Posts Tagged ‘dividend’
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
Stocks 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
While 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.
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
For 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
Transportation 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
Back in early August, I turned negative on the big banks and suggested that a bearish double-top was forming on the Bank Index chart. At that time, the Bank Index was trading at just over 65, as you can see on the chart below. (Read “Four Important Stock Charts Showing Warning Signs.”)
In early October, the Bank Index fell to around 61 (as indicated by the lowest shaded oval in the chart below). The index held and has since rallied back above the upper resistance, suggesting that it could be set for a breakout back up to its July highs. However, my feeling is that the easy money in the big banks has been made and going forward, the big banks are now dividend plays.
Chart courtesy of www.StockCharts.com
Investment guru Warren Buffett continues to like the big banks. I don’t blame him, as Buffett has made more than $5.0 billion in paper profits on his initial $5.7 billion investment in the ailing Bank of America Corporation (NYSE/BAC; dividend yield 0.30%), when the sector was in disarray following the Lehman Brothers collapse.
So far in the third-quarter earnings season, the big banks have largely delivered decent results.
Bank of America reported earnings of $0.20 per diluted share on year-over-year revenue growth of 5.3% to $21.7 billion, beating the Thomson Financial consensus earnings-per-share (EPS) estimate by $0.02.
JPMorgan Chase & Co. (NYSE/JPM; dividend yield 2.90%) reported a loss of $380 million, or $0.17 per diluted share, but this included a massive $9.15-billion pre-tax charge for legal and government fees. The adjusted earnings of $1.42 per diluted share handily beat … Read More
Third-quarter earnings season continues this week; with a number of companies set to report in the next few days, the stock market’s attention should finally be on corporate earnings. And while earnings expectations are being reduced, the positive disposition to the Dow Jones Transportation Average remains.
The index has trended higher compared to many blue chips, which have been in consolidation for some time now. Many component companies of the index are trading at or near their 52-week highs.
With this trend, there is still some resilience to this stock market, even with a backdrop of reduced earnings outlooks.
What is noteworthy in this regard is the NASDAQ Composite Index, which remains right at its 52-week high and is creeping closer to its all-time record high set in 2000. Countless technology and biotechnology stocks continue to push to new highs. It’s a near-term bullish stock market indicator in an environment of declining expectations.
And declining expectations are why the action in the NASDAQ is so worrisome. The stock market’s been stretched for some time now, with previous leadership from blue chips and small-cap companies. The recent outperformance in the NASDAQ Composite—the component companies of which are far more risky than blue chips—is itself a telling indicator.
But while the stock market has been due for a correction for months now, the action in the Dow Jones transportation stocks, as well as the technology sector, is evidence of the continued resilience in equities.
Recognizing that there are very few instances of optimal buying opportunities in this stock market, I’m still very reticent to be a buyer in a market that’s … Read More
If there’s one company that has been a stalwart wealth creator on the stock market it’s Costco Wholesale Corporation (COST).
The company’s been on a roll since the mid-2000s, and up until recently, it reported excellent financial growth in its operations. But its most recent quarterly earnings came in shy of expectations and were a surprise for those who follow the business.
Costco’s been doing well over the last several quarters, and it is still very much a growing corporation. But in the 16 weeks ended September 1, 2013 (the company’s fourth fiscal quarter of 2013), sales came in just shy of consensus, growing five percent comparatively to $31.77 billion.
Earnings barely grew to $617 million, or $1.40 per share, compared to $609 million, or $1.39 per share. Lucrative membership sales were $716 million during the quarter, growing much less than in comparative quarters.
The company incurred higher expenses and long-term debt grew significantly in the most recent quarter. On the positive side, Costco’s cash and short-term investments soared another billion dollars to $6.12 billion from $4.9 billion.
However, shareholders’ equity fell and total liabilities grew quite a bit. You can’t call the company’s quarter a disappointment, since it is still growing, but a dividend increase would have been nice.
This was Costco’s first earnings miss in eight quarters.
Also coming in short of expectations was Family Dollar Stores, Inc. (FDO), whose 2013 fiscal fourth-quarter sales grew 5.8% to $2.5 billion. Earnings grew 26% to $102 million, but management said that comparable store sales were flat, and they struck a cautious tone on fiscal 2014.
