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

Posts Tagged ‘investor sentiment’

Top Stock to Watch Among These Three Winning Techs

By for Profit Confidential

Top Three Winning Techs, but Only One to WatchFor years Micron Technology, Inc. (MU) struggled on the stock market as both competition and demand in the personal computer (PC) market took its toll on the chip maker.

Now the company is experiencing a bit of a renaissance, and the stock has been trending higher on genuine business growth.

In my mind, if Micron Technology is experiencing improved business conditions, it’s a positive indicator for almost everything else. This $34.0-billion company has really had a tough time since the technology bubble burst in 2000.

But the position broke out strongly at the beginning of last year. In January of 2013, the stock was trading for just less than $7.00 a share. Now, it’s more than $30.00 and is in a solid uptrend.

The company’s stock chart is featured below:

Micron Technology Inc Chart

Chart courtesy of www.StockCharts.com

In its most recent quarter, the company’s third fiscal quarter of 2014 (ended May 29, 2014), revenues grew 72% over the same quarter of the previous fiscal year to $3.98 billion.

Earnings were $806 million compared to $43.0 million.

Micron Technology recently acquired a Japanese chip maker, and as the company’s share price action illustrates, investors are more enthusiastic about the memory chip business.

This stock is not expensively priced, and it likely has more near-term legs in this market.

The business cycle is slowly changing, and so is investor sentiment. The semiconductor industry is notoriously volatile and boom-and-bust, but if business conditions are improving for Micron Technology, then there certainly is more optimism regarding the dynamic random access memory (DRAM) market.

Intel Corporation (INTC) recently surged on the stock market after the company raised its … Read More

The Downside to Dow 20,0000

By for Profit Confidential

Where the Stock Market Could Head NextWith the Dow Jones hitting 17,000 being pretty likely in the not-too-distant future, from there, it’s only another 18% or so until the Dow hits 20,000, which is pretty incredible.

These numbers seemed so unrealistic just a few years ago but now, it’s not too farfetched. The most amazing thing to me is that stocks still haven’t experienced a material price correction since the financial crisis.

Stocks aren’t necessarily stretched in terms of valuation, especially with corporate earnings outlooks holding up for this year and going into 2015. What is stretched is investor determination with a market at its high.

Johnson & Johnson (JNJ) is a great company and a worthy long-term investment (see “Three Blue Chips Set to Drive Higher”), but it’s tough to buy stocks at all-time record-highs. In Johnson & Johnson’s case, the position’s up almost 20 points since the beginning of February, and this is on top of a previous 20-point gain in 2013.

One of these days, stocks are going to get walloped. But there’s got to be some sort of catalyst for it to happen.

The Federal Reserve can be a catalyst if it decides to suddenly change its outlook for interest rate certainty. The catalyst could also be a geopolitical event or something that comes out of nowhere, like a big derivatives trade gone bad.

In any event, there will have to be a shock that is perceived to have a lasting effect on capital markets.

In the lull between earnings seasons, which we’re currently experiencing, stocks reaccelerated on the back of very modest economic news and that in itself is … Read More

A Stock Market Break? These Indices Say No

By for Profit Confidential

These Turning Indices Show How Stocks Can Go HigherThe great monetary expansion is still alive and well and the effect on equity securities continues to be profound.

But what I find striking about the stock market’s continued advancement is that it’s blue chips that are pushing through to new record highs.

Speculative fervor in several sectors has diminished, but hasn’t completely disappeared. But it’s the big brand-name companies—a lot of which pay dividends—that just keep on trucking as institutional investors buy earnings safety and outlook reliability, and are betting on revenue and earnings acceleration going into 2015.

Union Pacific Corporation (UNP), a benchmark railroad stock, just hit another new record high on the stock market, breaking through the $100.00-per-share level. It was $35.00 a share this time in 2010.

And this from an old-economy, industrial enterprise that is probably not on many investors’ wish lists.

