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

Posts Tagged ‘earnings’

My Top Company for Income and Capital Gains

By for Profit Confidential

Why Every Investor Should Consider a Stock Like This One at This TimeOnce again, Johnson & Johnson (JNJ) has come through for investors. The company just reported a very solid first-quarter earnings report.

Continued strength in the company’s pharmaceutical business is the big reason for the growth. Total global sales grew 3.5% to $18.1 billion, with domestic sales growing 2.2% and international sales growing 4.5%.

Notable in the company’s latest numbers was strength in European sales, which is an emerging trend this earnings season. Johnson & Johnson reported a nine-percent gain in sales to Europe, growing to $4.89 billion during the quarter.

Excluding some one-time items, first-quarter earnings were $4.4 billion, or $1.54 per diluted share, for an increase of 7.8% and 6.9%, respectively, over the same quarter of 2013.

The company boosted its full-year 2014 earnings guidance to between $5.80 and $5.90 per share, up from the previous $5.75 to $5.85 per-share range excluding special items.

After the stock market sell-off in January, Johnson & Johnson’s share price dropped to around $87.00 a share by early February. It has since made a full recovery, now trading close to $100.00.

I still view this company as a position worth considering for a long-term portfolio when it’s down. Typically, the stock isn’t down for long. Its five-year stock chart is featured below:

Johnson & Johnson ChartChart courtesy of www.StockCharts.com

According to its numbers, Johnson & Johnson’s consumer products business is pretty flat, while medical device growth can be volatile. The anchor to the company’s business and its profitability remains pharmaceuticals, but the other business lines are complementary. Instead of just a pure-play large-cap pharma business, the diversification among other product lines helps with cash flow.

Johnson … Read More

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

My Top Energy Pick with Market-Defying Momentum

By for Profit Confidential

My Top Energy Stock Pick for This Slow-Growth MarketThe strength in this market is with oil, as both the spot price and oil stocks are holding up very well.

While the broader market has been experiencing a well-deserved price retrenchment, both large- and small-cap oil stocks have been on the comeback trail. The price strength is helpful as speculative fervor continues to come out of equities. The performance illustrates how helpful sectoral portfolio diversification can be when asset prices fall.

ConocoPhillips (COP) is not expensively priced at approximately 9.5 times trailing earnings. The stock sold off significantly at the beginning of the year but has since recovered nicely. Currently yielding just less than four percent, this oil and gas story is similar to the other big integrated energy companies: it isn’t about production growth but more about income for investors.

One company we’ve looked at several times in these pages is Kodiak Oil & Gas Corp. (KOG). This is a Bakken oil play that’s really doing well. This stock was consistently expensive, being a highly liquid favorite of institutional investors, but earnings have caught up to the share price and the story is still intact. This junior energy producer still has a very bright future. The company’s stock chart is featured below:

 Kodiak Oil And Gas Corp ChartChart courtesy of www.StockCharts.com

Energy consistently has a role to play in equity market portfolios, and it doesn’t have to be pure-play production stories. In terms of resource investing, I find it much more attractive over precious metals, particularly for investors looking for some longevity in their holdings.

In an environment that’s likely to remain slow-growing for several years, I like both the income and capital … 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

Two Big Trends to Emerge This Earnings Season?

By for Profit Confidential

The Two Big Themes This Earnings SeasonLots of companies have broken out of their previous long-term trends on the stock market, and it’s a positive, contributing signal to a secular bull market.

One company that recently beat Wall Street consensus and just broke out of its previous price trend is A. Schulman, Inc. (SHLM) out of Akron, Ohio.

This business deals with resins and plastic compounds. It’s not very exciting, but the company is growing, it pays a dividend, and its corporate guidance is rising.

A. Schulman is one of the few companies that actually file their SEC Form 10-Q commensurate with their earnings press releases. It’s something that’s very much appreciated because this information is typically more in-depth than a plain earnings report. Even if you aren’t interested in the resins and plastics business, what a company like A. Schulman says about its business conditions is helpful in shaping your own market view.

The company just reported solid growth in its second fiscal quarter of 2014 (ended February 28, 2014). Management said that business in Europe is getting better, with noticeable sales gains in the automotive and electronics markets.

Most of the company’s sales come from Europe, the Middle East, and African regions, which is often described by the acronym EMEA. Sales to these countries gained 12% in the most recent quarter to $383 million.

Sales in the Americas grew nine percent to $157 million, but they would have been stronger if not for foreign currency impacts, particularly in Argentina. Management is also de-emphasizing commodity-related sales, which are less profitable. Asia Pacific (APAC) sales grew 67% to $48.4 million, mostly due to an acquisition.

Last … Read More

Stock Market Setting Up for Extended Break?

By for Profit Confidential

Soft Q1 Suggesting Market Set for Extended BreakThe S&P 500 index really hasn’t done much since the beginning of the year but churn…but then again, why shouldn’t it?

For stocks, 2013 was an exceptional year. If we get another positive year on top of dividends, then it’s total gravy.

The capital gains over the last several years have been highly unusual, representative of the gains often seen after a major financial crisis.

