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

Posts Tagged ‘dividend’

The Problem With Reality in 2014

By for Profit Confidential

U.S. Economy Halfway to a Recession AlreadyEarlier this month, Jeremy Siegal, a well-known “bull” on CNBC, took to the airwaves to predict the Dow Jones Industrial Average would go beyond 18,000 by the end of this year. Acknowledging overpriced valuations on the key stock indices are being ignored, he argued historical valuations should be taken with a grain of salt and nothing more. (Source: CNBC, July 2, 2014.)

Sadly, it’s not only Jeremy Siegal who has this point of view. Many other stock advisors who were previously bearish have thrown in the towel and turned bullish towards key stock indices—regardless of what the historical stock market valuation tools are saying.

We are getting to the point where today’s mentality about key stock indices—the sheer bullish belief stocks will only move higher—has surpassed the optimism that was prevalent in the stock market in 2007, before stocks crashed.

At the very core, when you pull away the stock buyback programs and the Fed’s tapering of the money supply and interest rates, there is one main factor that drives key stock indices higher or lower: corporate earnings. So, for key stock indices to continue to make new highs, corporate profits need to rise.

But there are two blatant threats to companies in the key stock indices and the profits they generate.

First, the U.S. economy is very, very weak. While we saw negative gross domestic product (GDP) growth in the first quarter of this year, the International Monetary Fund (IMF) just downgraded its U.S. economic projection. The IMF now expects the U.S. economy to grow by just 1.7% in 2014. (Source: International Monetary Fund, July 24, 2014.) One more … Read More

My Top Tech Stock for Wealth Creation

By for Profit Confidential

Top Wealth-Creating Tech Stock for the Risk-Averse InvestorThe numbers are still coming in pretty good this earnings season and corporate outlooks are holding up well for the year.

Stocks have been trading off of Federal Reserve Chairman Janet Yellen’s monetary policy report to Congress, and less so on earnings.

This market is tired and you can see it in the trading action of individual stocks that beat the Street with their earnings. Most market reaction is pretty mute.

One that wasn’t, however, was Intel Corporation (INTC). The company’s second quarter really got institutional investors fired up. The stock was $26.00 a share mid-May; now it’s close to $34.00, which is a very big move for this company.

Microsoft Corporation (MSFT) doesn’t report until next week, but the company’s shares moved commensurately with Intel’s.

Earnings strength from these older technology benchmarks is really good news for both the stock market and the economy in general. It means that the enterprise market is spending money again, and that’s exactly what the technology industry needs.

Even Cisco Systems, Inc. (CSCO) got a boost from Intel’s earnings results. This stock has been trying to break out of a long price consolidation. It hasn’t really done anything on the stock market since its bubble burst in 2000.

I actually view Microsoft as an attractive company for equity portfolios looking for higher-quality stocks.

The position is very fairly priced and offers a current dividend yield of just less than three percent. And management has a multifaceted business plan focused on growth in personal computers (PCs), the cloud, and devices.

But the best potential with a company like Microsoft is its prospects for … Read More

Why This Institutional Favorite Tops My List of Stocks

By for Profit Confidential

Why This Company Is One Great Long-Term PlayOne of my favorite companies for long-term, income-seeking investors is Johnson & Johnson (JNJ).

While pharmaceuticals are the company’s anchor, its other business lines help with cash flow and dividend increases.

Investors have bid Johnson & Johnson shares tremendously in recent years, and it’s difficult to consider buying the company now, as the position is up another 10 points since March.

But Johnson & Johnson is the kind of stock income-seeking investors should keep an eye on for more attractive entry points, even though they may not come around all that often. The most recent possible entry points were in late September of last year and late January of this year.

My expectations for a mature company like this is for total annual sales to grow by the mid-single digits, with earnings growth and dividends producing an approximate 10% total annual return.

With a 10% annual return on investment, your money doubles every seven years.

Johnson & Johnson is typically priced at a slight premium to the S&P 500, but the company has earned its higher valuation by providing relatively consistent growth, reliable corporate outlooks, and a strong track record of dividend increases.

The company’s stock chart is featured below:

Johnson & Johnson Chart

Chart courtesy of www.StockCharts.com

Johnson & Johnson has typically been a good performer over the long term, but just like any large-cap, it can sit and produce no capital gains for long periods of time.

The position broke out at the beginning of 2013 after a number of years of modest capital gains. Institutional investors, wanting the earnings safety and solid dividends that the company provided, bid the stock … Read More

What Investors Need to Know About the Current Market Cycle

By for Profit Confidential

What These Large-Caps Are Revealing About the Current Stock Market CycleIf there ever was an equity security epitomizing the notion that the stock market is a leading indicator, Caterpillar Inc. (CAT) would fit the bill.

