Posts Tagged ‘investor sentiment’
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
The NASDAQ Composite index sold off significantly in January to around 4,000. Then it recovered to its current level at 4,300, which is a pretty substantial move.
For a number of months now, the NASDAQ has been outperforming both the S&P 500 and Dow Jones Industrial Average. This relative outperformance continues to be a positive overall sign regarding sentiment.
I don’t really expect much from stocks this year, although the prospect of rising dividends still remains very good in the bottom half. 2013’s stock market performance was so exceptional and so substantial, especially among blue chips, that it’s time for earnings to catch up with share prices.
Not to be excluded, the performance of the Russell 2000 index has also been relatively strong compared to larger-caps. But this index still can’t quite keep up to the outperformance of the NASDAQ.
Stock market leadership from large-cap technology stocks is always a good thing. And a lot of it has been from older brand-name companies, the kind of former fast-growing stocks that are now almost income plays.
Oracle Corporation (ORCL) has been on the comeback trail after several quarters of disappointing results. This position has been treading water since the beginning of 2011, and its recent breakout on the stock market is not immaterial. The company’s five-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Following a similar trading pattern over the last several years, Microsoft Corporation (MSFT) has recently been strong. The stock is up $10.00 a share over the last 12 months, and Wall Street earnings estimates have been going up across the board for this fiscal year and … 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 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
The lull between earnings seasons will soon be here and with the absence of corporate results, trading action can get choppy.
It’s still important to follow transportation stocks and the NASDAQ Composite. Transportation stocks have a tendency to lead the broader market, and outperformance from the NASDAQ Composite (compared to the other major indices) signals speculative fervor remains.
The one commodity that’s very much back in play in terms of a reflection of investor sentiment is oil. West Texas Intermediate (WTI) has come back to the $100.00-per-barrel level on what looks like speculative betting on better economic growth this year.
There were actually quite a few disappointments in big oil’s recent financial results and production is definitely an issue. Both large-cap and small-cap oil stocks have not seen their share prices rise commensurately with oil prices, but some value is finally appearing in this sector.
One company that we looked at previously is Kodiak Oil & Gas Corp. (KOG). This is a Bakken oil play that, until recently, was expensively priced. (See “While Few See It, This Stock Sector Is Getting Risky.”)
Kodiak expects to produce 42,000–44,000 barrels of oil equivalent per day (boepd) this year, which represents about a 45% gain over last year. The company’s stock chart is featured below:
Kodiak reports its fourth-quarter and year-end financial results at the end of this month. Junior oil companies may see their fourth-quarter numbers affected by the severe cold in terms of the number of well completions.
While Kodiak may be considered a hold currently, this position is becoming more attractively valued. The … Read More
The Walt Disney Company (DIS) powered ahead after announcing earnings results that handily beat Wall Street consensus.
The company’s diluted earnings per share increased a substantial 34% from $0.77 to $1.03. Sales for the quarter ended December 28, 2013 grew nine percent to $12.3 billion on a strong performance from studio entertainment and the commercial success of Frozen and Thor: The Dark World.
Once again, the company’s cash position improved materially. Several firms boosted their price targets on the stock and earnings estimates for future periods.
Disney has an uncanny ability to generate growth in an otherwise lackluster environment, illustrating the relative outperformance of media networks, movies, and related consumer products.
The company experienced double-digit comparable growth in studio entertainment, consumer products, and its interactive businesses. This past December, Disney boosted its annual cash dividend by 15% to $0.86 per share. (See “Large-Cap Stocks the Place to Be in 2014?”)
Disney seems to have continued operating momentum on its side, as its theme park business is growing. This division is the second-largest in terms of revenue contribution after media networks.
In terms of blue chips, Disney is not the stock with the highest yield in the marketplace. Its current yield is approximately 1.2%.
It’s not a position worth chasing, but it is worthy of consideration when it’s down or when the stock market is going through periods of poor investor sentiment.
Stocks have been bouncing around, quite trendless since the beginning of the year. Investor sentiment has been shaken by emerging market action and currency movements. Economic data has also been all over the map. Some … Read More
This choppy trading action in stocks is here to stay for a while, and it could even be more pronounced once fourth-quarter earnings season ends.
The numbers continue to pour in, but the unease in investor sentiment is obvious, and it’s partially due to the fact that stocks didn’t experience a meaningful correction last year. Whatever the reason or catalyst, further retrenchment in share prices is an eventuality that’s easily in the cards this year.
While companies, especially large-cap corporations, are able to manipulate adjusted earnings and fully diluted earnings per share, the numbers are still only mediocre at best. And share prices came up so tremendously in the Fed-induced reflation that today’s earnings results aren’t making the case for buyers.
In the large-cap space, The Clorox Company (CLX) perfectly illustrates the numbers being presented by countless blue chips.