Amazon.com, Inc. (AMZN) broke down considerably at the beginning of the year when it was trading around $400.00 a share. It recently broke $300.00 a share, but has bounced back significantly and the position looks to be fighting hard.

And this is one of the speculative stocks on which investors booked their profits. This stock is on the comeback trail and so are Cisco Systems, Inc. (CSCO), The Priceline Group Inc. (PCLN), Oracle Corporation (ORCL), Apple Inc. (AAPL), and Google Inc. (GOOG).

The stock market has been digesting continued mediocrity in domestic economic data and slightly more positive numbers from China. Institutional investors are buying. I think that, in the absence of some kind of shock or new catalyst, the stock market can slowly keep grinding higher. It could very well turn … Read More

Rise in Financials a Good Sign for the Broader Market?

By for Profit Confidential

Financials Supporting Bullish Stock Market SustainableThis stock market continues to show material resilience as financials have turned a bit and are helping the S&P 500 index.

Wells Fargo & Company (WFC) just hit a new record-high on the stock market with a forward price-to-earnings ratio of just under 12, offering a 2.8% current dividend yield.

Most of the big banks have actually been in a downtrend in recent months, including Bank of America Corporation (BAC), Citigroup Inc. (C), and JPMorgan Chase & Co. (JPM). Wells Fargo is the exception; the position has doubled in value since November of 2011.

Also coming back from a recent share price downtrend are the credit card companies. Visa Inc. (V), MasterCard Incorporated (MA), Discover Financial Services (DFS), and American Express Company (AXP) have done a good job bouncing off their stock market retrenchment in March and April.

Having the financials moving again is bullish and good for the broader stock market. Institutional investors are definitely willing to buy stocks if the news isn’t too bad.

In a very low interest rate environment, investors are still rewarding share buybacks, increases to dividends, and quarterly “outperformance.” It is, of course, continued short-term thinking. A sustainable new business cycle in the U.S. economy is only possible if corporations unleash some of their cash hoard and make real investments in their businesses.

I suspect this will happen in 2015, especially if the slight momentum in the U.S. economy can continue with relative stability from policymakers and geopolitical events (to the extent that this is possible).

Ever since the financial crisis, the stock market crash, and the Great Recession, corporations have been extremely unwilling … Read More

Multi-Month Price Consolidation in the Cards

By for Profit Confidential

How Profit Choppy Market HighThere still is no real trend in the equity market. One day, stocks sell off big-time; the next, the S&P 500 and Dow Jones Industrial Average hit new record-highs.

This is a very tough market to figure; anything can happen when monetary policy is highly accommodative.

A lagging NASDAQ Composite isn’t a worry. Neither is the Russell 2000 index. Stocks won’t come apart so long as so many large-caps are pushing their highs.

And not all technology stocks are retrenching, either. Some of the old technology bellwethers are actually doing quite well these days. Microsoft Corporation (MSFT) is trading right at a multiyear high, with a 2.8% dividend yield and a forward price-to-earnings ratio of approximately 14.

Even Intel Corporation (INTC), which is having a pretty tough time generating much in the way of top-line growth, is recovering on the stock market and is very close to breaking out of a multiyear price consolidation. Intel currently offers a 3.4% dividend yield and is not expensively priced.

One day, stocks are reacting to geopolitical events in Ukraine; the next, it’s Chinese economic data, then it’s mergers and acquisitions…

If anything, the reaction to first-quarter earnings was pretty muted. But even though the beginning of the year started out with considerable downside, stocks recovered strongly after policy reassurance from the Federal Reserve. While the action’s still choppy, underlying investor sentiment is holding up.

This is a market that continues to favor existing winners, but not necessarily at the speculative end. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) The reticence that launched blue chip … Read More

Where to Find the Best Price Momentum Right Now

By for Profit Confidential

Sector Showing Best Price MomentumIf investor sentiment has changed to, once again, favor blue chip stocks over the market’s more speculative issues, oil and gas still have sectoral price momentum.

