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

Posts Tagged ‘china’

How to Play an Upside Breakout in Oil Prices

By for Profit Confidential

Oil Prices Are So Dependent on RussiaOil prices could be setting up for an upside break if the situation in Crimea intensifies and a military conflict emerges between Russia and Ukraine over the rights to Crimea.

Since the price of West Texas Intermediate (WTI) crude broke out to over $100.00 a barrel in early 2011, oil prices have done very little, trading largely in a sideways channel with support in the $80.00 level and resistance around $110.00.

The global economic renewal has helped to support oil prices in spite of the continued stalling in China. Return to growth in the eurozone is also adding some support, but for oil prices to shoot higher, there really needs to be a geopolitical event, such as what we are seeing in Crimea. Of course, don’t forget the Middle East, which still has its major issues, especially with the speculation that Iran is building nuclear-enabled weaponry.

Light Crude Oil ChartChart courtesy of www.StockCharts.com

There’s also the crazy dictator of North Korea, Kim Jong-il, who has continued on the same path his father was on, isolating the country. His testing of several missiles earlier this week into South Korea was just another signal that he craves attention.

At the end of the day, to make money in oil will largely be dependent on the hot spots of the world.

While I doubt Russia will launch a military assault on Ukraine, you never know with President Putin. If this should happen, oil prices would vault higher to above $110.00 a barrel, and likely maybe even higher toward the $150.00 level, last reached in 2008 prior to the subprime crisis.

So while oil prices could ratchet … Read More

U.S.-Listed Israeli Companies the Next Big Buying Opportunity?

By for Profit Confidential

Three U.S.-Listed Israeli Growth Stocks Worth a LookIsrael has grown to become a key producer of technology and medical devices companies outside of the United States and Canada. We are talking about a very small country of less than eight million people, but which has become known as the “Silicon Valley of the Middle East.”

In fact, after China and Canada, Israel-based companies are the third-most-listed on U.S. stock exchanges as far as international listings, and they may be offering a buying opportunity.

Contrary to companies emerging out of China, Israeli companies have, so far, been quite clean as far as reporting reliability and confidence in the financial results, something that has escaped Chinese stocks that make them untrustworthy to investors. (Read “Chinese Stocks Promise Higher Potential Gains?”)

While there are major big-cap companies out of Israel, such as biotech Teva Pharmaceutical Industries Limited (NUSE//TEVA), there is also an excellent speculative buying opportunity in some of the small-cap stocks emerging from the country.

I have listed three speculative Israeli stock plays that are worth a closer look as a buying opportunity.

In the small-cap technology space, another buying opportunity is Israel-based Magic Software Enterprises Ltd. (NASDAQ/MGIC), which has been providing information technology services for more than 30 years. The company has built ventures with key software partners, including International Business Machines Corporation (NYSE/IBM), Microsoft Corporation (NASDAQ/MSFT), and Oracle Corporation (NYSE/ORCL).

In 2013, the company was ranked 37th on the Deloitte Israel Technology Fast 50 list.

Magic Software is profitable, with higher sequential earnings in six straight years, from 2006 to 2012, prior to a small decline in 2013. The valuation is reasonable at 14.66 … Read More

What a Loan Officer Would Say to the U.S. Government

By for Profit Confidential

Does the Size of Our National Debt Really Matter AnymoreFor a moment, consider yourself a loan officer at a major bank. Would you approve a loan for a customer who says they earn $1,000 a month, spend $1,300 a month, and don’t have a job? They also tell you they have unpaid debts of $17,000.

I don’t think anyone would authorize that kind of loan because the chances of getting the money back are next to zero. The individual spending more than he earns is a prime example of a financial disaster waiting to happen. It is unsustainable living; when someone does this, they break the most basic principles of Personal Finance 101.

So why does the U.S. government get away with it?

The United States Department of the Treasury, Bureau of the Fiscal Service reported the budget deficit for the month of February was $194 billion. The U.S. government received $144 billion in revenues and spent $338 billion; the government spent 134% more than what it earned. (Source: Bureau of the Fiscal Service, March 14, 2014.)

So far for fiscal year 2014 (which began in October of 2013), the U.S. government has incurred a budget deficit of $380 billion on revenues of $1.10 trillion and expenses of $1.48 trillion. Since the beginning of its current fiscal year, the government has been spending 34% more than what it takes in.

The U.S. national debt, which has now surpassed $17.0 trillion, has skyrocketed since the Credit Crisis of 2008.