The company beat on revenues but missed on earnings. Fiscal second-quarter sales were flat at $1.33 billion. Net earnings were down to $115 million, or $0.87 per diluted share, as compared to earnings of $123 million, or $0.93 per diluted share last year. Currency translation had a material effect on U.S. dollar sales.
The company delivered one percent in total volume growth in the most recent quarter, which is quite anemic, even for a mature blue chip consumer company.
Fiscal 2014 total sales growth is expected to be between one and two percent. Diluted earnings per share should be between $4.40 and $4.55, but management specifically cited unfavorable currency rates as a red flag.
Nothing is as troublesome in global capital markets than currency movements. The devaluation of emerging market currencies … Read More
If you have a serious commitment to the equity market, you know that it’s very easy to lose money with stocks. Even when market action is good, one wrong number or any small aberration has the potential to change investor sentiment on a dime. Today’s hottest stocks are easily tomorrow’s biggest losers; today’s financial engineering could lead to tomorrow’s market crash after a derivatives trade–gone-bad.
This is why it really is worthwhile to spend time thinking about investment risk and how a portfolio of stocks is vulnerable to the downside.
I firmly believe that capital preservation is just as important as the expectation of generating a return on investment from stocks at a rate that is greater than inflation. In today’s world, with artificially low interest rates and poor rates of return from bonds and cash, stocks are a huge asset class with tremendously higher risks.
Because of this, approaching equities from a portfolio perspective and building core positions in stable, dividend-paying businesses is a strategy that complements the more speculative approach of trying to achieve short-term capital gains.
Equity investors are well served by trying to “do it all” in the sense of having core positions in stocks that can be accumulated over time, along with a certain percentage allocated for risk-capital trades. (See “Two Steps to a Solid and Profitable Portfolio.”)
And for those less comfortable with the idea of selecting and managing a portfolio of individual stocks, there’s no reason why you can’t integrate active investing with passive investing. Index funds and exchange-traded funds (ETFs) are still great instruments in which to have exposure to … Read More
Stocks are selling off after companies report their fourth-quarter earnings and that’s a positive development. It’s time for earnings and expectations to catch up to share prices. We could very well get trendless, choppy trading action for a number of months.
While corporations are not beating Wall Street estimates with conviction, the numbers are not that bad and balance sheets remain strong.
In terms of equity market dynamics, speculative fervor is diminishing, especially with initial public offerings (IPOs). It all seems to be a function of a marketplace that’s a little tired and wants to just digest data instead of betting on the future. If investor sentiment is currently subdued, it’s all perfectly normal after seeing such strong capital appreciation last year.
There are lots of good numbers out there. Biogen Idec Inc. (BIIB) just ploughed through $300.00 a share after consolidation of around $225.00. (See “A Must-Read for Long-Term Equity Investors.”) This biotechnology company’s fourth-quarter sales grew 39% to $2.0 billion, earnings grew 57% to $457 million, and management guided 2014 total sales higher than consensus.
Also in the biotechnology space, Amgen Inc.’s (AMGN) fourth-quarter sales grew 13% to just over $5.0 billion. The company’s adjusted earnings per share grew 30% to $1.82, while GAAP (generally accepted accounting principles) earnings per share grew to $1.33 from $1.01. Amgen also boosted its quarterly dividend by 30%.
Even The Dow Chemical Company (DOW) reported a solid fourth quarter that handily beat Wall Street consensus. Total quarterly sales grew three percent to $14.4 billion on a two-percent gain in volume and a one-percent gain in prices. Adjusted earnings per share … Read More
The Dow Jones Transportation Average is still very close to its all-time high, and so are countless component companies. The airlines, in particular, have been very strong in a classic bull market breakout performance. Many of these stocks have roughly doubled over the last 12 months.
Commensurate with continued strength in the Russell 2000 index of small-cap stocks and year-to-date outperformance of the NASDAQ Composite, this is still a very positive environment for equities. The NASDAQ Biotechnology Index continues to soar.
While strength in transportation stocks is a leading indicator for the U.S. economy, so is price strength in small-caps. Smaller companies are more exposed to the domestic economy, and while it’s too early for many of these companies to report fourth-quarter earnings, the Russell 2000 has outperformed the Dow Jones industrials and the S&P 500 over the last five years, confirming the primary upward trend.
Instead of an actual correction in stocks, we’ve only experienced price consolidation; the latest being in blue chips since December.
This is very much a market in need of a pronounced price correction, if only to realign expectations with current earnings outlooks. Fourth-quarter numbers, so far, are mostly showing limited outperformance, and those companies that have beat consensus are still, for the most part, just confirming existing guidance, not raising it. If this is a secular bull market, it’s time for a break.
A meaningful price correction in stocks would be a very healthy development for the longer-term trend. Corporations are in excellent financial shape, and the short-term cost of money is cheap and certain.
In order for this market to turn in a … Read More
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