There are no bandwagons to jump on in this stock market. Investor sentiment finally had a bit of an awakening over the last several weeks. Big investors booked some profits after the big price recovery in February, which occurred because of verbal reassurances by the new Fed chair, Janet Yellen. If there wasn’t further hand-holding from the Fed, stocks likely would have continued January’s sell-off into a full-blown correction, helped by events in Ukraine.

I’m of the mind that the stock market may take an extended break over the next two quarters, as it’s so often done in the past—probably more of a price consolidation over a correction; top-line growth is still pretty modest.

I’m still a big fan of dividend income and also a higher weighting given to cash within a portfolio context. Very little stands out in this stock market as an exceptional buy. There are some exciting innovations in the marketplace, but valuations for many of these stocks are still way off the charts.

Precious metals continue to prove themselves as an unreliable asset class. Spot prices are stuck and all-sustaining mining costs per ounce are still going up. It’s a tough road ahead for precious metals stocks.

But this is … Read More

One-Third of S&P 500 Companies Report No Revenue Growth

By for Profit Confidential

Why This Is Such a Risky Stock MarketThose who follow the stock market closely know that on days when we hear the chairwoman of the Federal Reserve speak and she mentions something about “easing” or how the central bank will continue to use its “extraordinary measures” for a long period of time, the stock market jumps.

I’ve talked about this phenomenon many times in these pages. Another example of this happened on March 31, when the Fed chairwoman spoke in Chicago. Please see the chart below. It’s a minute stock chart of the S&P 500. I’ve circled a rough area around the time when Janet Yellen spoke.

 SPX S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

As she spoke more of that “easing” talk, the stock market jumped, as usual.

So it has come to the point where the stock market rises when it hears the Fed will keep interest rates artificially low for a prolonged period of time and when a poor jobs report comes out (like last Friday morning’s), saying jobs have been created in spite of the fact that there is a heavy concentration of jobs growth in low-paying sectors and millions of people have given up looking for work.

In other words, we have reached the point where the stock market takes any news as a reason to move higher; this is characteristic of a market top.

When we look at the fundamentals of the stock market, we see companies in the S&P 500 are using financial engineering to boost per-share earnings. These companies have bought back their shares and have been cutting costs to boost profits as revenue growth just isn’t there anymore.

The proof? In the … 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

Markets Asking a Lot from Blue Chips; Can They Deliver?

By for Profit Confidential

Wall Street Earnings are beginning to roll in and quite a few companies are missing Wall Street consensus.

This doesn’t mean, however, that there isn’t growth out there; only that estimates have so far been a little optimistic.

CarMax, Inc. (KMX) is a well-known used-car dealer. The company’s latest numbers were decent, but they came in below what Wall Street was looking for.

Fiscal fourth-quarter sales grew nine percent to $3.08 billion, which is pretty good. Comparable store unit sales grew seven percent in the fourth quarter and 12% year-over-year.

The company had to correct some accounting procedures related to extended service plans and warranties, and it took a hit on earnings because of this.

CarMax is buying back its own stock and just authorized another $1.0-billion repurchase plan that expires at the end of the 2015 calendar year. The stock only dropped marginally on the news.

Another company that missed consensus but is very much a growing enterprise is AZZ Incorporated (AZZ) out of Fort Worth, Texas. We looked at this company last year. (See “Things Are Looking Up! Let’s Hope They Don’t Wreck It.”)

This is a good business. The company manufactures electrical equipment and components for power generation and transmission. Management recently said that business conditions are improving and new quoting activity is noticeably stronger.

Fiscal 2014 fourth-quarter revenues came in at $180 million, compared to $140 million in the fourth quarter of 2013. Earnings were $10.2 million, or $0.40 per diluted share, compared to earnings of $13.2 million, or $0.52 per diluted share.

While the company actually missed Wall Street consensus earnings by $0.02 a share … 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

The Only Company That Will Have a Really Good Year in 2014

By for Profit Confidential

Future Expectations Trump Valuations as Stocks Drive HigherThere’s one company that is likely to have a very good year in 2014.

As my readers will know, the most valuable information going as an equity investor (businessperson) is what an enterprise says about its business conditions. And according to this company, business conditions are looking up.

Acuity Brands, Inc. (AYI) is a well-known lighting company out of Atlanta that serves mostly commercial and industrial markets. The company operates a number of brands, selling through independent agents, electrical wholesalers, and sales reps.

Total sales for the company’s fiscal second quarter (ended February 28, 2014) grew a solid 12% over the comparable quarter to $546 million.

Earnings grew substantially, up 32% in the quarter to $32.7 million. Earnings per share also grew 32% over the comparable quarter to $0.75.

Sales in the most recent quarter actually grew 13%, but this growth was reduced by one percent due to unfavorable currency translation.

Company management cited an improving marketplace for retrofit and renovation lighting applications. Fiscal 2014 should experience mid- to high-single-digit growth over the last fiscal year, with March order rates showing solid improvement.

Acuity Brands actually missed Wall Street consensus on both revenues and earnings, but the stock went up anyway after management said its order trend was improving. The company’s one-year stock chart is featured below:

Acuity Brands ChartChart courtesy of www.StockCharts.com

But even with the relative good news and positive market reaction to the company’s latest results, Acuity Brands remains one expensive stock. And this is the dilemma for a good portion of this market.

