Posts Tagged ‘Dow Jones Industrial Average’
Why Dow Jones Laggards Are Important Leading Indicators
By Mitchell Clark, B.Comm. for Profit Confidential
There very well could be more upside in the Dow Jones Industrial Average.
Many components have been underperforming the stock market significantly; if there is to be any real economic recovery, these companies should feel it.
As an index, the Dow Jones Industrial Average seems a little out of date and not particularly reflective of today’s world or the rest of the stock market.
But regardless, it’s still the global benchmark, and ownership of both the index and component companies is vast.
Even though Merck & Co., Inc. (NYSE/MRK) is a great pharmaceutical company (and dividend payer), on the stock market, the position is back to where it was in 1997.
Another Dow Jones component looking for improvement is Hewlett-Packard Company (NYSE/HPQ), which has its own specific set of problems.
Then there’s Alcoa Inc. (NYSE/AA), which reports early. This stock market laggard is still trading at the same level it was in 1989, taking share splits into consideration.
And there are several other Dow Jones components that are laggards.
It’s pretty clear that institutional investors have made a profound bet on the safest blue chips, most evident in January and February.
While business conditions for a lot of companies are flat, both interest rates and monetary environments remain very accommodative. In addition, there are efforts being made regarding fiscal policies in many important economies.
China effected a policy to slow its frothy economy and real estate market, and it succeeded.
So, with many countries trying to get their fiscal affairs in order, the potential for genuine economic growth (in a year or two) is being cultivated.
If this came … Read More
This Company’s Valuation Becoming Attractive
By Mitchell Clark, B.Comm. for Profit Confidential
An enormous amount of effort goes into building a decent golf course. It isn’t just some nicely cut grass carved out of the bush.
After several summers as a teenager working in golf course construction, I can tell you that building a golf course requires a lot of planning.
The crew I worked with would go into an existing golf course and rebuild an entire hole. Or a green that wasn’t draining properly.
The problem—and the most delicate part of this endeavor—was to be careful not to wreck all the services that were buried in the ground. These included irrigation, drainage, telecom, and power lines.
While operating a Case backhoe, I cut through a large electrical line that was missed by the locate crew.
Needless to say, you reevaluate your priorities pretty quickly when something like this happens. An enormous flame shot up out of the ground.
Case Corporation doesn’t trade on the stock market. It is now part of a company called CNH Global N.V. (NYSE/CNH) out of the Netherlands, Fiat Industrial S.p.A being its majority owner.
On the stock market, Caterpillar Inc. (NYSE/CAT) is one of the largest players in heavy equipment. The company was doing really well a few years ago when the construction boom in Asia combined with the mining boom to produce significant growth.
The position is down from its previous stock market high, but the company is not expensively priced.
With a current price-to-earnings ratio of around 12, the position boasts a current dividend yield of 2.3%. If it was over three percent, then Caterpillar would be a much more attractive stock market … Read More
This Stock’s 24% Year-to-Date Gain Signaling a Buy Opportunity?
By Mitchell Clark, B.Comm. for Profit Confidential
“Opportunity cost”—it’s a phrase used in microeconomic theory to denote the costs that are forgone by not having your resources in the highest returning assets.
It is a phrase that’s pertinent to the stock market.
Without question, I remain completely taken aback by what has transpired with the stock market since the beginning of the year.
Looking at the numbers, not being invested in many corporations has been costly.
Excluding the reasons why, the simple fact is that the Dow Jones Industrial Average is up 16% since the beginning of the year (not including dividends).
The S&P 500 is up 15.7%. The NASDAQ Composite is up 14.8% and the Russell 2000, an index of small-caps, is up 16.6% (not including dividends).
I think this stock market can smell the end of quantitative easing.
More meaningful, however, is the Federal Reserve’s policy regarding interest rates, which are going to continue to be low for the near future, as it has been made very clear.
This is a huge, perhaps neglected, certainty for the stock market and corporations.
Making the case for being a buyer in this market is extremely difficult. Institutional investors have already placed their bets and a lot of corporations—good companies with real staying power and solid prospects for earnings growth going forward—are fully priced.
Johnson & Johnson (NYSE/JNJ) is a benchmark stock. Like many large corporations, Johnson & Johnson does everything it can to squeeze every penny out of its bottom line. The company lays off employees, closes plants, and does everything to minimize taxes. Johnson & Johnson’s 10-year stock chart is featured below:
Chart courtesy … Read More
Why I Feel Like It’s 2007 All Over Again
By Michael Lombardi, MBA for Profit Confidential
Wow! Seems like the stock market is the place to be again.
We broke 15,000 on the Dow Jones Industrial Average yesterday. I hear traders in the pits are wearing hats that say Dow 15,000. Recently, we even wrote about how central banks and bond mutual funds are buying stocks now, too.
Looks like everyone is getting back on the stock market bandwagon. Bullishness amongst stock advisors is at a multimonth high. And the percentage of assets mutual funds have invested in the stock market is near a multiyear high (both negative factors for the market)…
All the sudden, the luxury car market is hot again. Prices for prime New York real estate have hit the stratosphere. Wall Street banks and brokerages are making billions of dollars in new profits and their executives been paid out billions of dollars in bonuses.
I remember 2007 quite vividly. From January to August of that year, the stock market just kept rising. The bulls were plentiful; the bears were rare. But just when it looked like the stock market was the only game in town, stocks started to move sideways; by October 2007, stocks started to collapse.
During 2007, in Profit Confidential, I kept writing about how stocks were overbought and overpriced. And I remember getting letters from subscribers telling me I was “on the wrong side of the fence and wrong about the stock market.” I took the abuse on the chin. But by the end of 2007, as stocks started to collapse in price, I was totally vindicated, and circulation to Profit Confidential had its biggest jump ever.
What I … Read More
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