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

Posts Tagged ‘dividend’

Why Economic Growth Doesn’t Guarantee Rising Share Prices

By for Profit Confidential

Why Today's Earnings Are for Yesterday's Stock PricesTrading action in stocks has been all over the map so far this year, while investor sentiment remained generally positive. The fact that there was a bunch of profit-taking after the solid recovery in February and March is neither a surprise nor unnatural for a market at a high.

The Federal Reserve continues to be more than accommodative to Wall Street with its words of comfort and its willingness to provide continued monetary stimulus past previously stated benchmarks.

Near-term, geopolitical events in Ukraine are likely the biggest risk for stocks. It’s been a slow start this earnings season with unremarkable results, but the numbers aren’t that bad. Growth is growth.

The NASDAQ Biotechnology Index has just now crossed its 200-day simple moving average, if that’s meaningful. It’s done so several times over the last five years and recovered after a period of consolidation.

Biotechnology stocks aren’t worth paying a lot of attention to in terms of portfolio strategy. These risk-capital stocks trade on their own unique set of business fundamentals. They’ve been powerhouse wealth creators for sure over the last few years. They are due for an extended break.

I think the best plays in this market are still with dividend-paying blue chips as they experience price retrenchments. These stocks continue to have a tremendous amount of favor with big investors in a slow-growth environment. Dividend income is very important when top-line growth is in the single digits.

For those equity investors wanting to take on positions in this market, I’m still a fan of existing winners, particularly among the brand-name stocks that have distinguished themselves with long track records … Read More

Four Companies to Watch as Stock Prices Reset

By for Profit Confidential

Resetting of Equity Assets Next Leg in Stock Market's CourseThe significant price reversal in biotechnology stocks is very meaningful and appropriate, considering the massive capital appreciation the sector provided over the last three years.

There’s a reset going on with stocks, even with the Fed still onside. Earnings are not expected to grow that much in the first quarter of 2014, and big investors are booking profits as investment risk for both new and existing positions is going up.

This has been a very tough market for buyers, as stocks have already gone up in anticipation of decent earnings and revenue growth. There is very little in the way of value for investors, and there hasn’t been for a while.

This choppy action is a good reason not to get complacent when stock market indices are hitting new records. As prices go up, so does investment risk. Portfolio risk management is more important than the expectation for potential returns with stocks. Price trends easily last beyond reasonableness, but as history proves, the bubbles do eventually burst.

Right now is a great time to be reevaluating portfolio risk and identifying great stocks that you’d like to own if they were much better priced. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) There’s no reason to be a buyer in a market right near its highs with slowing expectations for growth.

One company that I think is worth having on your radar now is NIKE, Inc. (NKE); a position appropriate for long-term portfolios.

This stock experienced a substantive run up over the last five years, but with this in mind, the stock is … Read More

Top Wealth-Creating Stocks Defying Stock Market Sell-Off?

By for Profit Confidential

What Stocks Are Defying the Near-Term Stock Market TrendWith the broader stock market selling off, it’s amazing to see a company’s share price defy the near-term trend and appreciate in value.

Time and time again, Johnson & Johnson (JNJ) gets bid when the broader market faces convulsion. It’s a powerful signal, and there is still a great deal of angst among institutional investors; they still want those dividends and the relative safety of earnings that are predictable.

Johnson & Johnson has been—and continues to be—an excellent wealth creator. The stock’s been bouncing off $95.00 a share the last while and just recently, it seems to have broken past this price ceiling.

There’s not a lot new with this position. One Wall Street firm recently boosted its earnings expectations for the company in 2015. Sales growth is expected to be in the low single-digits this year, but annual earnings growth combined with dividends should be in the low double-digits once again. The company reports its first-quarter numbers on April 15.

There’s definitely been a change in investor sentiment regarding speculative positions. Biotechnology stocks, which have been the market’s multiyear winning sector have finally seen investors book profits. It’s been long overdue and from a market perspective, is a healthy development for the primary trend.

The selling migrated to large-cap technology names and the shakedown just might last a while longer. Anything can happen during an earnings season, but a “sell in May and go away” type of scenario is a real possibility again this year.