This manufacturer is in slow-growth mode, but it’s been going up on the stock market as institutional investors bet on a global resurgence for the demand of construction and other heavy equipment and engines.

And the betting’s been pretty fierce. Caterpillar was priced at $90.00 a share at the beginning of the year. Now, it’s $110.00, which is a substantial move for such a mature large-cap. (See “Rising Earnings Estimates the New Catalyst for Stocks?”)

The stock actually offers a pretty decent dividend. It’s currently around 2.6%.

While sales and earnings in its upcoming quarter (due out July 24, 2014) are expected to be very flat, Street analysts are putting their focus on 2015. Sales and earnings estimates for next year are accelerating, and it’s fuel for institutional investors with money to invest.

The notion that the stock market leads actual economic performance is very real. Just like there are cycles in the economy, the stock market itself is highly cyclical. And while every secular bull market occurs for different reasons, there are commonalities in the price action.

Caterpillar’s share price is going up on the expectation that its sales and earnings (on a global basis) will accelerate next year.

Transportation stocks, as evidenced by the Dow Jones Transportation Average, are the classic bull market leaders.

Transportation, whether it’s trucking, railroads, airlines, or package delivery services, is as good a call on general economic activity as any. The Dow Jones Transportation Average was … Read More

Growth, Income, and Quality: This Top Stock Offers It All

By for Profit Confidential

This Top Company the Complete PackageThere are some companies—mature businesses with well-known brands—that continue to execute in a manner worthy of the finest growth stories.

While the stock market does its thing every day, I find that there are actually very few investment-quality stocks that deliver respectable returns consistently over time.

The business cycle exists, and so does the enthusiasm that institutional investors have for particular companies.

One company that I continue to like for long-term investors is NIKE, Inc. (NKE). Here’s the thing about this well-known athletic footwear and apparel manufacturer—the company just keeps on growing.

The fact of the matter is that the running shoe business is a good one, and solid management execution has allowed this company to deliver continued double-digit comparable growth in a world where mature economies are barely growing at all.

NIKE is worthy of long-term portfolios. The company pays a dividend with a current yield that is approximately 1.3%.

The stock has been in consolidation for a good seven months, but it’s performed incredibly well over the last 10 years and should continue to do so.

Once again, NIKE beat Wall Street consensus and the stock jumped after it reported great 2014 fiscal fourth-quarter and year-end financial results.

Fourth-quarter sales from continuing operations grew 11% to $7.4 billion. Currency neutral, the gain was more like 13%.

NIKE owns the “Converse” brand, and its sales grew in the double digits to $410 million. NIKE-branded products experienced gains in all geographic regions except Japan, where sales were flat on a comparable basis.

The company’s gross margin expanded due to higher average selling prices and more direct-to-consumer sales.

Bottom-line earnings grew … Read More

One Group of Stocks Every Portfolio Should Have

By for Profit Confidential

Why Every Portfolio Should Include a Restaurant StockEvery stock market portfolio should consider restaurant stocks if the risk tolerance allows for it.

This industry sector has a long track record of delivering good capital gains to investors, recognizing, of course, that all restaurant chains experience periods of turmoil and changes among consumer preferences.

In the restaurant business, competition is fierce, and because there are so many options, margins are slim.

Sonic Corp. (SONC) just reported its financial results for its third fiscal quarter (ended May 31, 2014).

The company’s system-wide store sales grew 5.3%, with total revenues (including both company-owned drive-ins as well as franchises) growing to $152 million, compared to $147 million in the same quarter last year.

The company opened 10 new drive-ins during its fiscal third quarter and earnings grew to $16.8 million, or $0.30 per diluted share, from $14.8 million, or $0.26 per diluted share, for an earnings-per-share gain of 15%.

Sonic’s two-year stock chart is featured below:

Sonic Corporation Chart

Chart courtesy of www.StockCharts.com

The company expects earnings-per-share growth of between 14% and 15% in fiscal 2014, and the position is fully priced on the stock market.

Operationally, Sonic is experiencing renewed momentum in its business, with most new store openings being new franchises.

The stock did incredibly well from the late 1990s to the end of 2007, until the company’s growth picture turned. It wasn’t until the beginning of 2013 (like so many other stocks) that the company was able to reenergize operations. The stock has doubled over the last 18 months.

