Posts Tagged ‘institutional investors’
The stock market has an underlying strength to it, seemingly only to be undone by geopolitical events. Fed action always has the potential to shock the system. Negative economic news isn’t fazing this market.
On the back of a pretty decent second quarter, many corporate outlooks predict another year of decent growth, particularly with earnings.
While the stock market retrenched recently, positive days are still led by the Dow Jones Transportation Average, the Russell 2000 Index, and the NASDAQ components, which are traditionally positive for broader sentiment.
Some speculative fervor has come back to two stock market sectors that are traditionally volatile—biotechnology stocks and restaurant stocks.
But there really isn’t an underlying trend to latch onto. Jumping on the bandwagon of risky stocks seems unwise considering the stock market is at an all-time record-high.
This is a market where equity investors have to be highly selective and wait for the right opportunities to present themselves, if you’re considering new positions at all.
This can be in the form of a specific sector theme (like oil and gas, for example) or looking for good companies that have retrenched for their own specific reasons.
In any case, with the stock market at a record high, it’s difficult to find value, and new positions become entirely reliant on market momentum, not necessarily individual corporate achievement.
There are very few companies that I would consider now, but within the context of a long-term stock market portfolio, investors want their money to be put to work.
In equities, I still think that portfolio safety is the name of the game. This is a market that … Read More
A top stock for investors and a strong equity market leader has been, and continues to be, The Walt Disney Company (DIS).
It’s a Dow Jones component, a solid dividend payer and, similar to other dividend-paying blue chips, it’s offered earnings (growth) safety to date. Institutional investors have bid this business tremendously.
The company’s latest quarter, its third fiscal quarter of 2014 ended June 30, 2014, produced a very good increase in sales, from $11.58 billion in the same quarter of 2013 to $12.47 billion.
Earnings grew impressively as well, coming in at $2.25 billion, or $1.28 per diluted share, compared to $1.85 billion, or $1.01 per diluted share, the year earlier.
These are impressive gains for such a mature business, and they support the company’s strong capital gains on the stock market.
Disney’s two-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Within the numbers, there’s an excellent snapshot of what’s happening in the entertainment industry. Business conditions are really good.
The company’s largest operations are its media networks division, which includes cable networks and broadcasting. This division continues to grow and remains highly profitable.
Also growing is Disney’s theme park business, with fiscal third-quarter revenues coming in at $3.98 billion, compared to $3.68 billion last year.
Along with Shanghai Shendi (Group) Co., Ltd., Disney is building the Shanghai Disney Resort theme park for approximately $5.5 billion. Completion is expected to be early next year. Shanghai Shendi owns 57% of the park, while Disney has majority ownership in its management.
The company noted that it is seeing higher attendance and higher average guest spending at its domestic … Read More
As evidence of the continuing bull market, Kinder Morgan, Inc.’s (KMI) massive acquisition of its partnership companies is a significant sign that business conditions remain strong in the energy industry.
Kinder Morgan surprised the marketplace by announcing plans to purchase Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR), and El Paso Pipeline Partners, L.P. (EPB) in an enormous $70.0-billion consolidation.
The wealth effect from the news was immediately significant, with all partnership units rising substantially on the stock market.
Kinder Morgan Energy Partners is the largest master limited partnership in the United States and has been a top choice among income-seeking investors. The partnership was worth approximately $80.0 billion, or $80.00 per unit, with a 6.9% yield before news of its acquisition. It opened 20% higher, close to $100.00 per unit, on news of the deal.
Investors can choose cash or take up new shares in Kinder Morgan, Inc., which plans to increase its dividend 16% in 2015 to $2.00 a share. The company also plans to increase its dividend by at least 10% per year until 2020, and it’s likely that there will be a number of smaller divestitures over the coming quarters.
Once the company acquires all its related corporate entities, it will be the largest energy infrastructure company in North America. Management expects its debt to be investment grade, and the combined company should be able to garner a lower cost of capital.
The current environment is a great time to be in energy infrastructure. Transportation and storage of hydrocarbons is a growth business with rising domestic production.
And it’s tough to find double-digit … Read More
The Dow Jones Transportation Average is close to breaking its 50-day simple moving average. This, in itself, is not the end of the world; it did so most recently in April and recovered nicely.
But it is worth keeping an eye on, especially because the stock market is looking so tired right now.
Earnings are still streaming in and are generally okay. But there’s diminishing momentum. If the broader market opens up on positive news, on many days, it’s not able to sustain the gains. This is indicative of a stock market due for a break.
Summer action is typically slower, and while a 10% stock market correction would make it easier to put new money to work, the investing guide should be corporate outlooks—and they are pretty good going into 2015.
With Federal Reserve certainty, which includes diminishing quantitative easing and a very low interest rate environment going into 2015, the stock market is well informed regarding monetary policy.
Balance sheets remain in excellent condition, especially among blue chips, and the NASDAQ Composite is maintaining its leadership relative to the other benchmarks, which resumed about one year ago.
