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

Posts Tagged ‘institutional investors’

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

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

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

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

Microsoft’s Deal with Apple a Lucrative Move?

By for Profit Confidential

Microsoft Impressing Investors with New FocusThe business climate appears to be changing at Microsoft Corporation (NASDAQ/MSFT), as the company attempts to evolve from its roots as a maker of operating systems for personal computers (PCs) to a more dynamic business focused on the surging mobile sector.

It has been a long time coming for this former Wall Street star. Out with former Microsoft CEO Steve Ballmer and his lack of vision and execution in acknowledging the significance of the mobile sector. The new leader at the helm, Satya Nadella, appears to be steering Microsoft out of troubled waters and into the new realm of mobile.

The stock is at a new 52-week high and looking higher on the charts—finally rewarding shareholders and institutional investors after years of miscalculations.

Instead of focusing on the “Windows” operating system and PCs, Microsoft has shifted its focus to smartphones, tablets, entertainment gaming consoles, and now, it’s creating applications that could be used on the Apple Inc. (NADSAQ/AAPL) “iPad.”

Microsoft announced it would be offering as a downloadable app from the Apple App Store its widely used “Office” suite, which includes the popular “Word,” “Excel,” and “PowerPoint” applications. This strategy is a sharp contrast to the past years, when Microsoft was battling Apple to sell smartphones and tablets. Now having recognized the fact that Apple is tops, Microsoft is looking to build apps for the iPads and harness the hundreds of millions of users.

A smart move by Nadella and based on the share price, the stock market is pleased with the new direction.

Of course, Apple also benefits, as the company will receive 30% of the fees paid for … Read More

New Transportation Growth Story Worth Following

By for Profit Confidential

These Stocks a Kink in Bearish SentimentIf there’s one industry sector that’s volatile, cyclical, often unprofitable, and typically attracts poor consumer ratings, it’s the airline sector.

But this group of transportation stocks is a powerful indicator. Airline stocks move at the beginning of bull markets and new business cycles. The airline sector has been on fire lately.

A top performer and recent new listing is Spirit Airlines, Inc. (SAVE). Based out of Miramar, Florida, Spirit Airlines is a low-fare operator flying to 50 destinations in the U.S., Latin America, and the Caribbean with some 250 flights per day. The stock was listed May 26, 2011.

This is a growth story that could not have been timed more perfectly. The stock is soaring based on strong growth in revenue passenger miles and improving load factors. It’s a momentum stock you should have on your radar now.

Airline stocks are very good at losing money, but not at the beginning of a new business cycle, which I believe is where we are at this time.

The fact that most airline stocks have been appreciating strongly on the stock market based on real, underlying economic growth is a big positive. If airlines are making money, the bears face another big obstacle.

As mentioned, Spirit Airlines is a growth story. The company is generating the kind of numbers you might associate with a fast-growing technology stock. This is a story of the right business in the right place at the right time. The company’s stock chart is featured below:

Spirit Airlines ChartChart courtesy of www.StockCharts.com

Spirit Airlines generated fourth-quarter 2013 revenues of $420 million, representing a gain of 28% over the same … Read More

Key Market News You Can Trade Off

By for Profit Confidential

The Key Attribute That Makes Biotech Stocks Big WinnersEndocyte, Inc. (ECYT) is a micro-cap biotechnology company that just doubled in value on the stock market.

The company’s experimental cancer drug, originally targeting ovarian cancer, is being developed in concert with Merck & Co., Inc. (MRK), which licensed the drug’s development a while ago for an upfront payment of $120 million.

This is exactly the way a small biotechnology company should develop.

Biotechnology is big money and a favorite of institutional investors. Equity portfolios are well served by having some exposure to this sector, but only with a small allocation because these stocks are 100% risk-capital securities.

The universe of biotechnology stocks is vast and like commodities, they move with their own particular brand of mania.

If you come across news of a large pharmaceutical company licensing a much smaller company’s drug candidate/technology, then it’s worth putting the opportunity on your radar. Drug development expenses are so significant (and time-consuming) that sharing the costs and potential rewards is a worthwhile corporate strategy. And by doing so, the pharmaceutical company with deep pockets helps to legitimize the story, thereby attracting a whole new set of investors.