All restaurant chains experience periods when they just can’t produce the same growth as they used to. Combined with changes in … Read More

These Safest Names Still Offer the Best Returns

By for Profit Confidential

Same Old Trend to Continue Despite Improved Earnings NumbersThe earnings are beginning to flow and it’s a total mixed bag out there again.

Carnival Corporation (CCL) beat the Street with its second-quarter numbers, with cruise line sales growing four percent over the second quarter of 2013.

Guidance, however, was mediocre and the position sold off on its earnings results.

Walgreen Co. (WAG) has been very strong on the stock market over the last 12 months. The drugstore chain produced a six-percent gain in sales to $19.4 billion, and a 16% gain in earnings to $722 million.

But the company is getting squeezed both by health insurers and pharmaceutical manufacturers, so its business model is getting pressured.

Walgreen is considering reincorporating overseas to reduce its tax burden, but it won’t have details on any potential plan until later in the summer. The stock went up on the news.

Second-quarter earnings results were actually a bit better than expected and once we get into blue chip numbers, I think the market will be a bit more appeased.

It is important to remember where stocks are coming from. It’s been an exceptionally good last few years for equities; 2013 was outstanding.

The first quarter was a tough one, both due to the weather and general business cycle conditions. The market isn’t expecting second-quarter numbers to be strong, and that goes for both gross domestic product (GDP) and corporate earnings.

All that corporations have to do is meet or beat on one financial metric and either affirm or improve existing full-year guidance. With this backdrop, institutional investors will keep buying.

Monsanto Company (MON) soared to a record 52-week high after releasing a … Read More

Top Stock to Watch Among These Three Winning Techs

By for Profit Confidential

Top Three Winning Techs, but Only One to WatchFor years Micron Technology, Inc. (MU) struggled on the stock market as both competition and demand in the personal computer (PC) market took its toll on the chip maker.

Now the company is experiencing a bit of a renaissance, and the stock has been trending higher on genuine business growth.

In my mind, if Micron Technology is experiencing improved business conditions, it’s a positive indicator for almost everything else. This $34.0-billion company has really had a tough time since the technology bubble burst in 2000.

But the position broke out strongly at the beginning of last year. In January of 2013, the stock was trading for just less than $7.00 a share. Now, it’s more than $30.00 and is in a solid uptrend.

The company’s stock chart is featured below:

Micron Technology Inc Chart

Chart courtesy of www.StockCharts.com

In its most recent quarter, the company’s third fiscal quarter of 2014 (ended May 29, 2014), revenues grew 72% over the same quarter of the previous fiscal year to $3.98 billion.

Earnings were $806 million compared to $43.0 million.

Micron Technology recently acquired a Japanese chip maker, and as the company’s share price action illustrates, investors are more enthusiastic about the memory chip business.

This stock is not expensively priced, and it likely has more near-term legs in this market.

The business cycle is slowly changing, and so is investor sentiment. The semiconductor industry is notoriously volatile and boom-and-bust, but if business conditions are improving for Micron Technology, then there certainly is more optimism regarding the dynamic random access memory (DRAM) market.

Intel Corporation (INTC) recently surged on the stock market after the company raised its … Read More

As Stocks Brush Off Geopolitical Tensions, Here’s the Catalyst for a Correction

By for Profit Confidential

Where's the Catalyst for Correction in StocksCountless stocks are bouncing off their highs, and in many cases, a lot of these companies are due for share splits.

It’s a peculiar environment for investors in that the main market indices are right at their highs, yet the Main Street economy isn’t performing anywhere near as well.

Stocks are a leading indicator and share prices move in advance of anticipated corporate earnings, but it’s so difficult to be a buyer when most stocks have already gone up like they have. It’s not boom time at all in the real world.

So with this backdrop, I think it’s fair to conclude that an investor has to be extremely careful in the current environment.

I view investment risk in equities as being high because stocks are at their highs and Main Street is stagnant. It’s not a good combination. And with the real possibility of rising interest rates later this year or early 2015, the boom that hasn’t happened could easily turn into a bust.

For an investor looking to buy stocks right now, I would say to wait until second-quarter reporting season begins and we get the latest numbers from corporations before investing.

This market is so badly due for a material price correction, and with the right catalyst, it could happen near-term.

Given the current information, I would view a material price correction as a buying opportunity. A real stock market correction has eluded us for too long since the March of 2009 low.

And while there was a small sell-off at the beginning of this year, stocks have been moving consistently higher for two straight years.

I … Read More

Top Tech Cycle Play with Even More Legs

By for Profit Confidential

Will This Company Make It as a Long-Term Cycle PlayOracle Corp. (ORCL) reports on Thursday and it’s one of the first large corporations to do so this reporting season. Second-quarter earnings season is just about here, and it’s exactly what the stock market needs now.