This is evident in the price action of many of these stocks, as well as the rate at which new secondary offerings are being taken up by institutional investors.

Domestic oil and gas producers are still pretty hot in a market less willing to speculate on riskier assets. All resource investing is risky due to commodity price volatility, but the domestic oil story has tremendous institutional backing. While many large investors have abandoned precious metal stocks, oil and gas issues remain highly liquid.

One company experiencing continued price momentum on the stock market is Concho Resources Inc. (CXO). This company recently upsized a secondary offering of its shares due to heavy demand. It will sell 6.5 million new common shares at $129.00 a share to repay debt; the underwriters have the option to buy up to an additional 975,000 shares of the company’s stock.

Concho operates in the Permian Basin of Southeast New Mexico, as well as West Texas. This relatively new player began by acquisition and in 2007, was producing five million barrels of oil equivalent.

By 2011, the company produced 23.6 million barrels of oil equivalent and actually divested $200 million worth of assets in the North Dakota Bakken region for capital redeployment in the Permian Basin.

Concho produced an excellent first quarter, with net earnings tripling to $91.3 million, or $0.87 per diluted share, on production of 101,600 barrels of oil equivalent per day.

The company’s 2014 first-quarter oil and gas … Read More

Numbers for This Sector Might Look Dim Now, but Future Looks Bright

By for Profit Confidential

Numbers Looking Down Sector What About LaterThe reckoning that’s going on in high-valued, former momentum stocks is continuing and if the trend continues, there should be some very good trades to be had.

One sector of the stock market that’s been consistently hot until recently has been the 3D printing area. It’s recent cooling off is not because these stocks aren’t still growing like mad, but that the marketplace decided to book some profits from the group.

3D Systems Corporation (DDD) has been one of the best-performing companies within the sector. The stock is up 10-fold within the last four years. It was up almost 20-fold since the position began breaking down in January.

Stocks like this—strong momentum plays among institutional investors—are very much worth following, because they are indicative of the sentiment among big money pools.

The stock broke its 20- and 50-day moving averages in January and has been in a sustained downtrend ever since.

At some point, this position is going to level out and the business is still growing. There’s going to be a buy low/sell high trade available at some point. But that is the $64,000 question. 3D Systems’ stock chart is featured below:

3D System Corp ChartChart courtesy of www.StockCharts.com

Very often with these kinds of stocks, expectations, valuations, and “reasonableness” get way ahead of reality. According to the company, business conditions remain strong. But stocks can still go down significantly if the numbers don’t beat the hype, and that’s exactly what’s going on with this position.

The Rock Hill, South Carolina company said its 2014 first-quarter revenues grew 45% to $148 million. By any standard, that is exceptional growth. (The Street’s average … Read More

How Past Investment Trends Predicted This Stock Market Action

By for Profit Confidential

Speculative Fervor Declines on Growing RiskIt’s just the same old story with stocks. One day they’re up; the next day they’re not.

If 2013 was a breakout year from the previous long-run recovery cycle, 2014 is a year of choppiness.

Stocks just can’t seem to latch onto any particular trend. A convolution of influences from earnings results to geopolitical events continue to beat down what positive sentiment sprouts from the data.

It’s no surprise to have choppy capital markets after such a strong year of capital gains. And that’s the thing I always try to keep in the back of my mind: stocks are about the future—a future stream of earnings discounted for every potential eventuality at prevailing rates of interest.

With downside leadership in equities provided by the high-valuation large-cap technology stocks, it’s difficult to imagine the main market indices accelerating near-term, especially as the marketplace has already voted on this earnings season.

A familiar mantra coming from a lot of Wall Street analysts is that the pace of U.S. economic activity should accelerate towards the end of the year. Several firms are calling for stronger oil prices and lower gold prices accordingly.

But if the choppy action in stocks so far this year is any guide, things are unlikely to unfold as expected. And the catalyst for downside is unlikely to be due to corporate performance or the Federal Reserve. Companies are expecting to meet existing guidance, and the central bank continues to provide a stable low interest rate environment.