Other blue chip names that are also defying the market’s recent action include 3M Company (MMM), Union Pacific Corporation (UNP), Kimberly-Clark Corporation (KMB), Microsoft … Read More

Why These Four Rail Picks Are on My Radar

By for Profit Confidential

The One Stock Market Sector That You Need to Have on Your RadarThere’s a boom going on, and it’s old economy. The railroad business is alive and well. And equally as impressive as the freight and earnings results, railroad services and related businesses are benefitting.

Over the near-term, it’s likely there’s going to be further legislation regarding the safety of oil railcars, meaning the retrofit market will be substantial. I think investors should have the entire sector on their radar. Many of these stocks have already done well.

One company we looked at last year in these pages is The Greenbrier Companies, Inc. (GBX), which has plans this year to double its manufacturing capacity of tank cars, which are in high demand. (See “How to Play the Bakken Oil Boom While Oil & Gas Companies Are at Their Highs.”)

The company’s latest earnings results actually missed consensus, as the business wasn’t quite able to keep up with the hype. But this doesn’t mean that the future isn’t bright for this industry. Greenbrier’s one-year stock chart is featured below:

Greenbrier Cos ChartChart courtesy of www.StockCharts.com

One company that only recently experienced new interest from equity market investors is American Railcar Industries, Inc. (ARII). This firm, out of St. Charles, Missouri, sells hopper and tank railcars.

It’s a mature company, but earnings estimates are going up for 2015. The stock is not expensively priced, and its recent breakout from its previous consolidation is very interesting.

Another company that’s waiting for its stock market breakout to occur is FreightCar America, Inc. (RAIL), which has been trading in a range for the last five-and-a-half years.

This year, Wall Street analysts expect a big resurgence in top-line … Read More

Have I Got a Deal for You! The Stock Selling at 573 Times Earnings That Just Keeps Rising

By for Profit Confidential

Have Stock Market Investors Lost Their MindsStock market valuations are severely stretched by historical standards. Earnings multiples and other financial ratios no longer make sense. But despite this, investors are still buying.

I continue to preach: the days left in the stock market’s rise are numbered.

As I see it, excessive speculation rules the stock market right now. And that is dangerous because investors are making decisions that they shouldn’t be making. Irrationality is growing. Those who say the stock market will decline, like me, are few and far between.

Investors are putting big money into companies that are nowhere near being profitable.

Just look at Amazon.com, Inc. (NASDAQ/AMZN), a component of the S&P 500. According to bigcharts.com, Amazon.com stock is selling at 573 times its earnings! Since the stock market rally that began in 2009, the stock price of this online retailer has climbed more than 800%.

The price-to-book ratio of Amazon.com (that is the ratio of market value of the company compared to its book value) stands at 17.38. (Source: Yahoo! Finance, last accessed March 24, 2014.) The price-to-book ratio for Amazon.com’s sector—online retailers—is 11.0. (Source: New York University Stern School of Business web site, last accessed March 24, 2014.) By this measure, Amazon.com is overvalued by almost 60% compared to its sector average.

But Amazon.com is just one example of an overpriced stock; there are many other companies in the S&P 500 that don’t make sense as an investment, unless you are playing the “greater fool” theory. That’s when you buy a stock not because it pays a good dividend or because it makes a lot of money, but because the next guy … Read More

Why I’ve Made It a Rule to Have These Stocks on My Watch List

By for Profit Confidential

Why I Keep These Stocks on My Watch ListLots of companies are reporting their earnings results at this time, and there is some resilience to the numbers.

A hard winter definitely is apparent in corporate earnings and economic data. Spring can’t come soon enough.

Krispy Kreme Doughnuts, Inc. (KKD) has been fighting to bring its business back from the edge, and it has been relatively successful. The company’s latest earnings results actually came in just below consensus, but its forecast for fiscal 2015 adjusted earnings was three cents above the current average forecast.

Combined with an increase to its share repurchase program, Krispy Kreme’s stock spiked nicely higher. Same-store sales grew 1.6%, and the company said the harsh winter affected some key markets by a full percentage point.

Adjusted net earnings grew to $8.3 million from $6.1 million comparatively. The bottom-line benefitted significantly from credits in income tax expense.

Despite the company’s share price having tripled over the last two years, it is expensively priced, and I don’t think I’d be a buyer.