The lull between earning seasons can make for some wacky trading action. Often trading volume diminishes and from a business perspective, what you want from a company you’re thinking about investing in (or divesting) is its most recent numbers.

I thought that first-quarter earnings season was pretty decent, and I think companies will surprise the marketplace again for the second quarter.

A couple of trends that emerged in the first quarter was that European operations of large multinationals showed improvement comparatively, and that’s important for these super big companies that do business in developed markets.

The other trend was that currency instability held back corporate earnings. In many cases I read reports where the bottom-line would’ve been one to three percent higher if it weren’t for major devaluations in developing economies with large populations. Of course, this is an ongoing investment risk that any multinational is going to face and as an investor, there really isn’t anything you can do about it.

It will be worthwhile perusing Oracle’s upcoming earnings report; it’s the company’s fourth fiscal quarter of 2014.

Oracle is a company that I’ve liked for a number of years as an investment-grade equity security for long-term investors. But the business does experience periods of stagnant growth. (See “Another Earnings Season Suggests Another Quarter of Slow Growth Ahead.”)

I was enthusiastic about this position early last year as a long-term cycle … Read More

My Top Investment-Grade Stock in Beverages

By for Profit Confidential

Best Income Play in Beverages—If You Time It RightPepsiCo, Inc. (PEP) is breaking out after a prolonged price consolidation since this time last year.

This mature enterprise fits into the very-slow-growth category, but the company offers a solid dividend. The stock is currently yielding three percent.

Some big investors are after PepsiCo to spin off its snacks business, but management has been reticent due to the fact that growth in beverages has been slow going.

Spin-offs or break-ups are typically wealth-creating for shareholders, but they can be one-time wonders.

Last quarter, PepsiCo’s earnings per diluted share grew a solid 14.5% on the back of flat revenues.

The company certainly could surprise the marketplace with a spin-off plan, but this is not really expected. The stock would soar on the news, however.

The Coca-Cola Company (KO) is actually yielding the same three percent currently. Over the last two years, PepsiCo has significantly outperformed Coca-Cola on the stock market, but both positions tend to go back and forth.

I don’t consider either company particularly attractive at its current price, but their yields are, and it would be reasonable for investors to expect earnings growth combined with an annual dividend of approximately 10% from either company.

Dr Pepper Snapple Group, Inc. (DPS) is a much smaller company compared to Coca-Cola or PepsiCo. It’s done a lot better on the stock market comparatively over the last five years. This stock currently yields just less than three percent, but its growth is slowing.

With such international businesses, currency risk is a major issue and when you have country-specific problems like what recently transpired in Venezuela, it can wreak havoc with earnings.

Monster Beverage … Read More

Flight to Safety Rewarding These Top Stocks

By for Profit Confidential

Investors' Flight to Safety Putting These Stocks on TopMy dad is earning a few percentage points on his fixed-income yields. Fortunately for him, that’s sufficient to live on when combined with his monthly pension and savings. He has no mortgage and lives a pretty normal, but somewhat frugal life.

In fact, Dad has always favored the fixed-income market for his investments as he doesn’t like risk. But for many Americans, the need for an ample flow of income during your retirement is a necessity for surviving, especially if the Great Recession wiped out your 401(k).

With the 10-year bond yield languishing below three percent, it would be difficult to live on this income, unless you have sufficient bond holdings or other avenues of income, like my dad’s pension. Having a more frugal or cost-conscious lifestyle also helps for many in retirement.

Yet the one area that I feel has been extremely positive for investors over the past five years is the dividend paying stocks that provide far higher yields and preferred tax treatment versus bonds. My dad may not be open to dividend paying stocks, but it makes sense for many other investors.

In reality, the Dow Jones and dividend paying stocks have returned some impressive capital gains and income over the past years. I expect this to continue in the current investment climate, where the stock market is favoring less risk.

Take a look at the Dow Jones Industrial Average (DJIA), which is slightly in positive territory, but at the same time, laying out income via dividend paying stocks.

The income stream has also been inviting with the average dividend yield on the 30 Dow blue-chip dividend … Read More

How to Find a Solid Stock Investment in a Market Lacking Value

By for Profit Confidential

Two Solid Stock Investments Market Lacking ValueThere’s not a lot of value around in this stock market, and it’s difficult to be a buyer when a lot of stocks have already done extremely well the last few years. However, this isn’t the case for all stocks.

