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

Posts Tagged ‘Europe’

My Poor Italy

By for Profit Confidential

Why This Stock Market Will Fall Like a RockThis morning came the news that Italy, a country very close to my heart (just look at my last name) and the third-biggest economy in the eurozone, is back in recession.

And Germany, the biggest economy in Europe, saw factory orders in June drop by the most since 2011.

While the financial media has taken the focus off the eurozone over the past couple of years, I have continued to tell my readers about how bad conditions are there. I have the pleasure to travel to the eurozone several times a year. I can tell you first-hand how people there are suffering. Outside of Germany and the smaller, rich countries, jobs in the eurozone are extremely hard to find and wages are very soft.

The European Central Bank’s move to bringing its overnight deposit rate to negative is obviously not having its desired effect of getting banks there to lend out more money. Many eurozone banks are in serious financial trouble. You can’t force a bank to lend money to its customers if the bank is concerned about its own financial health.

With about half of the S&P 500 companies deriving revenue from Europe, it is no wonder American corporations are having trouble increasing revenue. Last week, the eurozone introduced wide-ranging sanctions against Russia because of the Ukraine situation. Russia is Germany’s largest trading partner in Europe—obviously, eurozone companies will feel the pain of the sanctions imposed on Russia.

In the U.S., we were already dealing with an overpriced stock market—a market characterized by heaving corporate insider selling, too much bullishness among stock advisors, the VIX Index saying investors … Read More

Why China Catches My Eye as a Top Opportunity Right Now

By for Profit Confidential

My Top Three Foreign Investment OpportunitiesA few years ago, investors couldn’t get enough of Chinese stocks. This led to numerous frauds committed by crooks in China that has since tarnished the reputation and reliability of all Chinese companies, whether they’re legitimate or not, despite their operating in one of the top growth areas in the world.

While I’m not focused on Chinese stocks at this moment due to better trading opportunities in the domestic stock market, I monitor the country and remain convinced it’s still a key place to have some risk capital invested in. When the broader market understands this, I would expect renewed buying in Chinese stocks sometime in the future.

My view is that the country’s current leadership under President Xi Jinping, who assumed power in March 2013, has a vision to create a country of consumers, just like the United States; albeit, I doubt it will come close to what we see here with consumer spending driving 70% of gross domestic product (GDP) growth. In China, consumer spending drives about 30% of GDP so there’s work to do. In the second quarter, retail sales continued at a double-digit growth of 12.4% year-over-year.

The objective to cut the country’s dependence on exports and foreign investment makes sense. With a potential market in excess of one billion people, it’s the right move.

China may not be in the spotlight for investors now, but you cannot ignore the country. With the recent years of underperformance, I see great longer-term upside in Chinese stocks.

The Chinese economy is growing at well below the double-digit growth of the past, but comparatively, the growth is far superior … Read More

Why These Stocks Are a Leading Indicator of the Market and What They Foresee Now

By for Profit Confidential

Why the Cycle in Transportation Stocks Isn't Over YetIt’s no surprise that the railroad business is doing well. We’ve been looking at Union Pacific Corporation (UNP) and other railroad stocks consistently in these pages for a number of years.

But not only are pure-play railroads doing well, offshoots within the industry are also booming.

It’s a good time to be in railroad stocks, and if you believe that the economy is ready to experience a new business cycle like I do, then these stocks have a lot more legs in this market.

I still like Union Pacific and Canadian National Railway Company (CNI) both for capital gains potential and income for investors.

The railroad business isn’t complicated. If there is demand for the shipment of freight, railroad companies add railcars. Accordingly, a company that manufactures railcars and other related products is likely doing pretty well considering how strong railroad stocks have performed over the last several years.

The Greenbrier Companies, Inc. (GBX) is a company we’ve looked at before. This business is headquartered in Lake Oswego, Oregon and business conditions are pretty good.

The company manufactures railcars for the North American market as well as Europe. But it’s not just a pure-play railcar supplier; the company makes barges for marine transportation and also sells specialized industrial fabrication for electrical, construction, and energy customers.

A lot of stocks related to the transportation/freight/railroad industry are doing great. The Greenbrier Companies is riding a wave of new manufacturing demand, and the stock just hit a new all-time record-high after reporting another great quarter. (See “Why These Four Rail Picks Are on My Radar.”)