However, being not as pricey and much larger in terms of stock market capitalization, Dunkin’ Brands Group, Inc. (DNKN) could be worth a look. The company is the owner and franchiser of “Dunkin’ Donuts” and “Baskin-Robbins.”

This business has actually been a very good stock market performer, and it’s been quite consistent with its capital gains since listing in the middle of 2011.

The company’s stock chart is featured below:

DNKN Dunkin' Brands Group, Inc. Nasdaq GS + BATS Chart Chart courtesy of www.StockCharts.com

For a company operating two mature brands in a highly competitive market (Dunkin’ Brands is virtually 100% operated by franchisees), this company generated very good fourth-quarter earnings results, and the marketplace … Read More

Swelling Cash Pile Keeping Shareholders of This Stock Very Happy

By for Profit Confidential

How This Stock Is Making Its Shareholders Very HappySome stocks require more liquidity than others. Investors in Berkshire Hathaway, Inc. (BRK.A) don’t particularly require millions of shares traded on a daily basis.

However, one company that could use quite a bit more liquidity in its shares is AutoZone, Inc. (AZO). This stock has been a rocket of wealth creation and looks to have continued price momentum.

The position just bounced off an all-time record-high of around $547.00, which, to some, might just be too high of a per-share price. The stock only trades around 340,000 shares a day on average, which is pretty low considering the company’s market capitalization is just more than $18.0 billion.

The stock has doubled over the last three years and has quintupled over the last five and a half.

For all the hype, however, the company is delivering the goods. In its second fiscal quarter of 2014 (ended February 15, 2014), total sales improved 7.3% to $2.0 billion. Domestic same-store sales (stores open for a minimum of one year) grew 4.3% during the quarter, which is very good for any mature retailer.

Earnings in its latest quarter increased 9.4% to $192.8 million, with diluted earnings per share rising 17.8% to $4.78.

The company bought back 404,000 of its own common shares during its fiscal second quarter at an average price of $495.00 per share, spending $200 million.

Since the beginning of the year, AutoZone has bought back some 1.08 million of its own stock for $492 million, and the company is currently still authorized to buy back another $727 million if it wishes to do so.

In a low liquidity stock such as … Read More

The Last Group of Burgeoning Stocks

By for Profit Confidential

The Income Stocks Investors Now CraveQuite a bit of speculative fervor has been zapped out of this market, which is helpful for the longer-run trend.

With the exception of biotechnology stocks, trading action has softened in initial public offerings (IPOs), 3D (three-dimensional) printer stocks, cloud software stocks, and even a lot of restaurant stocks that only recently were very hot.

The stock market is just a continuing cycle of fluctuating investor sentiment. Valuations among junior energy producers got really excessive last year and the entire group now seems to be in consolidation.

Gold and silver stocks appear to have been toast for a while. As is always the case in resource investing, even the best growth stories can’t generally get their share prices moving if the underlying commodity price is stagnant. Precious metals stocks have always traded in manias, and this is not likely to change.

In a slow-growth environment, dividend income is key. And after an exceptional year like 2013, it may just be the only rate of return to be had.

But like so many large-cap stocks last year, some of the best dividend payers have already gone up tremendously. There isn’t a lot of value for an equity buyer these days.

One specific sector that continues to be relatively hot is the master limited partnerships (MLP) of energy companies. There is very good yield to be had from this sector in addition to the potential for capital gains. There have been countless new listings of these securities, and the North American production boom is the reason.

One firm that illustrates the combination of capital gains and income that can be found … Read More

How to Build a Portfolio to Reduce Risk, Not Returns

By for Profit Confidential

How to Invest with Conviction While Minimizing RiskPutting 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

Top Long-Term Wealth Creator Right Now

By for Profit Confidential

How to Create Wealth in This Stock MarketStocks are selling off after companies report their fourth-quarter earnings and that’s a positive development. It’s time for earnings and expectations to catch up to share prices. We could very well get trendless, choppy trading action for a number of months.

While corporations are not beating Wall Street estimates with conviction, the numbers are not that bad and balance sheets remain strong.

In terms of equity market dynamics, speculative fervor is diminishing, especially with initial public offerings (IPOs). It all seems to be a function of a marketplace that’s a little tired and wants to just digest data instead of betting on the future. If investor sentiment is currently subdued, it’s all perfectly normal after seeing such strong capital appreciation last year.

