Posts Tagged ‘institutional investors’
There 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
“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
Playing 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:
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
Tesla 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:
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
The last time we looked at Alexion Pharmaceuticals, Inc. (ALXN), the position was trading around $121.00 a share. Now, it’s $175.00 a share, and once again, the company reported outstanding financial results from its “Soliris” wonder-drug.
This stock has been a powerhouse wealth creator, and virtually every time we take a look at it, the share price is higher.
There has been and continues to be tremendous momentum with biotechnology stocks in this market. And a great deal of it is happening in the large-cap space, where price momentum, thanks to institutional investors, has been robust and often very consistent.
Previously in these pages when looking at Alexion Pharmaceuticals, we also considered Biogen Idec Inc. (BIIB). (See “How Risk-Averse Investors Can Capitalize on 2014’s Expected Record Drug Approvals.”) It’s a similar story in terms of the price momentum being experienced on the stock market. In our last update, the position was treading around $290.00 a share; now, it’s $325.00, representing another new record-high.
Strong trading action in biotechnology stocks is partially due to economic success within this specific sector, but it’s also a reflection of buoyant capital markets, or equities in particular. The speculative fervor that investors have for this sector has been unmatched in recent history.
The NASDAQ Biotechnology Index broke out of a 12-year price consolidation in 2011 and has almost tripled since. While there were some retrenchments in this index in the last few years, considering the inherent volatility in biotechnology stocks, the pullbacks have been minimal.
While monetary policy is favorable to equities, like it is currently, I’d say there’s further price momentum in … Read More
The single greatest certainty capital markets are looking for is policy stability from the Federal Reserve, and Janet Yellen, the new Chair of the Federal Reserve, delivered the goods for Wall Street.
With certainty in regards to short-term interest rates and the expectation that quantitative easing will continue to be reduced over the coming quarters, the fundamental backdrop for the stock market remains positive.
Many companies sold off after reporting earnings results that basically met consensus. This was well-deserved, especially in a market that has not experienced a meaningful correction for a number of quarters.
Particularly for large-caps, corporate earnings results in the last quarter of 2013 were decent and corporate outlooks for 2014 were also relatively positive, considering the current state of things.
Add in the high likelihood of rising dividends from blue chips in the bottom half of the year, and you have the makings of another decent year for stocks.
Corporate balance sheets are in top-notch condition, and the cost of capital is cheap. From the corporate perspective, this is the perfect backdrop for greater growth, and sales growth translates to the bottom line.
For the last couple of quarters, I’ve been reticent about investors buying this stock market. Long investors benefitted tremendously in 2013, even by owning blue chips. While the expectation has been for a major stock market correction (or collapse), one has yet to transpire. Instead, we are getting meaningful price consolidation, which is happening again.
The lack of a meaningful double-digit price correction in the stock market illustrates the continued underlying fervor that institutional investors have to be buyers. With continued certainty from … Read More
Putting together an equity market portfolio always requires conviction. In this market, stocks have not come off their highs very much at all. The main indices have been bouncing around quite a bit, but there is still a positive disposition to stocks with fourth-quarter earnings mostly coming in close to consensus.
Leadership in this market is still with the financials, the Dow Jones Transportation Average, and the NASDAQ Composite. These three metrics are good indicators as to where the broader market is headed.
In terms of portfolio construction, I’m a big believer in owning the market commensurate with owning a handful of positions with conviction—three to five benchmark stocks that can be accumulated when prices are down. These are the kind of stocks that a long-term investor can build wealth in over time using the short-term fluctuations in share prices for long-term advantage.
Wealth creation often does come from owning larger positions in a handful of stocks. Warren Buffett has consistently been this type of investor, taking on big positions after rigorous research.
But when it comes to stocks, there are always times when you are going to be wrong about the strength of a business and/or the marketplace’s capacity to recognize it. You still have to be nimble, willing to move on from non-performance and to remember that buying and selling stocks are business decisions.
Investing with conviction is something that can more easily be done with larger-cap companies or blue chips. Dividend reinvestment is a very good way to compound your investment return over time. There is always room for more aggressive bets, but accumulating positions in benchmark … Read More
To see where the U.S. housing market is headed, we really need to look at what real home buyers—those who are planning to stay in their home for the long term—are doing. Institutional investors, who came into the housing market in 2012 and bought massive amounts of homes, are speculators; they’ll quickly rush out of the housing market if they can get a profit or if they can get a better return on their money elsewhere.
Right now, real home buyers are not very active in the U.S. housing market, as they face challenges. In fact, it looks like the number of real home buyers in the housing market is declining.
Between January and December of 2013, the 30-year fixed mortgage rate tracked by Freddie Mac increased by 31%. The 30-year fixed mortgage rate stood at 3.41% in January, and it increased to 4.46% by December. (Source: Freddie Mac web site, last accessed January 15, 2014.) Higher interest costs are a real challenge for home buyers.
As we can see from the chart below, there was a sudden change in the direction of interest rates after the Federal Reserve hinted in the spring of 2013 that it would start to “taper” its quantitative easing (money printing) program. It is widely expected that the Fed will continue to taper throughout 2014 as it drastically pulls back on its massive money printing scheme.
Chart courtesy of www.StockCharts.com
Another challenge home buyers face is stagnant growth in their incomes. In 2013, average hourly earnings of production and nonsupervisory employees in the U.S. increased by only 1.85%—less than real inflation. (Source: Federal Reserve Bank … Read More
Any investment portfolio is always well served with some exposure to healthcare, medical devices, and/or pharmaceutical stocks. You can own the sector for income, capital gains, or a combination of both. Regardless, it is an industry sector that is consistently good at making money for stockholders.
