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

Posts Tagged ‘dividends’

Best Stocks Going Into 2015

By for Profit Confidential

Stocks Going Into 2015A lot of good companies with solid investment prospects going into 2015 are pushing new highs in an otherwise trendless stock market before the end of another reporting period.

Market leaders have kept their momentum the last few years and are likely to keep doing so as earnings reliability and dividends keep investors buying.

Microsoft Corporation (MSFT) continues to tick higher in this market. The position was $35.00 a share at the beginning of the year and is now just short of $50.00.

What many of these established blue chips offer are good balance sheets, reasonable financial growth, and good prospects for rising dividends going forward. A stock like Microsoft is a simple, large-cap solution that continues to work in a slow-growth environment.

There’s no need for an equity market portfolio to be complicated at this stage of the business cycle. Dividend income is key, because that’s what institutional investors are buying.

And the good news with blue chip leadership is that it comes with less investment risk. The business cycle is not yet mature enough to support itself and therefore the investing marketplace remains somewhat risk averse.

Or at the very least, many institutional portfolios comprise dividend-paying blue chips, peppered with the stock market’s more aggressive names, like Facebook, Inc. (FB) and Chipotle Mexican Grill, Inc. (CMG). (See “Where You Can Find Value in Stocks Right Now.”)

This is a marketplace where you don’t need to be in the riskiest sectors in order to capture most of the stock market’s potential capital gains. Dividend reinvestment remains an excellent way in which to build wealth in a low … Read More

Why the Old School Dow Theory Still Applies

By for Profit Confidential

The Most Important Stocks to FollowGetting a sense of where stocks are going to go in the year ahead is always difficult with the major indices at their all-time highs.

The fundamental backdrop is still very favorable for equities. While the Federal Reserve has put off raising interest rates for the near future, the cost of capital, especially for corporations, remains extremely low. And corporate balance sheets remain in excellent condition with strong cash positions and good prospects for rising dividends going forward.

The stock market recovered extremely well from the financial crisis and subsequent crash in 2008/2009. But it wasn’t until early 2013 that I saw the beginning of a new cycle for stocks, or a bull market as it were.

Until then, I viewed the market’s performance purely as a recovery period from the previous cycle, which was the technology bubble.

Many of the technology stocks have only now recovered to their previous highs set in 1999 and 2000. The recovery cycle took a long time to play out and the catalyst for its breakout was, not surprisingly, the Federal Reserve.

Stocks can move significantly higher in a rising interest rate environment, but only from a low base, which is what we have now. And within the context of a new market cycle or bull market, the economy can experience a full-blown recession and stocks can experience meaningful corrections.

The two most important catalysts for the equity market near-term are what corporations actually report about their businesses and the Federal Reserve’s actions.

The surprising weakness in oil prices should be evident in corporate financial results (especially in the fourth quarter). Old economy industries … Read More

My All-Around Favorite “Growth” Company

By for Profit Confidential

All-Around Favorite “Growth” CompanyTomorrow, Oracle Corporation (ORCL) reports its numbers for its first fiscal quarter of 2015. What the company has to say about its business conditions is material to the equity market.

Oracle is a benchmark technology stock that’s not expensively priced. The company offers dividends; its current yield is approximately 1.2%, which may not be enough for some investors looking for a large-cap, mature technology stock.

Oracle’s share price tends to experience waves of buying enthusiasm. If the company just slightly beats consensus, there will be solid buying in the stock.

But being a mature business, this company isn’t a fast grower. What it offers investors is a benchmark in enterprise information technology (IT) demand. A quick read of the company’s SEC form 10-Q can be very informative regarding enterprise customers and their spending.

Oracle’s share price has been steadily climbing back and it’s almost at its all-time record-high set during the technology bubble of 2000. It’s been a great comeback from the irrational exuberance of those days. The company’s long-term chart is featured below:

Oracle Corporation Chart

Chart courtesy of www.StockCharts.com

Dollar for dollar, however, I still prefer Microsoft Corporation (MSFT) for those investors looking for a blue chip technology stock.

The company pays more in dividends, its valuation is about the same as Oracle’s, and it has a multifaceted business strategy that includes both consumer and enterprise customers.

