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

Posts Tagged ‘institutional investors’

Large-Cap Tech Doubling in Price and Headed Higher

By for Profit Confidential

Dependable Large-Cap Tech Stock’s Success an Untold Story This YearLarge-cap technology stocks, particularly old-school names, have really been on the rise, though they remain an untold story this year.

Microsoft Corporation (MSFT) is on a major upward price trend and is getting close to its all-time record-high set during the technology bubble of 1999.

The company’s stock market performance has been tremendous as of late, rising from around $27.00 a share at the beginning of 2013 to its current level of approximately $47.00, its 52-week high. Its share price has increased by more than $10.00 this year alone. (See “Eight Stocks to Beat the Street.”) And that’s with a current dividend yield of 2.6% and a trailing price-to-earnings ratio of just less than 15.

I think Microsoft is going to keep on ticking higher right into 2015 based on its sales and earnings growth momentum combined with a solid interest on the part of institutional investors seeking earnings predictability in a slow-growth environment.

Microsoft would be a solid investment-grade pick in this market for those investors considering new positions and looking for income.

Even without the company’s dividends, it should experience solid sales and earnings growth going into its next fiscal year. And in an environment where institutional investors are bidding old-school names that are offering earnings reliability, $50.00 a share shouldn’t be too difficult for Microsoft to achieve by year-end.

Share price momentum in previous technology growth stocks like Microsoft and Intel is indicative of a bull market, but one that’s still risk-averse.

Price momentum in these stocks is healthy for the broader market because large-cap tech companies like Amazon.com, Inc. (AMZN) and Facebook, Inc. (FB) … Read More

Two Blue Chips with Excellent Upside

By for Profit Confidential

My Top Blue Chips Offering More Capital GainsThere’s good resilience to this market. On most days, the NASDAQ Composite is still beating both the S&P 500 and Dow Jones Industrial Average comparatively, which is bullish. Lots of stocks are pushing new highs and many seem to be breaking out of their previous near-term trends.

NIKE, Inc. (NKE) is a large-cap, dividend-paying company that I view as attractive for long-term investors.

The stock has been in consolidation, trading range-bound since the beginning of the year but is finally breaking out and pushing through the $80.00-per-share level.

This position went up tremendously last year and has been due for a break. The company has experienced solid revenue and earnings growth over the last several quarters.

The stock’s reacceleration looks meaningful, and I suspect the position is in for a new uptrend.

The other company that I feel is a good example of the kind of stock that could make for a great holding in any long-term equity market portfolio is The Walt Disney Company (DIS). (See “Why This Is Still My Favorite Entertainment Stock.”)

I’m not surprised this position is still ticking higher. But it has been moving up very consistently since October of 2011.

The stock just broke the $90.00-per-share level. This time two years ago, the company was trading for $30.00 a share, which is incredible capital appreciation for such a mature large-cap enterprise.

Institutional investors are still buying earnings reliability, and I think this trend will hold right through 2015.

Both NIKE and Disney offer earnings reliability and the fact of the matter is that it’s difficult for any company to generate double-digit growth…. Read More

One Group of Stocks Investors Can’t Ignore

By for Profit Confidential

Stocks That Really MatterSo long as transportation stocks are ticking higher, the stock market is much less susceptible to a price retrenchment.

The Dow Jones Transportation Average just blew past 8,500, recently hitting a new record-high after taking a well-deserved break around mid-July and August.

Airline stocks led the index’s recent price strength. Some examples: JetBlue Airways Corporation (JBLU) was $8.00 a share in May, now it’s pushing $13.00. Meanwhile, Southwest Airlines Co. (LUV) was $20.00 a share at the beginning of the year, recently hitting a price of more than $33.00 for a new all-time record-high.

But it isn’t just airline stocks that are doing well on the Dow Jones Transportation Average; railroad stocks and trucking companies are pushing through to new highs, too, and earnings estimates for a lot of these companies are increasing, especially for 2015.

It may seem like an old-school concept, but strength in transportation stocks is still a leading indicator for the broader market. Price strength in these stocks often shows up at the beginning of a new business cycle.

Union Pacific Corporation (UNP) is one of my favorite railroad stocks for investors and it’s a great benchmark for determining your investment strategy, even for those not interested in the company. Monitoring this stock is a great way to gain market and economic intelligence.