While the stock market has definitely earned a meaningful break, it very well could turn out to be another positive year with high single-digit returns, not including dividends. This is on the back of an exceptionally good year in 2013—a breakout year from what I view as the previous long-run cycle, that being a 12-year recovery period for the stock market.
But with this fundamental backdrop, I still view investment risk as being high and that quality is something that equity … Read More
In what is on par with the course in today’s stock market, biotechnology firm Amgen Inc. (AMGN) posted double-digit revenue and earnings growth while raising its full-year outlook.
The kicker for this stock and its recent price strength was the news that the company plans to cut 12%–15% of its global workforce (2,400 to 2,900 employees) and close four of its facilities in Washington and Colorado. A lot of the job cuts will be to middle management, according to Amgen’s Securities and Exchange Commission (SEC) Form 8-K.
The company’s second-quarter sales grew 11% to $5.18 billion on strong sales and better margins on “ENBREL,” which is a treatment for arthritis. GAAP (generally accepted accounting principles) earnings grew 23% to $1.55 billion, while adjusted earnings per share grew 25% to $2.37.
On the back of such a strong earnings performance, you’d think the company would be hiring. But such is the marketplace with large corporations and large institutional investors.
Amgen has finally broken out of a 12-year price consolidation on the stock market and is set for more capital gains.
A share split wouldn’t be a surprise and the company is well positioned to provide shareholders with another dividend increase at the beginning of next year.
While Wall Street earnings estimates are going up for this company, I would say that a lot of good news (and drug development expectation) is built into the share price. Still, I don’t see Amgen as overpriced considering its business plan for the next few years. The company’s new restructuring plan is substantial and is likely to be rewarding to stockholders.
Healthcare-related stocks are proven … Read More
While business conditions are pretty good in the domestic oil and gas business, they’re also holding up very well in the railroad sector.
If railroad companies and related services are old economy, they are still important economic benchmarks and they continue to be great businesses producing excellent returns to stockholders.
Union Pacific Corporation (UNP) is an important company to follow, even if you aren’t interested in owning a position. What the company reports about its business conditions is material and helpful in advancing your own market view. Union Pacific reports on Thursday.
Norfolk Southern Corporation (NSC) just hit an all-time record-high on the stock market. This time last year, the stock was around $77.00 a share; now, it’s close to $107.00.
CSX Corporation (CSX) is not as large in terms of market capitalization as Norfolk Southern or Union Pacific, but it is still a $31.0-billion company with extensive operations in the eastern United States and Canada.
Its second quarter of 2014 was a record quarter with sales growing seven percent to $3.2 billion on an eight-percent gain in volume.
Earnings growth was more modest, coming in at $529 million, or $0.53 per diluted share, compared to $521 million, or $0.51 per diluted share, for second quarter 2013. But management expects margin expansion going into 2015, and the Street wasn’t fazed.
Like so many other large-caps, the company is buying its own shares, including some $131 million worth during the most recent quarter.
By April of next year, the company will have spent $1.0 billion on share repurchases over the last two years.
Notably, CSX saw double-digit volume and revenue gains … Read More
Crude oil has pulled back from its recent price strength, but it’s still holding up pretty well above the $100.00-per-barrel mark for West Texas Intermediate (WTI).
Energy is still a top sector for equity portfolios, but it is the case that many oil stocks have already moved up tremendously and valuations are a little stretched.
I’m a big believer in energy infrastructure and pipelines for income-seeking investors and junior energy stocks for risk-capital investors.
It’s more difficult to find value in this market; that’s for sure. But domestic oil and gas production, transportation, and storage remain a growth industry.
Halliburton Company (HAL) just reported another great quarter, with its oil and gas services still being pretty robust worldwide.
In particular, Halliburton’s management noted solid strength in the U.S. market for energy services, and that’s on top of several tremendously good years in recent history.
According to the company, 2014 second-quarter sales came in at $8.1 billion, up solidly from first-quarter sales of $7.35 billion and comparative second-quarter sales of $7.32 billion last year.
Recent quarterly revenues were a new record for Halliburton, with notable strength in its North American operations. In fact, domestic operations are so strong that management plans to immediately add new equipment, transportation capabilities, and work crews for hydraulic fracturing.
The company’s operating margins are rising (internationally, as well), and the board just increased its share repurchase authorization by a huge $4.8 billion to $6.0 billion in total.
Halliburton’s share price is up 40% year-to-date, and I’d say there’s a good probability the position is going higher yet, as it’s not overpriced for double-digit growth.
The company’s … Read More
One stock that’s experiencing serious upward price momentum is in the equipment rental business. Momentum stocks might typically be associated with other market sectors, but United Rentals, Inc. (URI) is doing fantastic operationally and the market is bidding.
It’s kind of odd to think of an equipment rental company soaring on the stock market, but United Rentals is doing just that. In its most recent quarter, the company handily beat Wall Street consensus and raised its full-year guidance.