One company I’ve looked at before in this column is Chart Industries, Inc. (GTLS) out of Garfield Heights, Ohio.

This stock has come way off its high on slower-than-expected business growth. But this is still a very good business with barriers to entry and good long-term fundamentals.

The company, which manufactures storage solutions for hydrocarbons and industrial gases, just got another contract with a Chinese energy customer. The company will build and commission 50 permanent liquefied natural gas (LNG) fuel stations within the next 30 months. Management estimates the sales will be worth upwards of $35.0 million.

Chart Industries was doing extremely well on the stock market up until last October. The position hit $130.00 a share, but is now trading around $75.00.

Even if recent results didn’t quite live up to expectations, this is still a growth business and the company has a very bright future in its specific industry.

Another enterprise that’s come off its high and is still a growing company is A. O. Smith Corporation (AOS), which is based in Milwaukee.

This business manufactures water heaters. On the surface, that might not seem like the greatest of enterprises, but it actually is. The company’s business strategy was founded in the domestic water heater market, but it now has a growing presence in China and sales are gaining at a very good clip.

The first quarter of … Read More

Buybacks, Dividends, Stock Splits: Business Is Getting Better for This Must-Watch Stock

By for Profit Confidential

How Investors Could Use This Stock as Their Economic Crystal BallThere are a lot of stocks bouncing off their all-time record-highs and Union Pacific Corporation (UNP) is one of them.

Not surprisingly, the company just announced a two-for-one stock split with the stock dividend, effective June 6, 2014 to shareholders of record on May 27, 2014. The last time Union Pacific split its shares was in May of 2008, also effecting a two-for-one stock split.

Management also announced the second installment of its new $0.91-per-share quarterly dividend. The previous dividend amount was $0.79 a share.

Only four years ago, the company’s dividend was $0.33 a share, illustrating just how good an investment this railroad has been.

And business is getting better. Union Pacific plans to spend $4.1 billion in total capital expenditures this year. The company recently boosted this figure by $150 million, saying that it needs to purchase 29 more locomotives than it previously estimated.

In October of last year, this stock was trading for $150.00 a share. It just bounced off an all-time record-high of $196.16. Despite being cut in half during the 2008/2009 financial crisis, this stock’s been going up since the beginning of 2005, which is an excellent track record.

The company’s stock chart is featured below:

Union Pacific Corp Chart

Chart courtesy of www.StockCharts.com

Union Pacific is a great benchmark company that’s worth checking in on once every quarter, even if you aren’t interested in being a shareholder. The reason for this is because this railroad operator is its own leading indicator on the U.S. economy.

Railroads are reactionary enterprises. If they need more cars, they put them on; if they need more locomotives, they buy them. That, in … Read More

4% and Rising: This Company Consistently Growing Investors’ Income

By for Profit Confidential

How This Stock Could Become a Very Attractive Buy for Income-Seeking InvestorsWhen you walk into a Cracker Barrel restaurant, you pretty much know what you’re going to get. (And you know what kind of candy will tempt you on the way out.) And when it comes to its action in the investing world, the situation isn’t all that different.

Cracker Barrel Old Country Store, Inc. (CBRL) is a successful restaurant chain that’s had a very good run operationally and on the stock market. The position’s come back from its all-time record-high quite significantly, and with a forward price-to-earnings ratio of around 15 and a 4.2% dividend yield, this company may be coming back into the “buy” zone.

Cracker Barrel’s business is directly related to economic activity and travel spending, given the company’s large number of locations on interstate highways.

Uncharacteristically, the company’s most recent quarter produced a slight comparative reduction in total revenues. For the quarter ending January 31, 2014, Cracker Barrel’s sales were $698.5 million, compared to $702.7 million in the same quarter of the previous year.

But earnings held up, growing to $37.0 million from $35.0 million, comparatively. Management recently increased its dividend substantially. The company’s stock chart is featured below:

Cracker Barrel Old Country Store Chart

Chart courtesy of www.StockCharts.com

Cracker Barrel reports its updated quarter results next week. Currently, the company is operating 625 stores in 42 states.

Management recently initiated a cost reduction program, looking for $50.0 million in annual savings by fiscal 2017.

The company’s average check has been experiencing solid growth in recent months, but comparable restaurant traffic has been down. Citing bad weather, strong competition, and an overall reduction in vehicle traffic (weather-related and shorter vacations), the company had … Read More

« Older Entries
Enter your e-mail address to subscribe to
Profit Confidential — IT'S FREE!
Enter e-mail:
ALSO RECEIVE A FREE COPY of our exclusive report:
"A Golden Opportunity for Stock Market Investors"