There are two important facts about our rising national debt that don’t get a lot of mainstream attention (and I certainly don’t hear the politicians talking about them):

Point #1: … Read More

This Energy Stock to Be Major Beneficiary of LNG Build-Out?

By for Profit Confidential

Why This Energy Stock Is So Attractive in a Value-Driven MarketIn a nervous market trading right near its high, it’s worth looking for value. But there’s not a lot of it around, as stocks are fully priced and expectations for earnings are modest.

One company we’ve looked at before is Chart Industries, Inc. (GTLS) out of Garfield Heights, Ohio. This business manufactures specialized equipment for the production and storage of hydrocarbons and industrial gases. It’s a good business to be in these days and should make for a decent long-term investment.

This is a $2.0-billion company whose share price is down substantially from its all-time record-high set last October. It’s not that this business isn’t growing, but only that the position sold off after not quite meeting consensus.

I like this business and its long-term fundamentals. Energy end-products represent about 53% of the company’s total sales.

The company has also developed specialized expertise in cryogenic storage, which is equipment that can produce temperatures close to absolute zero (-459 degrees Fahrenheit).

Most of Chart Industries’ customers are large, multinational producers of hydrocarbons and gases. The company’s top-ten customers account for 37% of total revenues.

Biomedical customers are 23% of total sales, including respiratory products, cold storage systems, and commercial oxygen generation systems. As a global manufacturer and seller, just less than 60% of total sales are generated by international customers.

You can learn a lot about this business by reading its Form 10-K annual report for 2013. Chart Industries’ share price appreciated 550% from October 2010 to October of last year. It’s now more fairly priced. The company’s stock chart is featured below:

GTLS ChartChart courtesy of www.StockCharts.com

This is a very … Read More

My Top Stocks in the Mobile Gaming Sector

By for Profit Confidential

Why I Believe There Are Better Mobile Gaming Investments Than King Digital If you have ever played the Candy Crush Saga game on your mobile device, you’d realize that the game, along with others like Flappy Birds, are merely a mobile phenomenon that could easily fade away over time once the addiction washes away, based on my stock analysis.

Yet for King Digital Entertainment plc (NYSE/KING), the maker of Candy Crush Saga, the company is clearly jumping with glee that it’s valued at more than $6.0 billion. The stock debuted with its initial public offering (IPO) on Wednesday priced at $22.50 per share, but it quickly fell to $19.17 after the open.

Make no mistake about it: my stock analysis is that King Digital is not worth $6.0 billion—or even half of that. The company generates about three-quarters of its revenues via the Candy Crush game. There are other games, but none have taken off to the degree Candy Crush has. While King Digital says it will look hard at developing another major game, there’s no guarantee that this will happen before interest in Candy Crush fades, based on my stock analysis.

What I suggest you do is look at more established developers of mobile games and applications that are much cheaper and not pumped up like King Digital, as my stock analysis suggests.

Based out of San Francisco, Glu Mobile Inc. (NASDAQ/GLUU) is an interesting small-cap gaming play that holds promise in the growing area of mobile gaming on smartphones and tablets, as my stock analysis indicates. Spending on mobile applications is estimated at around $56.0 billion by 2016, according to Forrester Research. With a market cap of … Read More

Why Is the U.S. Dollar Collapsing in Value All of a Sudden?

By for Profit Confidential

Whey the Fed May Need to Reverse its Decision to Cut Back on Money PrintingWhen news first broke from the Federal Reserve that it would slow down the pace of its quantitative easing program, the consensus was that the U.S. dollar would start to rise in value as the Fed would be printing fewer new dollars and actually eliminating all new paper money printing by the end of 2014.

But the opposite has happened.

Below, I present the chart of the U.S. Dollar Index, an index that compares the value of the dollar to other major world currencies.

US Dollar Index - Cash Settle (EOD) Ice ChartChart courtesy of www.StockCharts.com

As the chart clearly shows, the dollar started on a strong downtrend in July of 2013. When I look at the dollar compared to individual currencies like the euro and British pound, the picture looks even worse.

The common belief since the Credit Crisis of 2008: when there’s uncertainty, investors run towards the safety of the U.S. dollar. But something started to happen in mid-2013. Despite China’s economic slowdown, despite the situation with Russia and Ukraine, and with the Federal Reserve cutting back substantially on its money printing program, one would think the U.S. dollar would rally in value—but the opposite is happening.