Not surprisingly, Endocyte moved higher after its original licensing deal with Merck. But afterward, the stock traded sideways for quite a while as the drug development phase took its course. The company’s one-year stock chart is featured below:

 Endocyte Inc Chart

Chart courtesy of www.StockCharts.com

Biotechnology investing is a unique endeavor, as the business model is much different than traditional enterprises. The risks are significant, and speculating in this sector is not appropriate for conservative portfolios.

As Endocyte illustrates, it can take a material amount of time … Read More

Risk vs. Reward: Is It Time to Cash Out of This Bull Market?

By for Profit Confidential

Time to Cash Out of This Bull MarketEver since Janet Yellen, the new Chair of the Federal Reserve, made her first speech reiterating a stay-the-course policy regarding monetary policy, stocks got a whole new lease on their financial life.

This market is holding up extremely well, and the action proves that institutional investors will bid stocks if there is certainty. It’s a bull market characteristic. So long as Fed policy stays the course (which includes the tapering of quantitative easing) and there are no major external shocks, the “great reflation” should continue, if not more modestly than last year. (See “Making Sense of the U.S. Economy in 10 Short Points.”)

Fighting the Fed as an investor in stocks is typically not profitable. The current business and monetary cycles are going to change, but it’s not going to happen overnight.

The first quarter of 2014 is almost over and another earnings season is on the horizon. While quarterly earnings results are managed, after monetary policy, corporate numbers are the big news.

Playing a market that’s at an all-time high is extremely difficult. Price momentum can often surprise with its duration, especially in an environment of tremendous monetary ease.

But practically, it’s difficult to consider loading up on new positions after a five-year period of very respectable capital gains from the March low in 2009.

Optimism is a key attribute for any successful entrepreneur, and the expectation for positive outcomes is most certainly a real component of capital markets, especially with stocks.

My sense is that first-quarter earnings results will be quite lackluster, with domestic companies especially reflecting a tough winter.

Buying stocks is all about the … Read More

Contrarian View: Is the Bull Market Really Just Beginning?

By for Profit Confidential

Did the Current Bull Market Really Start in 2013There is some resilience to this stock market, and it’s evidenced by the strength in many important indices.

The Dow Jones Transportation Average is a very important index, even if you don’t own—or aren’t interested in owning—any component companies. The reason for its importance is that it has a track record of leading the rest of the stock market. And it’s especially useful as an indicator of a bull market breakout.

Transportation stocks have a history of leading the economy and the stock market. Dow theory, in my view, is alive and well, and it’s worthwhile to track the index to help with your overall market view.

Lots of commentators view the stock market as having been in a bull market since the March low of 2009. I don’t see it that way.

I view the stock market’s performance since that low (no matter how it was induced) as a recovery market, not the beginning of a new secular bull market or cycle for stocks.

The breakout, from my perspective, was around the beginning of 2013, when institutional investors ignored all the risks (including the inability of policymakers to actually make policy) and decided to bid blue chips and transportation stocks with particular fervor.

The previous stock market cycle was a 13-year recovery cycle from the technology bubble that produced over-the-top capital gains until 2000. The stock market recovered from the massive sell-off only to be hit by the financial crisis and Great Recession.

A long-term chart of the S&P 500 is featured below:

$SPX S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Last year’s stock market performance was genuinely stunning; while the monetary … Read More

Three Steady Stocks to Balance High-Flyers & Boost Your Returns

By for Profit Confidential

Solid Portfolio Needs Some Steady Growers Like These Three StocksLots of companies are still reporting their financial results, and there are a lot of unique stories out there that are worth following.

AAON, Inc. (AAON) reports this week. We’ve looked at this enterprise several times before in this publication. Company management has an impressive track record of generating consistent growth.

It will be interesting to see if the company can keep its operational momentum. (See “Why This Company Should Be a Case Study in Business Schools.”) Over the medium- to long-term, it’s proven unwise to bet against this well-managed business.

Last year in these pages, we briefly highlighted a very interesting medical device company called Globus Medical, Inc. (NASDAQ/GMED). Based out of Audubon, Pennsylvania, the company specializes in the treatment of spinal disorders and is building its business in a very consistent and methodical way.

The stock stumbled in the fourth quarter of 2012 but has been moving solidly higher as management delivers modest but consistent growth in revenues and earnings.

