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

Posts Tagged ‘earnings season’

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

The Stocks to Watch as Small-Caps Stall

By for Profit Confidential

Stocks to Watch as Small-Caps StallDespite the choppy trading action before the end of the third quarter, a lot of the market’s best stocks are still ticking higher. And the positive trading action remains especially prevalent with large-caps and dividend-paying blue chips.

Big investors want earnings reliability and dividend income in a slow-growth environment. It’s a trend that began with the stock market’s breakout at the beginning of 2013 and it still has legs right into next year.

The Walt Disney Company (DIS) is a dividend-paying blue chip that I continue to like. With solid operating momentum (sales and earnings) in both media assets and theme parks, this stock has been consistently ticking higher since October of 2011.

It remains a great holding with solid prospects for more capital gains near-term. This stock is a perfect example of what institutional investors are buying—revenue and earnings growth combined with some income and reliability in regards to its outlook.

Another dividend-paying blue chip that just broke through to new record highs is PepsiCo, Inc. (PEP). This mature enterprise has been consistently bid by investors since February.

Still yielding almost three percent, the company’s food and snacks business is expected to keep its earnings momentum in the upcoming quarter. Management increased its quarterly dividends substantially this year and investors have been buying the story.

On any major price retrenchments, I do believe these two companies make for attractive long-term holdings.

Previously, we considered these two companies with the addition of NIKE, Inc. (NKE), Johnson & Johnson (JNJ), V.F. Corporation (VFC), Microsoft Corporation (MSFT), Kinder Morgan, Inc. (KMI), and 3M Company (MMM). (See “Eight Stocks to Beat the 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

Eight Stocks to Beat the Street

By for Profit Confidential

How Investors Can Beat the StreetCountless stocks are pushing new highs and a lot of them are still blue chips. The Dow Jones Industrial Average is lagging the other indices this year, but this is not unusual.

The fact that many blue chips are still slogging higher is further indication of a bull market, despite all the shocks, risks, and the fact that stocks haven’t experienced a real correction for a number of years now.

PepsiCo, Inc. (PEP) had a great second quarter (for such a mature brand). The company increased its quarterly dividend once again and Wall Street earnings estimates for this year and next have been going up across the board.

What large corporations and well-known business brands say about their operating conditions is as useful as any other kind of information or opinion regarding the equity market. Stocks get overvalued and undervalued, but the best investing information I’ve found is what corporations actually report about their businesses, regardless of whether a company meets, beats, or comes in below consensus.

What Caterpillar Inc. (CAT) says about its global heavy equipment sales is material information, even if you aren’t interested in buying the stock. The same goes for Intel Corporation (INTC), The Boeing Company (BA), Visa Inc. (V), and The Walt Disney Company (DIS).

Second-quarter earnings season came in better than expected, and while many blue chips reiterated their existing guidance, I suspect it’s a simple strategy to make it easier to beat the Street by keeping expectations modest.

It could easily be another great year for stocks with a fundamental backdrop that is still so favorable to equities. And this includes the reality … Read More

This Luxury Retailer Now Affordable?

By for Profit Confidential

Should You Take This Opportunity to Buy This Luxury StockThe top one percent are spending and don’t really care about the other 99%. For the retail sector and particularly the luxury-brand stocks, this is welcome news.

High-end jeweler Tiffany & Co. (NYSE/TIF) pleased investors and Wall Street on Wednesday after reporting better-than-expected results and increasing its fiscal 2015 earnings estimate for the second time. Consumers in the Americas, Asia, and Europe are spending in the retail sector.

While Tiffany is now near the top of its 52-week range and near a fair valuation, there are a couple of other luxury-brand stocks that may be worth a look.

In the luxury apparel and accessories area, Coach, Inc. (NYSE/COH), a former darling of Wall Street, is struggling just above its 52-week low. While there could be a speculative contrarian buying opportunity with Coach, the anemic revenue outlook would make me think twice. Fiscal 2015 revenues are estimated to contract 11.4% and rebound a mere 3.3% in fiscal 2016. These are not good metrics; unless you want a speculative trade, I would be looking elsewhere in the retail sector.