Furthermore, I think Microsoft is more likely to deliver better capital gains over Oracle in the near- to medium-term.

This doesn’t mean that Oracle can’t accelerate its business growth going forward. All the company has to do is get the next business cycle in … Read More

Large-Cap Tech Doubling in Price and Headed Higher

By for Profit Confidential

Dependable Large-Cap Tech Stock’s Success an Untold Story This YearLarge-cap technology stocks, particularly old-school names, have really been on the rise, though they remain an untold story this year.

Microsoft Corporation (MSFT) is on a major upward price trend and is getting close to its all-time record-high set during the technology bubble of 1999.

The company’s stock market performance has been tremendous as of late, rising from around $27.00 a share at the beginning of 2013 to its current level of approximately $47.00, its 52-week high. Its share price has increased by more than $10.00 this year alone. (See “Eight Stocks to Beat the Street.”) And that’s with a current dividend yield of 2.6% and a trailing price-to-earnings ratio of just less than 15.

I think Microsoft is going to keep on ticking higher right into 2015 based on its sales and earnings growth momentum combined with a solid interest on the part of institutional investors seeking earnings predictability in a slow-growth environment.

Microsoft would be a solid investment-grade pick in this market for those investors considering new positions and looking for income.

Even without the company’s dividends, it should experience solid sales and earnings growth going into its next fiscal year. And in an environment where institutional investors are bidding old-school names that are offering earnings reliability, $50.00 a share shouldn’t be too difficult for Microsoft to achieve by year-end.

Share price momentum in previous technology growth stocks like Microsoft and Intel is indicative of a bull market, but one that’s still risk-averse.

Price momentum in these stocks is healthy for the broader market because large-cap tech companies like Amazon.com, Inc. (AMZN) and Facebook, Inc. (FB) … Read More

Two Blue Chips with Excellent Upside

By for Profit Confidential

My Top Blue Chips Offering More Capital GainsThere’s good resilience to this market. On most days, the NASDAQ Composite is still beating both the S&P 500 and Dow Jones Industrial Average comparatively, which is bullish. Lots of stocks are pushing new highs and many seem to be breaking out of their previous near-term trends.

NIKE, Inc. (NKE) is a large-cap, dividend-paying company that I view as attractive for long-term investors.

The stock has been in consolidation, trading range-bound since the beginning of the year but is finally breaking out and pushing through the $80.00-per-share level.

This position went up tremendously last year and has been due for a break. The company has experienced solid revenue and earnings growth over the last several quarters.

The stock’s reacceleration looks meaningful, and I suspect the position is in for a new uptrend.

The other company that I feel is a good example of the kind of stock that could make for a great holding in any long-term equity market portfolio is The Walt Disney Company (DIS). (See “Why This Is Still My Favorite Entertainment Stock.”)

I’m not surprised this position is still ticking higher. But it has been moving up very consistently since October of 2011.

The stock just broke the $90.00-per-share level. This time two years ago, the company was trading for $30.00 a share, which is incredible capital appreciation for such a mature large-cap enterprise.

Institutional investors are still buying earnings reliability, and I think this trend will hold right through 2015.

Both NIKE and Disney offer earnings reliability and the fact of the matter is that it’s difficult for any company to generate double-digit growth…. Read More

One Group of Stocks Investors Can’t Ignore

By for Profit Confidential

Stocks That Really MatterSo long as transportation stocks are ticking higher, the stock market is much less susceptible to a price retrenchment.

The Dow Jones Transportation Average just blew past 8,500, recently hitting a new record-high after taking a well-deserved break around mid-July and August.

Airline stocks led the index’s recent price strength. Some examples: JetBlue Airways Corporation (JBLU) was $8.00 a share in May, now it’s pushing $13.00. Meanwhile, Southwest Airlines Co. (LUV) was $20.00 a share at the beginning of the year, recently hitting a price of more than $33.00 for a new all-time record-high.

But it isn’t just airline stocks that are doing well on the Dow Jones Transportation Average; railroad stocks and trucking companies are pushing through to new highs, too, and earnings estimates for a lot of these companies are increasing, especially for 2015.