According to the company, its bottom-line … Read More

Coffee Wars Intensify on Stock Market as Coffee Prices Rise

By for Profit Confidential

Top Three Stocks to Profit as Coffee Prices RiseIf you cannot get through the day without that cup of coffee, you may need to prepare to spend a little more to get it.

Coffee prices have been surging, up more than 30% year-over-year. The cost to have that morning cup of java has edged higher, but not at the same rate as the cash price of coffee.

The coffee industry is a multibillion-dollar industry in the United States and is a competitive marketplace, but at the top of the coffee heap is Starbucks Corporation (NASDAQ/SBUX), which has developed into an iconic brand both domestically and worldwide. In Asia, Europe, and Latin America, no matter where you are, it seems there’s a Starbucks near you. In China, the brand is rapidly growing, and the company plans to expand in this region with thousands of outlets.

Starbucks has also expanded into providing more menu alternatives and is involved in the tea market via its acquisition of the Teavana chain. The company is also marketing juices and operates a small chain of hamburger outlets in California.

For long-term investors, you cannot go wrong with Starbucks, which could serve as a good core holding in your portfolio.

 Starbucks Corp Chart

Chart courtesy of www.StockCharts.com

However, in the traditional coffee and donut market, the top player at this time is the “Dunkin Donuts” chain, operated by Dunkin Brands Group, Inc. (NASDAQ/DNKN). The company also operates the “Baskin-Robbins” ice cream chain. Unlike Starbucks, Dunkin is primarily a U.S. brand that doesn’t have much recognition outside American borders; albeit, the company is looking to expand to the United Kingdom via the planned opening of 50 outlets in Greater … Read More

Long-Term Growth Opportunities Abound in This Sector

By for Profit Confidential

My Top High-Flying Long-Term Growth OpportunitiesThe global airline sector is probably at its brightest point in history, having seen a significant improvement following the effects of 9/11 that nearly killed the industry.

The factor that’s pushing up the airline sector has been the renewal in the global economy, particularly the massive buildup of newfound wealth in the emerging markets in Asia, Latin America, and Eastern Europe. The growth is especially strong in Asia, as China continues to develop a significant middle class and consumer generation who want to spend and travel both domestically and internationally.

Future prospects look bright for the airline sector and are on target for higher profits for the second straight year, based on research by the International Air Transport Association (IATA). North America is estimated to retain its top spot in the airline sector, but the Asia-Pacific region is a fast-growing second. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)

China is estimated to require 5,000 new planes over the next two decades. The key plane makers fulfilling the need will be The Boeing Company (NYSE/BA) and Embraer S.A. (NYSE/ERJ). Yet China is aggressively developing its own domestic plane for the airline sector called the “COMAC,” which is expected to launch its first regional airliner soon and has plans to deliver longer-range planes by 2018.

The S&P Aerospace & Defense ETF (NYSEArca/XAR) is near its highest levels in a year and is trading in an upwards channel, based on my technical analysis of the chart below.

SPDR S&P Aerospace & Defense ETF Chart

Chart courtesy of www.StockCharts.com

While … Read More

This Stock’s Earnings Report Most Valuable News for Investors?

By for Profit Confidential

According Stock There's  Bright Light U.S. EconomyA lot of earnings results from multinational corporations revealed improving growth in the international markets, including Asia and, surprisingly, Europe. But one company just reported the reverse and its first-quarter numbers were excellent based on strong domestic demand for its products.

Cummins Inc. (CMI) hit it out of the park with a 25% comparative gain in North American sales, while the company’s international sales were basically flat. Diluted earnings per share grew 23% in the first quarter of 2014; the company bought back three million of its own shares.

The company increased its full-year guidance based on improving domestic demand, and the stock soared on the news.

Citing lower demand for power generation and mining equipment, particularly in India and Australia, the weakness was offset by strong demand for engines (sales up 11% to $2.6 billion) and components (sales up 21% to $1.2 billion) in North America and to a lesser extent in Europe and China.

The company expects full-year 2014 sales to grow by six to 10% over 2013. This is new guidance, up from the previous expectation of sales growth between four and eight percent, based on improving North American demand.

A number of Street analysts boosted their earnings expectations for Cummins for 2015; the bottom line is expected to grow a little more than 20% (currently 17% for this year over 2013). That is very strong earnings growth for a $28.0-billion company in a mature industry.