This position still has good potential for further capital gains and earnings forecasts have been going up across the board—including estimates for the company’s third and fourth quarters, all of 2014, and all of 2015.

The stock’s been in a well-deserved price consolidation since May, but it recently broke out of this trend … Read More

Eight Stocks to Beat the Street

By for Profit Confidential

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

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

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

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

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

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

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

Where You Can Find Value in Stocks Right Now

By for Profit Confidential

These Stocks Offering Best Value in Current Stock MarketAs incredible as it may be, Chipotle Mexican Grill, Inc. (CMG) recently spiked above $600.00 a share and is now closing in on $700.00. This position could no doubt benefit from a share split.

The stock is trading with a forward price-to-earnings (P/E) ratio of approximately 40, and the company’s earnings estimates for this fiscal year and next continue to tick higher.

A more aggressive portfolio of stocks is typically well served by exposure to the restaurant sector. Many chains are consistently good earners, but you can’t get too attached to any positions; consumer tastes change and competition is fierce.

Restaurant stocks also experience waves of enthusiasm on the part of investors and because of this, you can actually find value among established brands.

Darden Restaurants, Inc. (DRI) is the owner of the “Olive Garden” and “LongHorn Steakhouse” chains. The company recently sold “Red Lobster” for $2.1 billion in cash, using $1.0 billion to pay down its debt with the rest to be spent on share repurchases.

This stock hasn’t done much over the last couple of years due to operational problems, but it now boasts a dividend yield of just less than five percent and is not expensively priced.

Value among restaurant stocks can also be found with Cracker Barrel Old Country Store, Inc. (CBRL).

This position has been flat since February, and its dividend yield has now crept above the four-percent level.

The company should soon report its financial results for its fiscal fourth quarter of 2014. In its third fiscal quarter (ended May 2, 2014), Cracker Barrel’s revenues grew 0.5% over the comparable quarter to $643 million. … Read More

The Boring Stock That Pays, Pays, and Pays

By for Profit Confidential

Boring Stock That PaysTop wealth creators don’t have to be the fastest-growing companies. In an environment where institutional investors are buying earnings safety and dividend income, consistency and reliability are top financial attributes.

And there actually aren’t a lot of companies able to provide consistency in business growth, especially among mature enterprises that throw off excess cash in the form of dividends.

One company that has proven to do so is Airgas, Inc. (ARG) out of Radnor, Pennsylvania.

This business is what I consider to be investment grade. The company sells industrial and medical gases, refrigerants, and ammonia products. It’s one of the leading producers of atmospheric gases in North America with more than 1,100 locations.

In its most recent quarter (ended June 30, 2014), the company’s sales grew three percent to $1.31 billion compared to the same quarter last year. Diluted earnings per share grew four percent comparatively.

Management noted that sales to energy-related customers produced organic sales growth, but sectors such as mining and heavy manufacturing are slow. The company even referred to its most recent quarter as “sluggish.”

This stock has been trading range-bound over the last year, but produced very good capital gains over the last 10 years.

As is the case with most equities securities, the stock trades on future business conditions and growth expectations for its next fiscal year are solid.

The company forecasts its sales will grow at a rate in the low single-digits in the current quarter and that diluted earnings per share will be between $1.27 and $1.32, representing a gain of zero to four percent comparatively.

In its most recent quarter, the company … Read More

Jumping on the Risk Bandwagon? Think Again

By for Profit Confidential

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 hasn’t experienced a material price correction for five years. There have been retrenchments and price consolidations, but no reset, no revaluation that would make stock market investors with cash want to jump into a marketplace still beset with huge monetary stimulus and strong balance sheets—a marketplace still extremely favorable to equities. Companies for consideration at this time that fit into my earnings (and dividends) safety list include Microsoft Corporation (MSFT), PepsiCo, Inc. (PEP), Johnson & Johnson (JNJ), and 3M Company (MMM). There should be exposure to oil and gas in this short list, too. Previously, I liked Kinder Morgan Energy Partners, L.P. (KMP), but with news that this high-yielding limited partnership is being bought out by Kinder Morgan, Inc. (KMI), I’m looking for a solid new pick in this sector. (See “This Company’s $70.0-Billion Acquisition a Boon for Investors.”) A lot of investors are more risk-tolerant than these mature enterprises might present. But institutional investors are still skittish; they are still buying earnings safety in this stock market. Accordingly, dividend-paying blue chips remain highly correlated to the broader market and for the investment risk, given that this market could experience a 20% correction at any time for a multitude of reasons, new buyers of equities should consider stocks offering earnings and dividends safety. In the equity market—which is a secondary market with a pricing mechanism subject to fear, greed, and the herd mentality—capital preservation is a worthy investment goal. So far in this bull market, blue chips have performed exceedingly well relative to the rest of the stock market and they are still where institutional investors want to be.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