Stocks have already gone up. Many good businesses have seen their valuations and share prices … Read More

Blue Chip Stocks Expensive at This Point

By for Profit Confidential

With These Two Blue Chips Pushing HighsThere are a whole bunch of brand-name stocks that recently appreciated back close to their highs, many of which will soon be reporting their earnings.

Despite this fact, however, it still seems like a very difficult environment in which to be a buyer. Stocks just aren’t that attractively priced; in fact, many brand-name companies are priced for perfection. It’s still slow growth out there, and with equity prices at their all-time highs, this year’s returns may only be the dividends, which would just return the rate of inflation at best.

Colgate-Palmolive Company (CL) is a top-performing blue chip with an excellent track record of generating wealth for investors. The stock hit an all-time record-high last fall, and then backed off just like everything else did in January. It has since recovered.

The position boasts a forward price-to-earnings ratio of around 19.5, which makes it fully priced in my books. Sales growth in the first quarter of 2014 is expected to be minimal, and so are comparative earnings.

This year’s revenue consensus averages two percent among Wall Street analysts, rising to 5.4% in 2015.

Great companies like this tend to command higher multiples, as institutional investors pay for the certainty. But comparatively, Colgate-Palmolive commands a much higher valuation than Microsoft Corporation (MSFT), which is a technology company growing at a faster rate.

All things being equal, it makes me think that a blue chip like Microsoft can actually run a lot further than it has recently, playing catch-up to the rest of the market.

It’s interesting how stocks go through their own cycles, both operationally and in terms of favor among … Read More

What These Two Companies Suggest About the Trend in Employment Payrolls

By for Profit Confidential

These Two Companies Suggest Trend in Employment Payrolls RisingEarnings season is here and a number of companies have already reported. Some offer more useful information about the general economy and their earnings are a decent barometer.

Paychex, Inc. (PAYX) is the second-largest U.S. payroll company. It just beat Wall Street consensus on revenues and earnings.

The company said its fiscal third quarter of 2014 (ended February 28, 2014) saw revenues climb seven percent to $636.5 million, which is a very healthy comparable gain.

Payroll service revenues grew five percent to $413.9 million, based on growth in checks per payroll and revenues per check. Human resource service revenues improved 12% to $212.1 million due to client-based growth.

This produced a gain in bottom-line earnings of 11% to $160.1 million comparatively. Diluted earnings per share grew 10% to $0.44, up from the comparable figure of $0.40. Paychex reiterated existing revenue guidance for fiscal 2014. Earnings are expected to be higher than previously forecast.

Decent growth at payroll companies is a positive sign. With an attractive dividend yield of approximately 3.3% currently, this stock has room to tick higher if the broader market doesn’t come apart.

Paychex’s one-year stock chart is featured below:

PAYX Paychex ChartChart courtesy of www.StockCharts.com

Automatic Data Processing, Inc. (ADP) is slightly more than double Paychex’s market capitalization.

This large-cap is trading only a few points from its all-time record-high, and it currently has a 2.5% dividend yield.

The company doesn’t report its next set of earnings until April 30, but in its second fiscal quarter of 2014 (ended December 31, 2013), total sales climbed nine percent to $3.0 billion. (See “Stocks: Why I’m Starting to Favor the Read More

U.S.-Listed Israeli Companies the Next Big Buying Opportunity?

By for Profit Confidential

Three U.S.-Listed Israeli Growth Stocks Worth a LookIsrael has grown to become a key producer of technology and medical devices companies outside of the United States and Canada. We are talking about a very small country of less than eight million people, but which has become known as the “Silicon Valley of the Middle East.”

In fact, after China and Canada, Israel-based companies are the third-most-listed on U.S. stock exchanges as far as international listings, and they may be offering a buying opportunity.

Contrary to companies emerging out of China, Israeli companies have, so far, been quite clean as far as reporting reliability and confidence in the financial results, something that has escaped Chinese stocks that make them untrustworthy to investors. (Read “Chinese Stocks Promise Higher Potential Gains?”)

While there are major big-cap companies out of Israel, such as biotech Teva Pharmaceutical Industries Limited (NUSE//TEVA), there is also an excellent speculative buying opportunity in some of the small-cap stocks emerging from the country.

I have listed three speculative Israeli stock plays that are worth a closer look as a buying opportunity.

In the small-cap technology space, another buying opportunity is Israel-based Magic Software Enterprises Ltd. (NASDAQ/MGIC), which has been providing information technology services for more than 30 years. The company has built ventures with key software partners, including International Business Machines Corporation (NYSE/IBM), Microsoft Corporation (NASDAQ/MSFT), and Oracle Corporation (NYSE/ORCL).

In 2013, the company was ranked 37th on the Deloitte Israel Technology Fast 50 list.

Magic Software is profitable, with higher sequential earnings in six straight years, from 2006 to 2012, prior to a small decline in 2013. The valuation is reasonable at 14.66 … 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

« Older Entries
Financial Reports
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"