Cummins’ 10-year stock chart is featured below:

Cummins Inc ChartChart courtesy of www.StockCharts.com

Every company and industry has its own particular set of circumstances, but it’s material what large manufacturing corporations say about … Read More

How to Profit from the Crimea Conflict

By for Profit Confidential

What the Crimea Tensions Mean for U.S. InvestorsThe eurozone and Europe are showing progress in finally getting out of their dismal multiyear double-dip recession; however, the uncertainties and hostilities unfolding in the Crimea region of Ukraine, which are threatening to escalate, could put a damper on the economic renewal in Europe.

With the recent vote in Crimea, whether legal or not, Russia has quickly passed a resolution and signed a treaty to annex Crimea to the Kremlin. The current buildup of Russian troops inside Crimea is a big concern, especially if a military conformation breaks out.

We are already seeing rising economic sanctions against Russia from the United States and countries in Europe. This is worrisome, as it could easily derail the economic renewal in Europe at this most critical time, stalling the region’s growth due to the major trading between Russia and Europe. A big impact could be the staggered flow of oil from Russia into Europe, which currently accounts for about 40% of the oil imports from Russia.

While I don’t think Russia will immediately cut the oil flow into Europe, as Russia also needs the oil revenues, I do expect Europe will look for alternative oil sources if the sanctions increase and tighten against Russia. If this were to occur, it could really hurt the country’s oil companies and the Russian economy overall.

Moreover, there’s also the retaliation from Russia, which would likely have an impact on Europe and potentially the global economy. The crisis comes at a critical time, as the eurozone is looking at gross domestic product (GDP) growth of 0.5% in the first quarter—a three-year high.

It’s clear something bigger may … Read More

How Gold Has Caught Me by Surprise

By for Profit Confidential

How Tensions in Crimea Are Changing My Gold Investment StrategyI must admit that I’ve been somewhat caught off guard by the strong rally in gold so far in 2014. The yellow ore has been on a nice upward push towards the $1,400-an-ounce level; it could even take out this level and head towards some tough resistance around $1,425–$1,450.

While the rally appears to be holding, I still only view the yellow precious metal as a trade, and not a buy-and-hold for investors at this time. I would be selling into further weakness if you are holding gold or any related stocks.

What I think is driving the upward move in gold prices is the associated cautious moves in the stock market and the geopolitical tensions triggered by the situation in Crimea. If stocks can regain their enthusiasm, I would expect a retrenchment in the precious metal as money is shifted out. (Read why I feel stocks are heading higher in “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”)

My past contention was that gold was a trading opportunity. Back in late 2013, I saw a bearish “head and shoulders” formation on the chart, after which prices fell towards support at $1,200. The oversold nature was supportive of a bounce on the charts, but the gains so far this year have been much more than I would have expected, largely due to the uneasiness in equities so far.

The precious metal could see more buying should the tense situation in Ukraine and Crimea escalate following the vote on Sunday that could lead to Crimea separating and joining Russia. While there has yet … Read More

U.S. Income Disparity Hits Highest Level Since 1920s Britain

By for Profit Confidential

How the Rich Have Gotten Richer in This EconomyIn today’s U.S. economy, we have a very small portion of the population earning most of the total income generated by the economy, while the majority of people suffer, as their incomes have failed to rise at the pace of the rich.

According to a study by the Paris School of Economics, the richest 0.1% of Americans takes home nine percent of the U.S. national income. The bottom 90%, which is pretty much everyone else, earns just 50% of the national income. (Source: MarketWatch, February 26, 2014.)

Income inequality in the U.S. economy is worse now than it was during the 1920s in Great Britain.

Aside from income inequality, the other big problem with the U.S. economy is that the majority of Americans simply don’t have liquid wealth. Liquid wealth is assets that can be quickly converted into cash if needed (a home is not considered liquid).

According to Phoenix Marketing International, 25% of U.S. households hold about 75% of the liquid wealth in the U.S. economy. (Source: Phoenix Marketing International, January 16, 2014.) The U.S. is becoming more and more like Europe, where there are the very wealthy and the very poor. The middle class, who should be the backbone of the American economy, well, they have all but disappeared.

Consider that in December of 2013, 22.7 million households in the U.S. economy used food stamps. Not long before then, in 2010, that number was 20.6 million households. (Source: U.S. Department of Agriculture, March 7, 2014.) And that’s after the U.S. government cut back on food stamps funding!