You can invest or speculate in large-cap, mid-cap or small-cap healthcare companies; the opportunities run the gamut and it’s not too difficult to find the right stocks to fit a particular risk tolerance level.
In the large-cap space, we previously looked at Becton, Dickinson and Company (BDX), which is a New Jersey-based medical instrument and supply company. (See “Why You Should Add Two Medical Stocks to Your Watch List.”)
This healthcare company has been a powerhouse wealth creator and one of many large-cap healthcare stocks that also pay dividends. Its current dividend yield is approximately two percent.
BDX has been soaring, especially since the beginning of last year, due to a solid financial performance and outlook for 2014.
According to the company, its revenues for the fourth fiscal quarter (ended September 30, 2013) were $2.1 billion for a 7.2% currency-neutral gain. Fiscal 2014 should see sales grow by four to five percent, and diluted earnings per share from continuing operations should grow between six and seven percent over fiscal 2013.
These aren’t growth stock-type gains, but we’re talking about a very mature enterprise.
Ten-times larger than BDX is Johnson & Johnson (JNJ). This is one of my favorite blue-chip healthcare stocks for long-term investors.
The company has a great, consistent track record of increasing its dividends over time, as well as … Read More
One of the bigger problems I find when identifying and highlighting great stocks is the fact that the most desirable investments have already been bid up tremendously by institutional investors. It is not an easy time to be a buyer of equities in this market, with valuations elevated and share prices at or near their highs.
But a professional investor or fund manager is constantly buying and selling stocks, because that’s what they’re paid to do. Clients don’t pay fees to have money sit in cash; they pay for performance.
One of the largest private equity investors is Bill Gates. His private investment firm, Cascade Investment LLC, holds a vast array of stocks, and he also has significant holdings in the Bill and Melinda Gates Foundation Trust.
One of the top holdings in both these entities is Berkshire Hathaway, Inc. (BRK). The other is Canadian National Railway Company (CNI), of which Bill Gates is the largest individual shareholder.
Just as in the healthcare sector, exposure to the transportation sector is a must in any equity market portfolio. I like Canadian National and Union Pacific Corporation (UNP), but I would likely lean toward Canadian National, if I had to favor just one. Among the group of railroad stocks, this company has outperformed them all over the last 15 years. (See “Winning Railroad Stock a Buying Opportunity?”)
The company’s rail transportation system is unique in that it crosses all of Canada, from the east coast to the west coast, but it also heads straight down through the heart of America to the Gulf Coast. It is a unique infrastructure, with … Read More
Wall Street analysts are warming up to Johnson Controls, Inc. (JCI), and it’s understandable why. I’ve been bullish on this stock for some time now. The company has strong earnings visibility going into next year, and management recently bumped its quarterly dividend payment significantly higher.
Even though the stock is up about 50% over the last 12 months to a new record high, the company’s 16% dividend increase and new $3.65-billion share buyback program is exactly what institutional investors want. Earnings expectations for Johnson Controls are increasing across the board. (See “If You Don’t Want to Leave This Market, Stick with These Proven Winners.”)
One of the most prolific trends in the stock market over the last few years has been the strong performance of dividend-paying blue chips. Many brand-name, old economy companies have been trading like fast-growing technology stocks.
The marketplace has craved the relative safety, earnings stability, and dividends from corporations whose balance sheets were only getting stronger. It’s a trend that I think is far from over, and it’s why I’m a fan of existing winners. Johnson Controls’ two-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Any Wall Street enthusiasm for this company is based on a solid earnings outlook and the continued strong performance in automobile manufacturing.
Johnson Controls manufactures seats, doors, instrument panels, and all kinds of vehicle electronics. Management is thinking about selling its electronics business that’s related to the automotive market. This business segment is relatively small compared to the company’s manufacturing of seating components.
In its 2009 fiscal year, the company paid dividends of $0.52 per share; revenues … Read More
There are lots of companies but very few stocks I like in this stock market, because stocks have already gone up in value so tremendously.
Countless large-caps provided excellent returns this year, and many of them are old brands that still offer meaningful dividend yields. What’s transpired with the equity market this year has been truly amazing and practically, I don’t think the run is over just yet.
Cracker Barrel Old Country Store, Inc. (CBRL) has a 52-week trading range of $60.07 to $118.44 and a forward price-to-earnings (P/E) ratio of 18.46, according to Thomson Reuters. And guess where the stock is now—right at its all-time record high, up approximately 84% (not including dividends) since this time last year. All this from a mature restaurant brand.
Johnson & Johnson (JNJ), one of my key benchmark stocks and the kind of company that’s welcome in any long-term equity market portfolio, has had a really good year. Its capital appreciation is reminiscent of its performance in the late 90s.
Many blue chips trade similarly to Cracker Barrel and Johnson & Johnson: they go through long periods of consolidation providing minimal capital gains, and then they explode in trading action, typically associated with technology stocks. (See “Why I Like This Blue Chip So Much [55th Dividend Increase Just Announced].”)
So with the huge price moves, the case for a major retrenchment/correction/consolidation in the equity market is very solid. But there needs to be a catalyst for this to happen. The equity market is overbought and looking tired, but there is still a strong willingness on the part of institutional investors to … Read More
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