For a much better luxury apparel buying opportunity in the retail sector, you could take a look at a stock like Michael Kors Holdings Limited (NYSE/KORS), which is my favorite in this area. The stock is currently struggling and down 18% from its 52-week high of $101.04 on February 25, 2014, which suggests it could be a good buying opportunity

Concerns of slower growth rates have been hurting the stock, but the reality is that the growth continues to be excellent, especially for a company with a market cap of more than $16.0 … Read More

How to Play the Strong Housing Data

By for Profit Confidential

Strong Housing DataThe housing market picked up steam in July after some stalling in the first half of the year, which was negatively affected by bad winter conditions in the first quarter. Housing starts surged 15.7% to a seasonally adjusted 1.09 million units in July, the market’s highest production in eight months. This break of one million units is key. Plus, the lagging building permits number was equally strong at an annualized 1.05 million units, up 7.7% year-over-year and 8.1% sequentially versus June.

The metrics clearly indicate a housing market that is strong and growing. Low interest rates continue to be the catalyst that is driving the housing market with the help of an improving jobs market.

An area that I continue to favor going forward in the housing market is the home construction and renovation supplies sector, as homeowners move to renovate their homes.

In this segment, the “Best of Breed” is The Home Depot, Inc. (NYSE/HD), which beat earnings-per-share (EPS) estimates and revenues in its second-quarter earnings season. The company also reported an increase of 5.8% on company-wide same-store sales in the quarter, including a 6.4% year-over-year rise in the U.S. housing market. The Home Depot can be a great stock for buy-and-hold investors, but with a market cap of more than $120 billion, there are alternative growth plays investors may want to consider that aren’t so expensive.

In the small-cap construction and renovation housing market, you may want to take a look at a stock like Builders FirstSource, Inc. (NASDAQ/BLDR), which has a market cap of $669 million.

Builders FirstSource Inc Chart

Chart courtesy of www.StockCharts.com

Builders FirstSource focuses on the residential new … 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

Three Retail Stocks Showing Impressive Growth This Earnings Season

By for Profit Confidential

Three Retail Stocks That Are Nailing the Second QuarterIt wasn’t too long ago that NIKE, Inc. (NKE) reported another great quarter of solid growth in its business.

The company’s fiscal fourth-quarter numbers beat Wall Street consensus, and its sales from continuing operations grew 11% to $7.4 billion, or 13% on a currency-neutral basis.

In this market, double-digit growth is significant no matter if it’s in the top or bottom line.

Like the last several earnings seasons, corporations are typically only beating consensus on one financial metric (either earnings or revenues). But this is enough to keep investors buying.

Under Armour, Inc. (UA) blew the doors off of Wall Street consensus and the stock shot strongly higher.

The company reported a surge in new apparel sales. Total revenues grew a whopping 34% over the second quarter of last year to $610 million.

Breaking it down, the company’s apparel revenues grew 35% to $420 million, while footwear sales grew 34% to $110 million on new product offerings. The company experienced significant sales growth of 30% in North America, while international sales doubled (representing approximately 10% of total revenues).

Previous guidance for 2014 was for sales growth of between 24% and 25% over 2013. Management boosted this guidance to between 28% and 29%, with operating income expected to grow between 29% and 30% over last year.

This time last year, Under Armour was trading around $35.00 per share. It’s doubled since then, and the position has further momentum in this market.

It is pricey, however, with a forward price-to-earnings ratio of around 60. But the stock is likely to stay this way; the business has operational momentum, and that’s what … Read More

The Stocks That Will Be the Highlight of 2Q14

By for Profit Confidential

Which Companies to Look to This Earnings SeasonEarnings season is always a great time of year to get up to speed on what corporations are saying about business conditions. The numbers are also useful in the sense that you can garner a lot of market intelligence regarding specific industries. And even if you aren’t interested in a specific company, brand-name earnings (or at least a summary of the numbers) can help hone your market view.