For economic growth, you need personal incomes rising at … Read More

Upside for Oil Appears Limited, but Investments in Oil Markets Aren’t

By for Profit Confidential

Why I Believe the Upside for Oil Is LimitedOil prices have rallied back to the $100.00-per-barrel level on some near-term supply and inventory concerns.

While the upside move is rewarding the buyers of oil stocks, I don’t think oil prices are set for an extended rally.

The chart of the West Texas Intermediate (WTI) crude oil shows oil prices bouncing higher after the formation of a bullish double bottom, based on my technical analysis. And while oil prices can head higher on the chart, I just don’t see any moves being sustainable.

Light Crude Oil ChartChart courtesy of www.StockCharts.com

The catalyst for higher oil prices has more to do with tight inventories driven by a rise in demand. The inventory of oil contracted by 1.5 million barrels per day in October to December 2013, according to the International Energy Agency (IEA). The IEA suggests the demand for oil will rise by 50,000 barrels per day to 1.3 million barrels in 2014. (Source: Johnson, C. and Sheppard, D., “Robust demand tightening oil market, IEA says,” Reuters, February 13, 2014.) If this estimate pans out, oil prices could edge higher and hold above $100.00, but I doubt the move will last that long.

Now, if China jumps out of its sluggish growth (read “Investment Opportunities in Depressed Chinese Stocks”) and Europe can drive its economic renewal, then we could see brighter prospects for oil prices.

On the supply side, America is relying less on the Organization of the Petroleum Exporting Countries (OPEC) and foreign oil as American oil companies continue to squeeze more oil out of the ground, specifically shale oil.

There may even be a time down the road when … Read More

Stock Falling, but Rich Still Spending; My Top Luxury Stock Play

By for Profit Confidential

Why This Luxury Retailer Is Simply the BestThe stock market is in turmoil and looking for help from buyers. While some are calling for investors to run to the exits, I look at weakness and market chaos as a buying opportunity.

It’s simply unrealistic to think that all stocks deserve to fall during a market adjustment like what we are seeing at this time. There are good companies out there that will stage a strong rally when the tide in the stock market turns.

In the retail sector, we saw a gasp of air from troubled J. C. Penney Company, Inc. (NYSE/JCP), as the former retail sector and Wall Street darling struggles to stay afloat. With about $2.0 billion or so of liquidity left, it’s going to be a race against the clock. J. C. Penney reported a 3.1% jump in comparable-store sales during the holiday shopping season, which is a good result for this turnaround play. (I’d rather stick with these two contrarian retail sector plays, though, which you can read about in “These Retail ‘Screw-ups’ Could Turn Things Around This Year.”)

My top luxury play in the retail sector, as many of you know, is Michael Kors Holdings Limited (NYSE/KORS).

In November 2013, I wrote, “The chart of Michael Kors shows the steady upward trend in the stock since the beginning of 2012. There is some congestion and resistance at this time…but we are seeing a bullish ascending triangle and a possible upside breakout on the horizon, based on my technical analysis.” The stock was up 20% Tuesday morning. (Read “My Favorite Pick Among the Luxury Brand Stocks.”)

It’s obvious why … Read More

Strategies for Defending Your Portfolio in a Down Market

By for Profit Confidential

What Investors Can Learn from the Super BowlIf you watched the boring Super Bowl game on the weekend, you’d have realized that a strong and superior defense can go a long way against a sound offense. But the battle in the trenches was easily won by the defense, and it’s an analogy I use in my trading strategy.

January ended on a sour note, being the first down month since August 2013. With the losses, we are now witnessing an uprising of the bears suggesting 2014 will be a negative year for the stock market. This reasoning is based on the Stock Traders’ Almanac that suggests there is a 46% chance of losses this year. I’m not convinced the stock market is heading lower, but the current stalling and inability of the stock market to move higher is a red flag. Despite an extremely oversold technical condition, I have yet to see any signs of strong buying support emerge—and in my view, this is worrisome and likely means more losses.

The irony in January was that the S&P 500 and Dow Jones Industrial Average actually lost more ground than the higher-risk NASDAQ and Russell 2000, which only lost 1.76% and 2.89%, respectively.

The key will be to watch how the S&P 500 reacts at its key support levels around 1,750 to 1,775. We already saw a bounce off this level, and now the index is staging a retest. As I have said in a recent commentary, failure to hold could see the index fall to 1,700, based on my technical analysis.