Two reasons why the greenback is falling in value so fast:

First, world central banks have been slowly selling the U.S. dollars they keep in their reserves, as the percentage of world central banks that use the dollar as their reserve currency has fallen from more than 70% in the year 2000 to just over 60% today.

Secondly, with the Japanese and Chinese reducing the amount of U.S. Treasuries they buy and with the Federal Reserve reducing the paper … Read More

Chinese Stocks Promise Higher Potential Gains?

By for Profit Confidential

Three Keys to Profiting from China-Based StocksIf you think Chinese stocks are too speculative to consider and buy, then you need to read what I’m going to say over the next few paragraphs.

Yes, it’s true that China-based companies have subjected U.S. capital markets to erroneous results and reporting in the past and that it is likely continuing to some degree, but that does not mean you should bypass Chinese stocks. You just need to be extra careful.

With the recent moves by the U.S. Securities and Exchange Commission (SEC) to force Chinese companies looking to list in the United States to use approved auditors along with other tighter reporting requirements, we have seen the flow of China-based initial public offerings (IPOs) dry up. There were only about two Chinese IPOs setting up shop on U.S. exchanges in 2013; so far, this year has proven to be no different.

Yet the reality is that Chinese IPOs continue to attract frenzy when they list here, perhaps due to the limited issues. The biggest coup was the recent decision by China-based e-commerce giant Alibaba Group Holding Ltd., which decided to list in the United States and bypass Hong Kong. The IPO is estimated to be at around $15.0 billion and will be the largest IPO listing from a Chinese company. The reason for the decision, I believe, is the currently extremely receptive environment for IPOs in America. It’s likely Alibaba will create so much buzz that its share price will explode out of the gate for those lucky enough to own shares.

The reality is that even if you cannot get your hands on Alibaba, which has … Read More

Why Two-Thousand-Dollar-Ounce Gold Becomes Plausible Scenario

By for Profit Confidential

When Will Gold Hit Two Thousand Dollars an OunceThe rise in gold bullion prices since the beginning of the year has been very hard to digest for those who said the precious metal is useless. To me, this rise in gold bullion prices isn’t surprising at all.

And the small pullback in the price of gold we have experienced this week is very healthy and positive for gold. Gold was up 13% since the beginning of 2014. Like any investment that is going up in price, you want to have small price corrections along the way as investors take some money off the table and new players enter.

I have been writing in these pages how the demand and supply picture of the gold bullion market is getting out-of-whack. The producers don’t have much incentive to produce when precious metal prices are low. But on the other hand, with uncertainty in the global economy and other factors, we are going to see a lot of buying activity.

The main reason for the decline in gold bullion production: gold miners, in order to cut their costs, have reduced their exploration budget. Spending less on exploration and development of mines essentially leads to lower production in the future. This isn’t the case in the U.S. alone; gold companies around the world are pulling back on their exploration budgets.

According to Natural Resources Canada, a department of the Government of Canada, mineral exploration and deposit appraisal expenses in Canada declined by 41% in 2013—from $3.9 billion in 2012 to $2.3 billion in 2013. In 2014, these expenses are expected to drop further. (Source: Natural Resources Canada, March 2014.)

Looking at the … Read More

What the Collapse in Copper Prices Means for Investors

By for Profit Confidential

Why Are Copper Prices CollapsingAlmost daily, there’s a new piece of information coming out about the Chinese economy that suggests economic conditions there are worsening. We see China’s manufacturing sector is contracting and there’s a credit crunch in the making.

The Wall Street Journal ran a story last Friday on the state of the Chinese economy and its rapid decline in growth. It cited Premier Li Keqlang’s warning to investors that China was “likely to see some corporate defaults in debts.” (Source: “China Reports Broad Economic Slowdown,” Wall Street Journal, March 14, 2014.)

The economic slowdown in the Chinese economy is another reason why the U.S. economy will slow down in 2014.

Too often investors forget that China is one of our major trading partners and a significant number of American companies operate in China. If the economic slowdown in the Chinese economy gains strength, then those American companies selling goods to China and those operating there will see their profits shrink.

As the Chinese economy boomed over the past 10 years, the prices of copper and other base metals needed in the building of the country’s infrastructure skyrocketed. Now, with an economic slowdown looming in the air for the Chinese economy, base metal prices, especially copper prices, are sliding lower.

The chart below shows how copper prices have declined significantly since the beginning of 2014.

Copper - Spot Price (EOD) CME ChartChart courtesy of www.StockCharts.com

How will lower copper prices affect North American investors? Those companies in the U.S. economy that deal with base metals, such as copper, will see their profitability decline; thus, their stock prices will decline.

