporting earnings results that basically met consensus. This was well-deserved, especially in a market that has not experienced a meaningful correction for a number of quarters.
Particularly for large-caps, corporate earnings results in the last quarter of 2013 were decent and corporate outlooks for 2014 were also relatively positive, considering the current state of things.
Add in the high likelihood of rising dividends from blue chips in the bottom half of the year, and you have the makings of another decent year for stocks.
Corporate balance sheets are in top-notch condition, and the cost of capital is cheap. From the corporate perspective, this is the perfect backdrop for greater growth, and sales growth translates to the bottom line.
For the last couple of quarters, I’ve been reticent about investors buying this stock market. Long investors benefitted tremendously in 2013, even by owning blue chips. While the expectation has been for a major stock market correction (or collapse), one has yet to transpire. Instead, we are getting meaningful price consolidation, which is happening again.
The lack of a meaningful double-digit price correction in the stock market illustrates the continued underlying fervor that institutional investors have to be buyers. With continued certainty from … Read More
Putting together an equity market portfolio always requires conviction. In this market, stocks have not come off their highs very much at all. The main indices have been bouncing around quite a bit, but there is still a positive disposition to stocks with fourth-quarter earnings mostly coming in close to consensus.
Leadership in this market is still with the financials, the Dow Jones Transportation Average, and the NASDAQ Composite. These three metrics are good indicators as to where the broader market is headed.
In terms of portfolio construction, I’m a big believer in owning the market commensurate with owning a handful of positions with conviction—three to five benchmark stocks that can be accumulated when prices are down. These are the kind of stocks that a long-term investor can build wealth in over time using the short-term fluctuations in share prices for long-term advantage.
Wealth creation often does come from owning larger positions in a handful of stocks. Warren Buffett has consistently been this type of investor, taking on big positions after rigorous research.
But when it comes to stocks, there are always times when you are going to be wrong about the strength of a business and/or the marketplace’s capacity to recognize it. You still have to be nimble, willing to move on from non-performance and to remember that buying and selling stocks are business decisions.
Investing with conviction is something that can more easily be done with larger-cap companies or blue chips. Dividend reinvestment is a very good way to compound your investment return over time. There is always room for more aggressive bets, but accumulating positions in benchmark … Read More
The Walt Disney Company (DIS) powered ahead after announcing earnings results that handily beat Wall Street consensus.
The company’s diluted earnings per share increased a substantial 34% from $0.77 to $1.03. Sales for the quarter ended December 28, 2013 grew nine percent to $12.3 billion on a strong performance from studio entertainment and the commercial success of Frozen and Thor: The Dark World.
Once again, the company’s cash position improved materially. Several firms boosted their price targets on the stock and earnings estimates for future periods.
Disney has an uncanny ability to generate growth in an otherwise lackluster environment, illustrating the relative outperformance of media networks, movies, and related consumer products.
The company experienced double-digit comparable growth in studio entertainment, consumer products, and its interactive businesses. This past December, Disney boosted its annual cash dividend by 15% to $0.86 per share. (See “Large-Cap Stocks the Place to Be in 2014?”)
Disney seems to have continued operating momentum on its side, as its theme park business is growing. This division is the second-largest in terms of revenue contribution after media networks.
In terms of blue chips, Disney is not the stock with the highest yield in the marketplace. Its current yield is approximately 1.2%.
It’s not a position worth chasing, but it is worthy of consideration when it’s down or when the stock market is going through periods of poor investor sentiment.
Stocks have been bouncing around, quite trendless since the beginning of the year. Investor sentiment has been shaken by emerging market action and currency movements. Economic data has also been all over the map. Some … Read More
As evidence of the fervor that corporations have to try to keep shareholders happy, 3M Company (MMM) just announced that its board of directors authorized another major share repurchase program.
The company bought back $5.2 billion worth of its own shares in 2013 and can now repurchase up to $12.0 billion.
Stock buybacks are an old-school business strategy. Excess cash that management feels isn’t worth investing in new businesses, plant, equipment, and employees is simply allocated back to shareholders.
And whatever the endgame is for company management—to boost a falling share price, pay for dividends, meet earnings guidance or simply because it’s the easiest thing to do—share repurchases work for investors.
The stock market is a secondary market where share prices reflect relative values until a company becomes non-public (i.e. is taken private).
Some view share buyback programs as a tool a public company can use to prop up its earnings results, but in the large-cap space, this isn’t the case. The fact of the matter is that big business generates a lot of cash and cash management has been and will continue to be one of the main operations (usually part of the executive branch) of a company.
Earnings results might be managed on a quarterly basis, but corporations typically take a longer view regarding interest rates and debt requirements. When rates are extremely low, as they are right now, debt financing makes a lot of sense. Corporations can and do “bulk up” on capital when market conditions warrant. (See “Pullback in Stock Prices Makes These Dividend Payers Attractive Again.”)
Regardless of the motive, the marketplace likes … Read More
This choppy trading action in stocks is here to stay for a while, and it could even be more pronounced once fourth-quarter earnings season ends.
The numbers continue to pour in, but the unease in investor sentiment is obvious, and it’s partially due to the fact that stocks didn’t experience a meaningful correction last year. Whatever the reason or catalyst, further retrenchment in share prices is an eventuality that’s easily in the cards this year.
While companies, especially large-cap corporations, are able to manipulate adjusted earnings and fully diluted earnings per share, the numbers are still only mediocre at best. And share prices came up so tremendously in the Fed-induced reflation that today’s earnings results aren’t making the case for buyers.
In the large-cap space, The Clorox Company (CLX) perfectly illustrates the numbers being presented by countless blue chips.
The company beat on revenues but missed on earnings. Fiscal second-quarter sales were flat at $1.33 billion. Net earnings were down to $115 million, or $0.87 per diluted share, as compared to earnings of $123 million, or $0.93 per diluted share last year. Currency translation had a material effect on U.S. dollar sales.
The company delivered one percent in total volume growth in the most recent quarter, which is quite anemic, even for a mature blue chip consumer company.
Fiscal 2014 total sales growth is expected to be between one and two percent. Diluted earnings per share should be between $4.40 and $4.55, but management specifically cited unfavorable currency rates as a red flag.
Nothing is as troublesome in global capital markets than currency movements. The devaluation of emerging market currencies … Read More
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