Why This Is Still My Favorite Entertainment Stock

By for Profit Confidential

How This Entertainment Stock Has Become a Top BusinessA 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:

Walt Disney Co. NYSE Chart

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

This Company’s $70.0-Billion Acquisition a Boon for Investors

By for Profit Confidential

Four Strong Businesses Now One Great CompanyAs 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

Why a Full-Blown Market Correction Should Be Expected

By for Profit Confidential

Investors Can't Overlook to Succeed in This MarketThe monetary environment is still highly favorable to stocks and should continue to be so well into 2015. However, while this market can handle higher interest rates, stocks can only advance in a higher interest rate environment if gross domestic product (GDP) growth is there to back it up.

Because of the capital gains over the last few years and the across-the-board record-highs in many indices, investment risk in stocks is still high. Accordingly, it’s worthwhile reviewing your exposure to risk, particularly regarding any highflyers in your portfolio; they get hit the hardest when a shock happens.

Currently, geopolitical events between Ukraine and Russia have the potential to be the catalyst for a correction. It could happen at any time depending on what transpires.

The risk of stocks selling off on the Federal Reserve’s actions is diminishing. The marketplace is well informed about the central bank’s intentions and it’s quite clear that Fed Chair Janet Yellen doesn’t want to do anything to “surprise” Wall Street.

I still view this market as one where institutional investors want to own the safest names. The economic data just isn’t strong enough for traditional mutual funds and pensions to be speculating.

This is why the Dow Jones Industrial Average and other large-cap dividend paying stocks are so well positioned. They offer great prospects for increasing quarterly income, some capital gain potential (still), and downside protection compared to the rest of the market.

Of course, all stocks are risky. An equity security is priced in a secondary market where fear, greed, emotions, and a herd mentality are part of the daily pricing mechanism.

Accordingly, anything … Read More

With Stocks Still Near Their Highs, What Should Your Priority Be?

By for Profit Confidential

One Key Index Close to Breaking This MarketThe 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

Why Exposure to Healthcare Sector Is a Must

By for Profit Confidential

How These Companies Celebrate a Great QuarterIn 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

Why This Company’s a Solid Pick for Any Long-Term Portfolio

By for Profit Confidential

PepsiCo Still a Solid Stock for Any Quality PortfolioThe numbers are piling in, and there have been some disappointments as usual. This is why individual stock selection always matters in a portfolio, and equity investors should be willing to make changes depending on what stage of the business cycle a company is experiencing.

One company that’s proven itself to be a good business to own is PepsiCo, Inc. (PEP). It’s a brand-name mature enterprise with an excellent track record of long-term, reliable wealth creation for stockholders. It’s not the fastest growing large-cap in the marketplace, but the snacks and beverage business is consistent and so are the dividends.

Wall Street and institutional investors would love to see PepsiCo spin off its food and snacks business from beverages, similar to what recently transpired with Kraft Foods Incorporated.

A spin-off would, no doubt, be a boon to shareholders, but I don’t see it happening, because the company’s management needs the profits from Quaker foods (oatmeal) and especially “Frito-Lay” (potato chips) to help with the slow-growth world of soda and juice.

PepsiCo’s organic global snacks sales grew five percent comparatively in the second quarter of 2014 and two percent for global beverages.

Currency translation was unfavorable during the most recent quarter, bringing the growth rates down to two percent for global snacks and a decline of one percent for global beverages.

But despite the slow growth, the company’s operating margin improved a solid 10% during the second quarter, and that’s the big story that got the shares moving on the earnings report.

PepsiCo’s two-year stock chart is featured below:

Pepsico Inc Chart

Chart courtesy of www.StockCharts.com

The company also boosted its full-year 2014 earnings-per-share … Read More

Top Sector Offering More Capital Gains

By for Profit Confidential

The One Sector with More Capital Gains to ComeWhile 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

How to Profit from the Surge in Domestic Oil Production

By for Profit Confidential

Best Investment Opportunity in Oil-Related StocksCrude 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

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