On a macro scale, the sharp decline in copper … Read More

Why Investors Shouldn’t Overlook This Emerging Market

By for Profit Confidential

Three Ways to Profit from Brazil's Growing EconomyThe stock market continues to want to go higher despite the lack of any major new catalyst and the renewed tensions in the Crimea region of Ukraine.

Yet despite the bullish sentiment at this time, the gains have been much more difficult to come by, as I had predicted at the beginning of the year. This year clearly won’t be a repeat of 2013.

Now, the move of the S&P 500 to 2,000 may still occur later this year, but for greater price appreciation potential, you should look to add positions in regions around the world that are currently struggling but offer above-average longer-term potential.

Here I’m talking about the emerging markets, where we are seeing a clear buildup in wealth and consumer spending. In my view, China remains at the top of the list. (Read “Investment Opportunities in Depressed Chinese Stocks.”) Of course, the stalling economic recovery in the country despite economic growth being above 7.5% has made it more difficult to be a believer in the Far East. But its time will come again, and you will want to be there when it does.

You may be hearing pundits saying to avoid the emerging markets, but I would disagree. Yes, the emerging markets are struggling now, but that doesn’t mean you shouldn’t look for a potential buying opportunity there.

Take a look at the iShares MSCI Emerging Markets chart below, which shows the recovery from the lows in 2004 and the successive low in 2009. The index is currently moving sideways due to the uncertainties in the emerging markets, but it appears to be showing … Read More

Why the Chinese Economic Slowdown Matters

By for Profit Confidential

Chinese Economy to See Black Swan Type EventUnderstanding the economic slowdown in the Chinese economy is very important because not only does it impact American companies doing business there, but what happens in the Chinese economy—now the second-largest economy in the world—affects the global economy.

While media outlets tell us the Chinese economy will grow by about seven percent this year (30% below the 10% the economy has been growing annually over the past few years), the statistics I see point to much slower growth.

In February, manufacturing activity in the Chinese economy contracted and hit an eight-month low. The final readings on the HSBC Purchasing Managers’ Index (PMI) for February showed manufacturing output and new orders declined for the first time since July of 2013. (Source: Markit, March 3, 2014.)

And there are other troubles. The shadow banking sector in the Chinese economy shows signs of deep stress, but we don’t know how much money is really on the line here. China keeps much of its real economic news to itself, but we do hear how firms that are involved in the sector are defaulting on their payments.

And the Chinese currency, the yuan, keeps declining in value compared to other major world currencies. The Wisdom Tree Chinese Yuan Strategy (NYSEArca/CYB) is an exchange-traded fund (ETF) that tracks the performance of Chinese money market instruments and the yuan compared to the U.S. dollar. Look at the chart below:

WisdomTree Dreyfus chinese Yuan fund ChartChart courtesy of www.StockCharts.com

Since the beginning of February, the Chinese yuan and Chinese money market instruments have been showing signs of severe stress, largely unnoticed by mainstream media and economists.

There is no doubt in my mind … Read More

My Top Three “Sin” Stocks

By for Profit Confidential

Stocks with the Potential to Award Significant Capital GainsThere’s a big push on buying green stocks, a move that has the ability to make investors feel good and make money at the same time. Here, we are talking about alternative energy stocks and companies that have mandated that their impact on the environment be one of their core values. (Read “My Top Stock Pick in the Innovative Alternative Energy Sector.”)

Then there are the stocks on the other end of the spectrum. Here I’m talking about the defense, gun, and military stocks that produce weapons and technology to defend and harm. These companies have made investors a lot of money, despite the fact that not everyone might agree with their line of business.

There are also those companies that are sought out due to their use of cheap and exploited labor. Of course, since so many goods are now made in China and other cheap labor markets in Asia and Latin America, it would be safe to say that many companies are pursuing this practice of seeking really cheap labor in order to maximize profits for investors. This is also the major reason why there are so many people looking for work across America; because companies cannot return strong margins while they’re paying the much-higher American wages or those of other Westernized countries, compared to the obscenely low wages found in places like China and Mexico and other low-wage countries.

While I’m not here to favor or condemn one group of companies, the reality is that nothing is perfect when you are operating in an extremely capitalistic global economy that needs to satisfy investors.

There’s … Read More

Apple Struggles in China, but New Product Could Bring Added Growth Domestically

By for Profit Confidential

New Product Could End Struggles at HomeCurrently, Apple Inc. (NASDAQ/AAPL) is largely considered a commodity stock that needs to excite investors with new innovations and growth in order to propel its long-term growth.