There are lots of good numbers out there. Biogen Idec Inc. (BIIB) just ploughed through $300.00 a share after consolidation of around $225.00. (See “A Must-Read for Long-Term Equity Investors.”) This biotechnology company’s fourth-quarter sales grew 39% to $2.0 billion, earnings grew 57% to $457 million, and management guided 2014 total sales higher than consensus.

Also in the biotechnology space, Amgen Inc.’s (AMGN) fourth-quarter sales grew 13% to just over $5.0 billion. The company’s adjusted earnings per share grew 30% to $1.82, while GAAP (generally accepted accounting principles) earnings per share grew to $1.33 from $1.01. Amgen also boosted its quarterly dividend by 30%.

Even The Dow Chemical Company (DOW) reported a solid fourth quarter that handily beat Wall Street consensus. Total quarterly sales grew three percent to $14.4 billion on a two-percent gain in volume and a one-percent gain in prices. Adjusted earnings per share … Read More

Why Investors Should Pay Attention to This Diverse Stock

By for Profit Confidential

Business Booming for These Stocks Right NowWith little wind at its back from last year’s exceptional performance, this market is a stock-picker’s market, and one that continues to favor existing winners.

For an existing portfolio of large-cap, dividend-paying blue chips, I don’t see a lot of new action to take right now. The most valuable information for investors is what corporations actually say about their businesses. The outlook for dividends and share repurchases is solid.

Companies like Apple Inc. (AAPL) and Google Inc. (GOOG) get all the headlines, but it’s still very material what a company like E. I. du Pont de Nemours and Company (DD) says about business conditions around the world. Even if you wouldn’t consider DuPont as an investment, the business operates in a number of important industries, so what the company’s management reports could help to inform your market view.

Last year, the company said its total sales grew three percent to $35.7 billion. Five-percent growth in volume was offset by a one-percent decline in local selling prices and the one-percent negative impact of a stronger U.S. dollar.

The standout for DuPont was, once again, the company’s agricultural division, which saw a 13% gain in sales for the year to $11.74 billion. Agriculture also contributed the most to the company’s operating earnings, improving by 16% over 2012 to $2.48 billion.

This year, DuPont expects operating earnings of $4.20–$4.45 per share. This translates to an 8%–15% gain over 2013, which is pretty solid. The company expects 2014 total sales to grow four percent to approximately $37.0 billion, which is after an estimated two-percent decline from divestitures.

Management expects global industrial production to keep … Read More

When High-Priced Stocks Become Attractive Investment Opportunities…

By for Profit Confidential

Why High-Priced Stocks Should Follow MasterCard’s ExampleWhile there continues to be a widening of the income gap between the rich and the poor in the world, companies like MasterCard Incorporated (NYSE/MA) continue to make a lot of money from every transaction made using their credit cards. Recently, MasterCard announced it would be splitting its shares on a 10-for-one basis while also increasing its quarterly dividend by 83%. MasterCard is also looking to buy back up to $3.5 billion of its Class A common stock.

The move by MasterCard makes sense and helps to boost the market value of the company for its current shareholders and future investors. The stock split will allow for trading liquidity and for smaller-scale investors and traders to participate in the stock, given that the company’s shares reached a record high at over $800.00 on Wednesday.

Mastercard NYSE Chart

Chart courtesy of www.StockCharts.com

In addition, the increase in dividends will attract income investors and the buyback will help to add some support and give the stock market some confidence in the stock as an investment opportunity.

What MasterCard has done is what other high-priced companies with high cash levels should also be doing.

Stock splits make sense for high-priced stocks as a way to increase liquidity to more investors and inevitably help to drive up the share price and create an investment opportunity.

The following are three higher-priced stocks that I feel could eventually see a stock split and offer an investment opportunity:

Apple Inc. (NASDAQ/AAPL) is under pressure from investor Carl Icahn to increase its share buyback program in a strategy to distribute some of its massive $147 billion of cash to shareholders. The … Read More

Where to Look for Profits While Waiting for Stock Market Correction

By for Profit Confidential

dividend yieldFor a company with just one operating division that’s generating meaningful growth, E. I. du Pont de Nemours and Company (DD) seems to have an uncanny ability to appreciate in value on the stock market.

DuPont is a big player in the agriculture sector, and this operating division is somewhat of a proxy on the sell-side industry.