But it’s not just about how capital markets interpret corporate results. While earnings are managed, investors need to know if there is genuine sales growth taking place and in which market.

One trend that’s been evident for a number of quarters now is that many companies have been able to modestly increase their prices without materially affecting demand.

During the first-quarter earnings season, many corporations said that their operations in Europe were experiencing renewed vigor. It will be interesting to see if this trend continues this earnings season. Many times, quarterly results reflect one-time events or short spurts in either industrial or consumer demand that aren’t indicative of a new trend you can bet on.

Earnings reports are simply press releases in which companies put their best spin on what’s transpired during the quarter. The real news is the numbers themselves, and a company’s income statement and balance sheets are where I begin to look.

Also invaluable are U.S. Securities and Exchange Commission (SEC) filings, especially the Form 10-Q, which is a much more informative document. The numbers can still be unaudited in the quarterly filings, but not the Form 10-Q, which is a detailed annual report that requires fully audited numbers…. 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

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

A Hot Sector of the Market I Feel Will Soon Be a Buy Again

By for Profit Confidential

Why Action in 3D-Printing Stocks Is Healthy for This MarketEverything in the stock market experiences its own cycle of enthusiasm among investors. And this is especially well illustrated among speculative issues.

There was a time only a few years ago when some of the hottest speculative stocks were in solar energy. Now this small equity universe is still trying to rebuild itself.

And in more recent history, 3D-printing companies experienced incredible capital gains, only to experience incredible capital losses in what is a commonality among the market’s most speculative stocks.

At the end of the day, high-flying positions are still real businesses that have to deal with managing their own business conditions and hype among institutional investors.

As an investor, you have to consider both realities—the growth an underlying business is experiencing and the enthusiasm the marketplace has for such an enterprise or sector.

Twelve months ago, 3D Systems Corporation (DDD) was trading at $44.00 a share. Then it appreciated to a high of $97.28, before spending most of this year retreating to the $50.00-per-share level.

It’s only recently that the position broke the $55.00-per-share barrier, still sporting a forward price-to-earnings ratio of approximately 46.

Fervor for speculative stocks definitely diminished at the beginning of this year, and it’s part of the cycle that equities perpetually experience.

At the beginning of 2013, the breakout was in large-cap blue chips. Institutional investors had just started buying these stocks, and they led the broader market higher.

Then the NASDAQ Composite began to improve and actually took the lead for a while. But even with the Federal Reserve onside, it didn’t take too long for big investors to just book some profits. … Read More

What Do This Quarter’s Mixed Earnings Results Mean?

By for Profit Confidential

Market May Be Entering a New Cycle—But Don't Buy Just Yet!Oracle Corporation (ORCL) announced a quarterly revenue gain of three percent, but Wall Street was looking for more and the company’s share price retreated on its earnings results.

If it weren’t for the Federal Reserve, we probably would be in a correction, if not a consolidation, which has been the broader market’s go-to trend when it should have retreated further.

It’s such a mixed bag out there both in terms of economic news and corporate reporting.

While I think dividend-paying blue chips have the advantage going into the second-quarter earnings season, if the Federal Reserve wasn’t so extremely sensitive to Wall Street, this market would probably be a lot lower.

Even the Fed’s recent language is assuaging. If this market had to operate on its own (with free market interest rates and liquidity), things would be a lot different.

But this isn’t the environment we live in. Economic history clearly supports the scenario that it doesn’t pay to fight the Fed and that Wall Street will move mountains when it has Fed certainty.

Lots of investors bemoan the quarterly earnings cycle or game, but I don’t. I want to know a public company’s up-to-date financial results as frequently as possible.

While earnings are managed, over time, a business can’t manufacture success unless it’s a fraud (which, sadly, does happen).

Big companies have the operational leverage and the cash to keep boosting their earnings per share. Oracle’s latest financial results were uninspiring, and while recognizing that this is a very mature business with growing competition in the cloud, the position advanced a material 10 points since last June—this seems so overdone…. 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

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