It may seem like an old-school concept, but strength in transportation stocks is still a leading indicator for the broader market. Price strength in these stocks often shows up at the beginning of a new business cycle.

Union Pacific Corporation (UNP) is one of my favorite railroad stocks for investors and it’s a great benchmark for determining your investment strategy, even for those not interested in the company. Monitoring this stock is a great way to gain market and economic intelligence.

This position still has good potential for further capital gains and earnings forecasts have been going up across the board—including estimates for the company’s third and fourth quarters, all of 2014, and all of 2015.

The stock’s been in a well-deserved price consolidation since May, but it recently broke out of this trend … Read More

Jumping on the Risk Bandwagon? Think Again

By for Profit Confidential

The stock market has an underlying strength to it, seemingly only to be undone by geopolitical events. Fed action always has the potential to shock the system. Negative economic news isn’t fazing this market. On the back of a pretty decent second quarter, many corporate outlooks predict another year of decent growth, particularly with earnings. While the stock market retrenched recently, positive days are still led by the Dow Jones Transportation Average, the Russell 2000 Index, and the NASDAQ components, which are traditionally positive for broader sentiment. Some speculative fervor has come back to two stock market sectors that are traditionally volatile—biotechnology stocks and restaurant stocks. But there really isn’t an underlying trend to latch onto. Jumping on the bandwagon of risky stocks seems unwise considering the stock market is at an all-time record-high. This is a market where equity investors have to be highly selective and wait for the right opportunities to present themselves, if you’re considering new positions at all. This can be in the form of a specific sector theme (like oil and gas, for example) or looking for good companies that have retrenched for their own specific reasons. In any case, with the stock market at a record high, it’s difficult to find value, and new positions become entirely reliant on market momentum, not necessarily individual corporate achievement. There are very few companies that I would consider now, but within the context of a long-term stock market portfolio, investors want their money to be put to work. In equities, I still think that portfolio safety is the name of the game. This is a market that hasn’t experienced a material price correction for five years. There have been retrenchments and price consolidations, but no reset, no revaluation that would make stock market investors with cash want to jump into a marketplace still beset with huge monetary stimulus and strong balance sheets—a marketplace still extremely favorable to equities. Companies for consideration at this time that fit into my earnings (and dividends) safety list include Microsoft Corporation (MSFT), PepsiCo, Inc. (PEP), Johnson & Johnson (JNJ), and 3M Company (MMM). There should be exposure to oil and gas in this short list, too. Previously, I liked Kinder Morgan Energy Partners, L.P. (KMP), but with news that this high-yielding limited partnership is being bought out by Kinder Morgan, Inc. (KMI), I’m looking for a solid new pick in this sector. (See “This Company’s $70.0-Billion Acquisition a Boon for Investors.”) A lot of investors are more risk-tolerant than these mature enterprises might present. But institutional investors are still skittish; they are still buying earnings safety in this stock market. Accordingly, dividend-paying blue chips remain highly correlated to the broader market and for the investment risk, given that this market could experience a 20% correction at any time for a multitude of reasons, new buyers of equities should consider stocks offering earnings and dividends safety. In the equity market—which is a secondary market with a pricing mechanism subject to fear, greed, and the herd mentality—capital preservation is a worthy investment goal. So far in this bull market, blue chips have performed exceedingly well relative to the rest of the stock market and they are still where institutional investors want to be.The stock market has an underlying strength to it, seemingly only to be undone by geopolitical events. Fed action always has the potential to shock the system. Negative economic news isn’t fazing this market.

On the back of a pretty decent second quarter, many corporate outlooks predict another year of decent growth, particularly with earnings.

While the stock market retrenched recently, positive days are still led by the Dow Jones Transportation Average, the Russell 2000 Index, and the NASDAQ components, which are traditionally positive for broader sentiment.

Some speculative fervor has come back to two stock market sectors that are traditionally volatile—biotechnology stocks and restaurant stocks.

But there really isn’t an underlying trend to latch onto. Jumping on the bandwagon of risky stocks seems unwise considering the stock market is at an all-time record-high.

This is a market where equity investors have to be highly selective and wait for the right opportunities to present themselves, if you’re considering new positions at all.