Last quarter, the company reported sales growth of five percent to $7.7 billion. The company’s agricultural division experienced the best gain, with a 15% hike in sales to $1.6 billion.

If institutional investors buy the stock market based on improving balance sheets, DuPont’s fits the bill. The company’s third-quarter cash position soared from $4.3 billion to $7.0 billion.

The stock was trading around $45.00 a share at the beginning of the year, and it is currently trading at approximately $62.00 with a 2.9% dividend yield. For such a mature enterprise, an impressive capital gain like this is indicative of a monetary policy-induced stock market, where even slow-growth enterprises have been bid significantly.

Across the board, Wall Street has been increasing DuPont’s earnings estimates for this year and next. For 2013, total sales are expected to grow approximately three percent, accelerating to 6.3% in 2014.

Current earnings growth consensus for 2014 is approximately 12%, and with a three percent dividend yield, a forward price-to-earnings (P/E) of 14 isn’t unreasonable. (See “My Six Favorite Growing Dividend Payers.”)

These big, brand-name corporations can really pay, but usually only after a major correction or shock that provides a good entry point into the stock market.

Blue chips can trade sideways for considerable periods of … Read More

What UPS and FedEx Stock Prices Action Signals for the Market

By for Profit Confidential

UPS and FedEx Stock Prices Action Signals for the MarketThere’s been a breakout on the Dow Jones Transportation Average (a typical bull market indicator) and as evidence of the index’s strength, United Parcel Service, Inc. (UPS) bolted 10 points higher to a new all-time record high around $100.00 a share.

The company’s third-quarter revenues grew 3.4% to $13.5 billion, and earnings per share improved 9.4% to $1.16.

UPS expects its full-year earnings will be three to seven percent higher than those of 2012. The company is expensively priced on the stock market, but Wall Street analysts have been increasing their estimates for this year and 2014.

FedEx Corporation (FDX) has also been a very strong performer on the equity market. The company was at $100.00 a share at the beginning of July; it’s up another 30% since then, which seems a bit much. The company’s average consensus is for earnings to grow 25% next fiscal year.

But UPS and FedEx aren’t exceptions; so many stocks have traded like these two companies. They already appreciated considerably since the beginning of the year, but third-quarter earnings were a catalyst for more bidding by investors.

This market is clearly overbought, but it’s likely to stay that way without a catalyst galvanizing a major change in investor sentiment.

There are always trades in any market, but it is difficult to be a buyer when most stock market indices are trading at record highs.

But genuine buy low/sell high trades are also difficult in this kind of market. If a company’s shares haven’t participated in this year’s positive trading action, that company must have significant operational issues or is suffering from commodity-related weakness…. Read More

Price Action of Transportation Stocks Indicates Slowing Economy

By for Profit Confidential

Price Action of Transportation Stocks Indicates Slowing EconomyTransportation stocks are now reporting their third-quarter earnings, and it’s important for investors to pay attention to what these leading market indicators have to say.

J.B. Hunt Transportation Services Inc. (JBHT) is one of the largest trucking firms in North America. The company reported a solid third quarter, but earnings came in just slightly below what Wall Street was looking for.

Third-quarter revenues grew 11% to $1.44 billion, which is solid growth for a mature business. Earnings were $89.5 million, or $0.75 per diluted share, compared to $78.2 million, or $0.65 per diluted share. Wall Street was looking for total sales of $1.45 billion, with $0.78 in earnings per share.

The company’s cash position and accounts receivable grew solidly, and so did shareholder’s equity. All in all, it was a good quarter for this trucking firm. If Wall Street consensus was a little too high, then it was. This was still a solid report, and the company’s financial health improved.

In the railroad industry, companies continue to deal with weakening demand for coal, but earnings are holding up on modest revenue growth and higher prices.

Union Pacific Corporation (UNP) reported third-quarter sales of $5.57 billion, growing four percent over the comparable quarter last year. The company’s earnings were $1.15 billion, or $2.48 per diluted share, compared to $1.04 billion, or $2.19 per diluted share.

Third-quarter revenues measured by total revenue carloads were flat. Most of the company’s gain in total revenues came from price increases. Earnings met consensus, while revenues were just a hair below.

So there is growth out there, but it’s modest and not necessarily the result … Read More

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