The company’s two-year stock chart is featured below:

GMED Globus Medical, Inc. NYSE Chart

Chart courtesy of www.StockCharts.com

Stocks with consistent share price performance are golden, and it comes on the back of consistent operational growth. It doesn’t have to be runaway growth or even double-digit growth; institutional investors love medical device stocks, and they will bid them as long as a company delivers on expectations.

Any stock can break down at any time for a multitude of reasons, but I’ve seen so many consistently returning stocks produce better capital gains (over a longer period of time, of course) than many high-flyers.

It’s not that high-flying trades aren’t worth pursuing; rather, within … Read More

Former Momentum Stocks Signpost to Sell?

By for Profit Confidential

Price Momentum Suggests Portfolio RebalancingA good amount of speculative fervor has come out of this market so far this year, but there’s still quite a bit of valuation froth around.

Across the board, 3D-printer stocks have come back. 3D Systems Corporation (DDD) still boasts a trailing price-to-earnings (P/E) ratio of around 150.

Tesla Motors, Inc. (TSLA) is still going strong. It’s one of few super-hyped stocks that made a strong recovery in January after a material sell-off months before. (See “Buy High, Sell Higher: Top Investment Strategy for Buoyant Markets?”) The position just bounced off $265.00 per share. Next year, Wall Street estimates the company will do more than $5.0 billion in sales.

Looking at the stock market currently, there’s a lot of indecisiveness and geopolitical events are overshadowing the action.

Watch large-cap biotechnology stocks (or the NASDAQ Biotechnology Index) for their trading action specifically. This group of stocks reaccelerated strongly in February and is very much overdue for a material correction.

I’ve noticed several key momentum stocks within the group have started rolling over. This should be a strong contributing indicator to the short-term action unrelated to specific events happening in Ukraine.

Gold is holding up well with the geopolitical tensions, and oil prices are too, but to a lesser degree.

Stocks are due for a break. What looked like the makings of a material correction in January, equities reversed direction after the Federal Reserve, once again, reiterated its willingness to be highly accommodative to capital markets.

This kind of market (after such a strong 2013 for stocks) warrants a significant degree of caution. I wouldn’t be jumping onto any bandwagons. … Read More

Strong Balance Sheets, Fed Liquidity; What’s Not to Love About This Stock Market?

By for Profit Confidential

Things Looking Rosy for the Stock MarketThere is a lot of liquidity out there, and all kinds of stocks are experiencing significant price momentum.

It’s a bull market still, and no matter how long it has to run, it seems that valuations aren’t as important as owning the right stocks for institutional investors. Countless names have fought back in price from recent sell-offs and are now pushing new record-highs once again.

These stocks include Netflix, Inc. (NFLX), priceline.com Incorporated (PCLN), and Google Inc. (GOOG), among others. You could buy a basket of these stocks and if nothing were to change in terms of monetary policy, they probably would be higher in a month’s time.

But while momentum remains strong and existing winners keep outperforming, stocks haven’t really experienced a material price correction in more than two years and because of this, investment risk remains high.

Previously in these pages, we looked at some top-ranked biotechnology stocks that continue to be tremendous wealth creators for shareholders. (See “Can the Rally in Biotechs Keep Its Momentum?”) But their amazing price-performance also illustrates the froth in the stock market. While speculative fervor for initial public offerings (IPOs) has diminished since the beginning of the year, existing winners just keep on plowing higher.

Investor sentiment can always change on a dime, but it needs a catalyst to do so. This could include a change in monetary or fiscal policies, a geopolitical event, a derivatives trade gone bad, currency destabilization—the list is endless.

The Federal Reserve recently gave the marketplace the certainty it was looking for: quantitative easing is going to continue to be reduced and short-term interest rates … Read More

How to Profit from Institutional Investors’ Unwavering Love of These Stocks

By for Profit Confidential

One Sector Institutional Investors Love and You Should Know Everything About“Outback Steakhouse,” “Carrabba’s Italian Grill,” “Bonefish Grill,” “Fleming’s Prime Steakhouse and Wine Bar,” and “Roy’s” are all owned by Bloomin’ Brands, Inc. (BLMN). With 1,500 restaurants in the U.S. and 21 other countries, business for the company is solid.