This can be in the form of a specific sector theme (like oil and gas, for example) or looking for good companies that have retrenched for their own specific reasons.

In any case, with the stock market at a record high, it’s difficult to find value, and new positions become entirely reliant on market momentum, not necessarily individual corporate achievement.

There are very few companies that I would consider now, but within the context of a long-term stock market portfolio, investors want their money to be put to work.

In equities, I still think that portfolio safety is the name of the game. This is a market that … Read More

Why This Is Still My Favorite Entertainment Stock

By for Profit Confidential

How This Entertainment Stock Has Become a Top BusinessA top stock for investors and a strong equity market leader has been, and continues to be, The Walt Disney Company (DIS).

It’s a Dow Jones component, a solid dividend payer and, similar to other dividend-paying blue chips, it’s offered earnings (growth) safety to date. Institutional investors have bid this business tremendously.

The company’s latest quarter, its third fiscal quarter of 2014 ended June 30, 2014, produced a very good increase in sales, from $11.58 billion in the same quarter of 2013 to $12.47 billion.

Earnings grew impressively as well, coming in at $2.25 billion, or $1.28 per diluted share, compared to $1.85 billion, or $1.01 per diluted share, the year earlier.

These are impressive gains for such a mature business, and they support the company’s strong capital gains on the stock market.

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

Walt Disney Co. NYSE Chart

Chart courtesy of www.StockCharts.com

Within the numbers, there’s an excellent snapshot of what’s happening in the entertainment industry. Business conditions are really good.

The company’s largest operations are its media networks division, which includes cable networks and broadcasting. This division continues to grow and remains highly profitable.

Also growing is Disney’s theme park business, with fiscal third-quarter revenues coming in at $3.98 billion, compared to $3.68 billion last year.

Along with Shanghai Shendi (Group) Co., Ltd., Disney is building the Shanghai Disney Resort theme park for approximately $5.5 billion. Completion is expected to be early next year. Shanghai Shendi owns 57% of the park, while Disney has majority ownership in its management.

The company noted that it is seeing higher attendance and higher average guest spending at its domestic … Read More

Why You Shouldn’t Overhaul Your Portfolio Right Now

By for Profit Confidential

Stocks Rolling Over Signal TroubleBiotechnology stocks and the Russell 2000 began rolling over at the beginning of July, followed by transportation stocks at the end of the month.

It’s definitely a signal that the stock market is tired, but after such a strong breakout performance in 2013, the market still hasn’t experienced a material price correction in quite some time.

Second-quarter earnings came in mostly as expected and many blue-chip stocks sold off on good results, while companies backed existing full-year guidance. This happens often, as management teams try to make it easier for the company to “outperform” Street consensus. In a lot of cases, the only reason earnings per share advanced comparatively was increased share repurchases.

But it was mostly a decent earnings season and corporate balance sheets remain strong.

There’s not a lot of action to take in this market. Stocks have gone up tremendously and earnings are playing catch-up with valuations.

A little extra cash isn’t a bad thing with equities at their highs; however, finding good value with the prospect of growth in this market is becoming difficult.

I still think the domestic energy sector has a lot to offer investors, particularly those who are looking for income. Pipelines are a good business to be in as they throw off lots of cash and in many cases, revenues are not tied to the spot price of the underlying commodity.

With speculative fervor now reduced as evidenced by the trading action in biotechnology stocks, initial public offerings (IPOs), and select technology companies, it’s reasonable to expect the next couple of months to be pretty lackluster in terms of trading action. (September … Read More

This Company’s $70.0-Billion Acquisition a Boon for Investors

By for Profit Confidential

Four Strong Businesses Now One Great CompanyAs evidence of the continuing bull market, Kinder Morgan, Inc.’s (KMI) massive acquisition of its partnership companies is a significant sign that business conditions remain strong in the energy industry.

Kinder Morgan surprised the marketplace by announcing plans to purchase Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR), and El Paso Pipeline Partners, L.P. (EPB) in an enormous $70.0-billion consolidation.

The wealth effect from the news was immediately significant, with all partnership units rising substantially on the stock market.