According to the company, its second quarter produced sales of $1.4 billion, up 16.7% from $1.2 billion in the same quarter last year.
Management said that the company is experiencing solid demand in non-residential construction. It’s renting out more equipment at higher margins than normal.
Second-quarter earnings were $94.0 million, or $0.90 per diluted share, compared to $83.0 million, or $0.78 per diluted share, representing a gain of about 15%.
Adjusted earnings per share were $1.65 on a diluted basis, which was way above Wall Street consensus.
United Rentals is one of the largest equipment rental companies in the world, with more than 12,000 employees. The company is considered a mid-cap stock and has been doing extremely well since the middle of 2012, which you can see in the stock chart below.
Chart courtesy of www.StockCharts.com
Not only did United Rentals beat consensus, but it also raised its outlook for adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and tightened its revenue range to $5.55–$5.65 billion for all of 2014, up from the previous outlook of $5.45–$5.55 billion.
Many companies do not have their SEC Form 10-Q documents ready when they … Read More
The numbers are still coming in pretty good this earnings season and corporate outlooks are holding up well for the year.
Stocks have been trading off of Federal Reserve Chairman Janet Yellen’s monetary policy report to Congress, and less so on earnings.
This market is tired and you can see it in the trading action of individual stocks that beat the Street with their earnings. Most market reaction is pretty mute.
One that wasn’t, however, was Intel Corporation (INTC). The company’s second quarter really got institutional investors fired up. The stock was $26.00 a share mid-May; now it’s close to $34.00, which is a very big move for this company.
Microsoft Corporation (MSFT) doesn’t report until next week, but the company’s shares moved commensurately with Intel’s.
Earnings strength from these older technology benchmarks is really good news for both the stock market and the economy in general. It means that the enterprise market is spending money again, and that’s exactly what the technology industry needs.
Even Cisco Systems, Inc. (CSCO) got a boost from Intel’s earnings results. This stock has been trying to break out of a long price consolidation. It hasn’t really done anything on the stock market since its bubble burst in 2000.
I actually view Microsoft as an attractive company for equity portfolios looking for higher-quality stocks.
The position is very fairly priced and offers a current dividend yield of just less than three percent. And management has a multifaceted business plan focused on growth in personal computers (PCs), the cloud, and devices.
But the best potential with a company like Microsoft is its prospects for … Read More
One 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:
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
Stocks are going to gyrate around second-quarter earnings, but that’s exactly what this market needs—the corporate bottom line and expectations for the rest of the year.
With so many stocks trading at their all-time record-highs, I view investment risk in equities as being high at this time.
This is actually a tough environment in which to be an investor looking for new positions. There’s not a lot of value around and good businesses have already been bid.
It’s been years now since the stock market was first in need of a material price correction, and the next one will probably come out of nowhere.
It could be a shock from the Federal Reserve, but the central bank has been extremely delicate in how it effects and communicates monetary policy. More likely, stocks will be vulnerable to an unforeseen shock like a geopolitical event or a big derivative trade gone bad.
The risks are out there and stocks are long overdue for a reckoning.
With this in mind, I’m still a fan of the market’s existing winners, especially dividend-paying blue chips. In the absence of a shock, I think they’ll just keep pushing new highs going right into 2015.
3M Company (MMM) is an enterprise worth following and owning as a long-term, income-seeking investor.
The company’s earnings are material and offer good market intelligence, even if you aren’t interested in owning the stock.
The position has tripled in value on the stock market since the beginning of 2009, while also paying some great dividends.
The stock is still strong in the current environment, and the company represents exactly the kind of … Read More
If there ever was an equity security epitomizing the notion that the stock market is a leading indicator, Caterpillar Inc. (CAT) would fit the bill.
This manufacturer is in slow-growth mode, but it’s been going up on the stock market as institutional investors bet on a global resurgence for the demand of construction and other heavy equipment and engines.
And the betting’s been pretty fierce. Caterpillar was priced at $90.00 a share at the beginning of the year. Now, it’s $110.00, which is a substantial move for such a mature large-cap. (See “Rising Earnings Estimates the New Catalyst for Stocks?”)
The stock actually offers a pretty decent dividend. It’s currently around 2.6%.
While sales and earnings in its upcoming quarter (due out July 24, 2014) are expected to be very flat, Street analysts are putting their focus on 2015. Sales and earnings estimates for next year are accelerating, and it’s fuel for institutional investors with money to invest.
The notion that the stock market leads actual economic performance is very real. Just like there are cycles in the economy, the stock market itself is highly cyclical. And while every secular bull market occurs for different reasons, there are commonalities in the price action.
Caterpillar’s share price is going up on the expectation that its sales and earnings (on a global basis) will accelerate next year.
Transportation stocks, as evidenced by the Dow Jones Transportation Average, are the classic bull market leaders.
Transportation, whether it’s trucking, railroads, airlines, or package delivery services, is as good a call on general economic activity as any. The Dow Jones Transportation Average was … Read More
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