Fourth-quarter sales grew 5.1% to $1.1 billion due to new restaurant openings and an increase in comparable restaurant sales. The company opened 15 new locations during the quarter and completed 36 restaurant renovations. This resulted in bottom-line earnings of $59.0 million, or $0.46 per share (with a one-time gain), or $34.2 million, or $0.27 per share, on an adjusted basis for a 35% gain over adjusted earnings in the same quarter of the previous year.

The company’s shares rose 12% on the earnings report.

If there’s one restaurant stock that continues to amaze with its share price performance, it’s Chipotle Mexican Grill, Inc. (CMG). This stock has more than doubled over the last 16 months and, while expensively priced, is still a powerhouse of growth.

The company’s earnings estimates have continued to increase since I last wrote about the stock in October. (See “Two Old Restaurant Stocks Offer Investors Growth.”) Fourth-quarter 2013 revenues grew 21% to $844 million, which is a huge accomplishment, all things considered.

Fourth-quarter earnings grew 30% to $80.0 million. The cost of food is the company’s single largest expenditure at 34% of total sales, followed by labor at 23%. Fourth-quarter comparable restaurant sales grew 9.3% and there were 56 new locations for a total of 1,595.

Anything double-digit is a big deal in today’s world, and you can find it in the right restaurant stocks. … Read More

Simple Daily Task Could Yield More Profitable Trades

By for Profit Confidential

Could One Simple Daily Task Really Boost Your Profits Enough to NoticePlaying turnaround situations is a tough thing to do in the stock market. If a company’s share price experienced a material price retrenchment, it’s usually done so for a very good reason. Penny stocks are that way not because they want to be.

It’s useful scanning the market for 52-week lows and 52-week highs; the process of doing so helps in the generation of lists of stocks for further research.

One company that just experienced a major price reversal on the stock market is Strayer Education, Inc. (STRA). This company provides postsecondary education and degrees online and on campus, and offers executive Master of Business Administration degrees in collaboration with the Jack Welch Management Institute.

The company’s share price bounced off a 52-week low, soaring approximately $13.00 a share to just over $47.00 after announcing 2013 fourth-quarter earnings that substantially beat the Street. Strayer Education’s one-year stock chart is featured below:

Strayer Education ChartChart courtesy of www.StockCharts.com

Big price moves like this on the back of much higher-than-average trading volume are worthy of further examination as a potential turnaround trade. A stock market speculator could have bet on the company’s earnings results, but this would’ve been total guesswork and an enormous risk. A better bet might be one directly related to the price reversal’s continued momentum on a near-term basis.

Strayer Education said that its fourth-quarter revenues fell 13% to $124.1 million compared to $141.9 million for the same period in 2012. The company experienced higher revenues per student but lower enrollment.

2014 winter term student enrollment dropped 14% to 41,098 students and company management implemented a restructuring of campus operations, … Read More

Buy High, Sell Higher: Top Investment Strategy for Buoyant Markets?

By for Profit Confidential

Momentum on Your Side in Buoyant MarketsTesla Motors, Inc. (TSLA) has been an excellent trade. The position has recovered strongly and is a very good example for traders who speculate on changes in investor sentiment.

Trading a stock like Tesla is about price momentum as much as anything. And every business, no matter how successful or fast-growing, experiences operational difficulty. This creates opportunity for a trader who is comfortable going against the market.

Tesla ran into problems with its “Model S” and was required to do a recall to help prevent battery fires after an accident. It was a short-lived but perfect storm in investor sentiment, which created an attractive new entry point for traders. (See “The Stock Everyone Is Talking About; How Much Higher Can It Go?”) The company’s stock chart is featured below:

 Tesla Motors INc ChartChart courtesy of www.StockCharts.com

While many investors/traders are attracted to low-priced or penny stocks for their turnaround potential, these stocks are usually down for a reason. In buoyant, highly liquid capital markets like we have today, a buy-high/sell-higher type of strategy can pay off.

The risk is that the price momentum ends, whether it is due to a material corporate event or a general decline in speculative fervor. Biotechnology stocks as a specific stock market sector are particularly prone to strong price momentum because of the strong participation from institutional traders.

Tesla is now a $24.0-billion company. The position didn’t do that much after listing, then it just exploded with extremely strong price momentum on much higher-than-average volume.

As a research strategy, scanning the stock market for new highs can yield some very good trades and/or stocks worth following … Read More

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