Kinder Morgan Energy Partners is the largest master limited partnership in the United States and has been a top choice among income-seeking investors. The partnership was worth approximately $80.0 billion, or $80.00 per unit, with a 6.9% yield before news of its acquisition. It opened 20% higher, close to $100.00 per unit, on news of the deal.

Investors can choose cash or take up new shares in Kinder Morgan, Inc., which plans to increase its dividend 16% in 2015 to $2.00 a share. The company also plans to increase its dividend by at least 10% per year until 2020, and it’s likely that there will be a number of smaller divestitures over the coming quarters.

Once the company acquires all its related corporate entities, it will be the largest energy infrastructure company in North America. Management expects its debt to be investment grade, and the combined company should be able to garner a lower cost of capital.

The current environment is a great time to be in energy infrastructure. Transportation and storage of hydrocarbons is a growth business with rising domestic production.

And it’s tough to find double-digit … Read More

Drop in This Company’s Stock Price Makes It Very Attractive Now

By for Profit Confidential

Top Company for Dividend ReinvestmentJohnson & Johnson (JNJ), which is one of my favorite long-term stocks for income and dividend-reinvesting investors, just dropped below the $100.00-per-share level and is becoming more attractive each day.

This stock has been doing extremely well over the last few years and should continue to do so. The position has been a worthy buy when it’s down and according to its recent trading history, it typically isn’t down for long.

If you’re a shareholder in this company or are considering a long-term position, you’ll want to take a look at the company’s recently filed Securities and Exchange Commission (SEC) Form 10-Q, which was submitted August 1.

This quarterly SEC filing reveals much more information over and above a company’s regular earnings press release. It gives a much better snapshot of a company’s financial position, where the sales are, which divisions are the most profitable, and where the company sees its operations in the near future.

In Johnson & Johnson’s recently filed Form 10-Q, the company’s overall profitability, that is its net earnings as a percentage of total sales, leapt higher from 20.7% to 24.1% in the first half of this year compared to last.

This is a huge accomplishment for a company this large and a major reason why stockholders should feel so confident about increasing dividends in the future, along with more share buybacks.

The company’s average common shares outstanding in the first half of 2014 dropped by approximately 3.3 million shares on a diluted basis compared to the same period last year.

Johnson & Johnson’s two-year stock chart is featured below.

Johnson & Johnson Chart

Chart courtesy of www.StockCharts.com

Johnson & … Read More

With Stocks Still Near Their Highs, What Should Your Priority Be?

By for Profit Confidential

One Key Index Close to Breaking This MarketThe Dow Jones Transportation Average is close to breaking its 50-day simple moving average. This, in itself, is not the end of the world; it did so most recently in April and recovered nicely.

But it is worth keeping an eye on, especially because the stock market is looking so tired right now.

Earnings are still streaming in and are generally okay. But there’s diminishing momentum. If the broader market opens up on positive news, on many days, it’s not able to sustain the gains. This is indicative of a stock market due for a break.

Summer action is typically slower, and while a 10% stock market correction would make it easier to put new money to work, the investing guide should be corporate outlooks—and they are pretty good going into 2015.

With Federal Reserve certainty, which includes diminishing quantitative easing and a very low interest rate environment going into 2015, the stock market is well informed regarding monetary policy.

Balance sheets remain in excellent condition, especially among blue chips, and the NASDAQ Composite is maintaining its leadership relative to the other benchmarks, which resumed about one year ago.

While the stock market has definitely earned a meaningful break, it very well could turn out to be another positive year with high single-digit returns, not including dividends. This is on the back of an exceptionally good year in 2013—a breakout year from what I view as the previous long-run cycle, that being a 12-year recovery period for the stock market.

But with this fundamental backdrop, I still view investment risk as being high and that quality is something that equity … Read More

Why Exposure to Healthcare Sector Is a Must

By for Profit Confidential

How These Companies Celebrate a Great QuarterIn what is on par with the course in today’s stock market, biotechnology firm Amgen Inc. (AMGN) posted double-digit revenue and earnings growth while raising its full-year outlook.