The stock has been stuck in a relatively tight range between $500.00 and $560.00 since late October 2013, as Apple looks for stronger growth opportunities and convinces the stock market that it can expand its business and not just depend on “iPhone” and “iPad” sales.

To this point, the company took a positive step forward after announcing it was launching its “CarPlay” solution for the auto sector that aims at making the iPhone a powerful add-on in the car. The solution will allow drivers with iPhones access to multiple services while driving. The solution will be initially launched with high-end automakers, such as Ferrari, Mercedes-Benz, and Volvo, but it will eventually be available across a much wider auto segment.

The introduction of CarPlay is critical, as it will expand the use of the iPhone for users and also help to drive sales. The car solution comes at a critical time in the recent aftermath of BlackBerry Limited’s (NASDAQ/BBRY) announcement that it would be replacing Microsoft Corporation (NASDAQ/MSFT) as the information solution in cars made by Ford Motor Company (NYSE/F). This is a key area of growth, and Apple’s innovation is the kind of development investors want to see.

While Apple continues to be the market leader in the premium smartphone and tablet market around the world, the company also needs to deliver alternative avenues of growth. Of course, Apple needs to grow its market share in the key emerging markets; so far, this … Read More

Bond Market: Something Wicked Cometh This Way

By for Profit Confidential

Bond Investors to Face Severe Losses in 2014The bond market is in trouble.

As we all know, the Federal Reserve has been the biggest driver of bonds since the financial crisis. The central bank lowered its benchmark interest rate to near zero, then started quantitative easing, all of which resulted in the bond market soaring as yields collapsed to multi-decade lows.

The chart below will show you what’s happened to the U.S. bond market since the mid-1970s.

As you can see from the chart, the declining yields on bonds stopped in the spring of 2013 and have increased sharply since then.

30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

What’s next for bonds?

The Federal Reserve is slowly taking away the “steroids” that boosted the bond market. The central bank is now printing $65.0 billion of new money a month instead of the $85.0 billion it was printing just a few months back. And now we hear the Federal Reserve will be slowing its purchases by $10.0 billion a month throughout 2014.

Since May of last year alone, when speculation started that the Federal Reserve would cut back on its money printing program, bond yields skyrocketed and bond investors panicked.

According to the Investment Company Institute, investors sold $176 billion worth of long-term bond mutual funds between June and December of last year. (Source: Investment Company Institute web site, last accessed February 26, 2014.) I would not be surprised if withdrawals from bond mutual funds are even bigger this year.

And China is slowly exiting the U.S. bond market, too. According to the U.S. Department of the Treasury, in December, China sold the biggest amount of U.S. bonds since 2011. In … Read More

My Top Stock Pick in the Innovative Alternative Energy Sector

By for Profit Confidential

This Alternative Energy Company Has Great UpsideThe price action and euphoria towards battery-powered carmaker Tesla Motors, Inc. (NASDAQ/TSLA) clearly shows the demand for innovative companies that deliver a great story, as my stock analysis suggests.

Investors want to see less demand for energy produced by fossil fuels and more demand for the green energy movement, whether its wind, water, solar, or another form of green energy, according to my stock analysis.

A small company that I have been following for a while in the alternative energy space is FuelCell Energy, Inc. (NASDAQ/FCEL), which has a market cap of $421 million.

My stock analysis indicates that the company is very innovative, which is what we want to see in high-potential stocks.

FuelCell Energy, Inc. Chart

Chart courtesy of www.StockCharts.com

FuelCell provides alternative fuel cell solutions via its stationary “Direct FuelCell” power plants that are built to deliver ultra-clean, efficient, and reliable green power. The process involves harnessing the use of renewable biogas from wastewater treatment and food processing.

As my stock analysis indicates, the company’s clients include commercial, industrial, government, and utility companies. Sectors served include the food and beverage, manufacturing, hospital and prison, college and university, hospitality, utilities, and wastewater treatment areas.

According to the company, the energy produced is up to two times as efficient as fossil fuel plants. The plants range from smaller 300-kilowatt to larger 2.8-megawatt plants, and they are expandable to above 50 megawatts. FuelCell said the power plants it has built have generated more than 300 million kilowatt hours (kWh) of electricity in more than 50 installations worldwide.

A major and growing market for FuelCell is in Southeast Asia, specifically in South Korea. The company … Read More

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