Rounding out the evidence of … Read More
Investment risk for the very near-term stock market is going up. There’s been pressure on interest rates, investor sentiment was hit by the lack of tapering to quantitative easing, and finally, the third-quarter earnings outlook is mediocre at best.
Everything related to the stock market has been exceptional this year. While earnings growth was completely and totally lackluster, with several exceptions, the main stock market indices proceeded to rise tremendously based on continued monetary expansion and the fact that there really is nowhere else for investors to go but stocks.
Second-quarter earnings season was unimpressive, and I think it will be the same for the third-quarter reporting season. Financial results very well could be the catalyst for a major market retrenchment in October. I think that all investors need to prepare for such an eventuality. Generally speaking I do think that stocks can continue to rise in 2014; however, corporations will have to provide genuine earnings growth and top-line growth to keep valuations from pushing the envelope.
I would say that, given current earnings and expectations for 2014, the stock market is at least slightly—if not fully—overvalued at present. With the expectation of very modest earnings growth in the third quarter and little in the way of sales growth (especially among large-cap companies), recent stock market strength has been an expansion of valuations only.
This is why I’m so cautious near-term and why October could be a wild ride for share prices.
It is quite likely that market leaders that did well in the first two quarters of this year will continue to do so. These are the “Johnson & … Read More
If you had to choose between buying Intel Corporation (NASDAQ/INTC) and Phoenix New Media Limited (NYSE/FENG), which stock would it be? This is the kind of dilemma we are currently witnessing in stock market trading, as investors look at the risk they want to assume.
In 2013, the preference has been for small-cap growth stocks such as Phoenix New Media over the older and established Intel, which provides a nice dividend, if that is what you want.
The example indicates why there has been a move and shift toward the assumption of greater risk—the opportunity to increase the expected return of your portfolio.
The chart below shows the outperformance of Phoenix New Media in the dark green line versus Intel, which is reflected by the red candlesticks.
Chart courtesy of www.StockCharts.com
Large-cap stocks like Intel are nice, but for the added return, you need to make sure that you have small-cap stocks in your portfolio. To reduce the risk of small-cap stocks, diversification based on company size and industry is required. (For more on the restaurant segment, read “My Top Picks for Restaurant Stocks.”)
At this point, traders appear to be pursuing the risk of small-cap stocks with the hopes of achieving some big gains. This could happen, yet at the same time, with the good generally comes the bad. Small-cap stocks are vulnerable to higher downside risk—especially when the broader market and economy are turning down.
With the current economy showing some stalling, it may be prudent to take some profits off the ledger for some of your bigger winners. For instance, if a stock is up … Read More
Also continuing its positive upward trend are biotechnology stocks, which still harbor a lot of price momentum from institutional investors.
Ligand Pharmaceuticals Incorporated (LGND) has been very hot since the beginning of the year. The company produced a very strong first half as second-quarter revenues grew 67% to $9.6 million. Earnings were $6.1 million compared to a net loss of $2.5 million.
We’re now seeing a larger number of smaller companies report. They typically take longer to produce their quarterlies because they don’t have the large accounting departments multinational companies do.
Unscientifically, among the large number of companies I follow, I am noticing a more positive second quarter compared to blue chips. This is important, because smaller companies are much more tied to the domestic U.S. economy and, without question, they are stronger drivers of new employment. (See “This Benchmark Company Is Shocking the Street.”)
Mohawk Industries, Inc. (MHK), which is a flooring manufacturing company for residential and commercial customers, leaped higher after reporting second-quarter sales grew 35% to $2.0 million. Earnings per share jumped 61% to $1.84 after unusual charges. Company management said that it is increasingly confident regarding the U.S. market. The position jumped nine percent on the stock market after reporting.
ServiceSource International, Inc. (SREV) is a small company that’s in the business of providing cloud applications to grow recurring corporate revenues. This company announced a solid 13% increase in its second-quarter sales, reaching $67.7 million.
Adjusted earnings were flat, but ServiceSource’s revenue growth was … Read More
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