The kicker for this stock and its recent price strength was the news that the company plans to cut 12%–15% of its global workforce (2,400 to 2,900 employees) and close four of its facilities in Washington and Colorado. A lot of the job cuts will be to middle management, according to Amgen’s Securities and Exchange Commission (SEC) Form 8-K.

The company’s second-quarter sales grew 11% to $5.18 billion on strong sales and better margins on “ENBREL,” which is a treatment for arthritis. GAAP (generally accepted accounting principles) earnings grew 23% to $1.55 billion, while adjusted earnings per share grew 25% to $2.37.

On the back of such a strong earnings performance, you’d think the company would be hiring. But such is the marketplace with large corporations and large institutional investors.

Amgen has finally broken out of a 12-year price consolidation on the stock market and is set for more capital gains.

A share split wouldn’t be a surprise and the company is well positioned to provide shareholders with another dividend increase at the beginning of next year.

While Wall Street earnings estimates are going up for this company, I would say that a lot of good news (and drug development expectation) is built into the share price. Still, I don’t see Amgen as overpriced considering its business plan for the next few years. The company’s new restructuring plan is substantial and is likely to be rewarding to stockholders.

Healthcare-related stocks are proven … Read More

Why It’s Time to Cull Your Stocks

By for Profit Confidential

Still Buying Stocks StopGood numbers are one thing, but stocks did go up in advance of what’s turning out to be a fairly decent earnings season.

It’s not unreasonable at all to expect the market to take a solid break, perhaps for the next two to three months. Of course, predicting corrections and/or consolidations among stocks is a difficult endeavor in an era of extreme monetary stimulus. The Federal Reserve is slowly chipping it away, but it remains very committed to helping capital markets, especially as the economic data continues to be pretty soft.

Stocks are still looking stretched and this market is tired. A 10% to 20% correction would be a healthy development for the longer-run trend. Stocks need a catalyst for this to happen. It could come out of nowhere, and I’m reluctant to be a buyer with so many positions trading at record-highs.

Johnson Controls, Inc. (JCI), a large U.S. auto parts manufacturer, had a modestly positive third fiscal quarter with sales growing three percent to $10.8 billion due to more sales in China.

The company had some one-time restructuring charges during the quarter. Earnings per share from continuing operations (excluding restructuring and one-time items) grew a hefty 17% to $0.84. Management confirmed its full-year guidance, which pleased the Street, but the position is breaking down a bit.

E. I. du Pont de Nemours and Company’s (DD) numbers were uninspiring and the company tried to keep investors interested with a four-percent increase to its quarterly dividend. The position’s starting to roll over and with agriculture being such an important part of the company’s business, changing preferences among farmers hurt its … Read More

Why This Company’s a Solid Pick for Any Long-Term Portfolio

By for Profit Confidential

PepsiCo Still a Solid Stock for Any Quality PortfolioThe numbers are piling in, and there have been some disappointments as usual. This is why individual stock selection always matters in a portfolio, and equity investors should be willing to make changes depending on what stage of the business cycle a company is experiencing.

One company that’s proven itself to be a good business to own is PepsiCo, Inc. (PEP). It’s a brand-name mature enterprise with an excellent track record of long-term, reliable wealth creation for stockholders. It’s not the fastest growing large-cap in the marketplace, but the snacks and beverage business is consistent and so are the dividends.

Wall Street and institutional investors would love to see PepsiCo spin off its food and snacks business from beverages, similar to what recently transpired with Kraft Foods Incorporated.

A spin-off would, no doubt, be a boon to shareholders, but I don’t see it happening, because the company’s management needs the profits from Quaker foods (oatmeal) and especially “Frito-Lay” (potato chips) to help with the slow-growth world of soda and juice.

PepsiCo’s organic global snacks sales grew five percent comparatively in the second quarter of 2014 and two percent for global beverages.

Currency translation was unfavorable during the most recent quarter, bringing the growth rates down to two percent for global snacks and a decline of one percent for global beverages.

But despite the slow growth, the company’s operating margin improved a solid 10% during the second quarter, and that’s the big story that got the shares moving on the earnings report.

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

Pepsico Inc Chart

Chart courtesy of www.StockCharts.com

The company also boosted its full-year 2014 earnings-per-share … 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"