The stock market is failing to see any major positive catalyst. Earnings season has been average … Read More

Why Copper Prices Are Collapsing

By for Profit Confidential

Economic Growth Falls to 2009 LevelCopper prices are collapsing, a sign that manufacturing activity in the global economy is slowing.

The chart below shows copper prices are down more than five percent so far this year. Notice the steep decline in copper prices starting this January.

Copper is a major commodity used as a material ingredient in a wide variety of manufactured goods. If copper prices are declining, which means demand is falling, we get an early indication that manufacturers are producing less because customer demand is soft.

At the same time, in another startling development, the Baltic Dry Index (BDI), the next chart below, has collapsed 50% from the beginning of the year.

Copper - Spot Price (EOD) Chart

Chart courtesy of www.StockCharts.com

The BDI basically tracks shipping prices of raw materials in the global economy. When the BDI declines, it means fewer goods are being shipped in the global economy, a sign that the worldwide economy is slowing.

Baltic Dry Index (EOD) Chart

Chart courtesy of www.StockCharts.com

Last but not least, as we have been hearing in the news, the emerging markets in the global economy are in trouble.

Manufacturers in the global economy, not being able to sell enough to developed countries like the U.S. and Europe, were hoping to sell more of their goods to once “fast”-growing emerging markets. But now, economic growth in these countries is slowing, too.

Russia, one of the major emerging markets in the global economy, reported its 2013 economic growth rate was the lowest since 2009! The Russian Federal Statistics Service said the economy grew by 1.3% in 2013 compared to 3.4% in 2012. (Source: Bloomberg, January 31, 2014.)

Other emerging markets like India and China have … Read More

Emerging Market Chaos an Opportunity for Investors?

By for Profit Confidential

Opportunities Left for Investors in These MarketsIt’s amazing how investors here are nervous the Federal Reserve will eventually need to ratchet up interest rates from their current near-zero level.

Turkey’s central bank jacked up its interest rates to a whopping 12% from 7.75% in an effort to fight inflation and avoid a currency meltdown driven by our own Fed’s policies.

Years ago, there was distress in the global stock markets after currencies in the emerging markets began to tank. Of course, this is not good, as a weaker currency means less buying power by these emerging economies, which translates into less demand for goods made in industrial countries such as the United States and Europe. (Read “Time to Start Shifting Your Investment Strategy Overseas?”)

Now we are seeing some excessive selling in some emerging market currencies on concerns of further tapering by the Fed. The reason is that cheap money pumped by the Fed means lower U.S. bond yields, which forces American investors to look globally for higher yields and growth found in the emerging markets.

We are hearing about the vortex that will engulf the emerging markets and suck out the capital, creating a mass exit from these regions and driving chaos in the global markets.

While I agree the risk in the emerging markets is there, I doubt we will see a financial Armageddon surface. In fact, my feeling is I would be looking at buying the emerging markets on extreme weakness. These regions are becoming wealthier and have money to spend. For growth investors, I see a potential buying opportunity rather than a scramble for the exits.

As many of you … Read More

Recent Sell-Off in Apple Stock an Opportunity?

By for Profit Confidential

Apple Needs to Forfeit Margins in Favor of Market ShareApple sold a whopping record 51 million “iPhones” and 26 million “iPads” in its fiscal first quarter, which is great stuff at first glance. So why did investors scramble for the exits?

The problem is that the market expectations placed on Apple are enormous. But that’s what happens when you’re the top seller of smartphones in the United States. Wall Street wanted to see the company sell 55 million iPhones, so its four-million-unit miss was a disappointment.

What’s failing the company is its reluctance to sell a really cheap iPhone that caters to the emerging markets, which is, in reality, where much of the growth is for smartphones.

Apple has a deal with China Mobile Limited (NYSE/CHL) to mass market its phones in the massive Chinese market, where there are more than 750 million users. (Read “Apple Finally Takes Step That Will Take the Company to the Next Level.”) But while the deal was only recently formalized, the early indications are that sales of the iPhone in China aren’t all that great.

The problem is (as I have discussed on numerous occasions) Apple’s reluctance to sell a cheap iPhone. Price points are critical when selling products in the emerging markets, so the lack of a cheaper offering from the company will hurt its sales in China. China is not like America, Japan, or Europe as far as available discretionary income. When the per-capita income in China hovers around US$6,500 or so annually and Apple wants to charge $600.00-plus for an “iPhone 5S,” there’s clearly a disconnect.

CEO Tim Cook doesn’t seem to get it or it’s simply an … 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"