Geopolitical events unfolding between Russia and Ukraine are a growing risk for investors. A “sell in May and go away” type of … Read More

Stock Slammed in 2007/08 Making Strong Comeback

By for Profit Confidential

Harley-Davidson Riding New Wave BuyersFirst-quarter earnings results for Harley-Davidson Inc. (HOG) were good. The motorcycle manufacturer did a solid job boosting its bottom line on what was a decent gain in sales, particularly internationally. First-quarter earnings per share grew 22% to $1.21.

U.S. dealers sold 35,730 new motorcycles in the quarter for a three-percent gain. International dealers sold 21,685 new motorcycles during the quarter, up 11%, with comparative Asia-Pacific sales up 21%.

This produced total bike sales of $1.31 billion in the 2014 first quarter for a gain of 13% over the same quarter of 2013. Gross margin was higher and management reiterated previous guidance of a seven- to nine-percent increase in motorcycle shipments this year.

It was a solid quarter for the company, and the stock bounced nicely higher on the news.

So far this earnings season, the numbers have been pretty modest. Two emerging trends from reporting companies include strengthening business conditions in Europe and Asia, along with the confirmation of existing 2014 guidance. (See “Two Big Trends to Emerge This Earnings Season?”) Generally, the numbers are OK.

Stocks have been able to work through recent jitters and the main indices. Most of the economic data hitting the wires is actually meeting consensus expectations, and this is helping investor sentiment.

However, the NASDAQ Composite and Russell 2000 both have a lot higher to go if the market is to resume an upward trend. The Dow Jones Industrial Average is holding up extremely well.

Harley-Davidson got slammed in 2007 and 2008, dropping from more than $70.00 a share to less than $10.00 in the March low of 2009. What a buying … Read More

Stock Market Setting Up for Extended Break?

By for Profit Confidential

Soft Q1 Suggesting Market Set for Extended BreakThe S&P 500 index really hasn’t done much since the beginning of the year but churn…but then again, why shouldn’t it?

For stocks, 2013 was an exceptional year. If we get another positive year on top of dividends, then it’s total gravy.

The capital gains over the last several years have been highly unusual, representative of the gains often seen after a major financial crisis.

There are no bandwagons to jump on in this stock market. Investor sentiment finally had a bit of an awakening over the last several weeks. Big investors booked some profits after the big price recovery in February, which occurred because of verbal reassurances by the new Fed chair, Janet Yellen. If there wasn’t further hand-holding from the Fed, stocks likely would have continued January’s sell-off into a full-blown correction, helped by events in Ukraine.

I’m of the mind that the stock market may take an extended break over the next two quarters, as it’s so often done in the past—probably more of a price consolidation over a correction; top-line growth is still pretty modest.

I’m still a big fan of dividend income and also a higher weighting given to cash within a portfolio context. Very little stands out in this stock market as an exceptional buy. There are some exciting innovations in the marketplace, but valuations for many of these stocks are still way off the charts.

Precious metals continue to prove themselves as an unreliable asset class. Spot prices are stuck and all-sustaining mining costs per ounce are still going up. It’s a tough road ahead for precious metals stocks.

But this is … 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

Increasing Stock Buybacks a Signal to Cash Out?

By for Profit Confidential

What the Increase in Share Buybacks Means for InvestorsStocks are churning without any notable trend, influenced by geopolitical events, the lack of corporate reporting, and a recent change in investor sentiment regarding valuations. The fact is that a lot of stocks are ahead of themselves, and this is why we may very well get a lot of profit-taking over the next couple of months.

Aside from monetary policy, the most valuable information in the marketplace is what corporations report about their business. While the calendar first quarter will soon be over, a number of companies are now reporting their numbers.

Sonic Corp. (SONC) operates the largest chain of drive-in restaurants and the company’s results for its fiscal second quarter (ended February 28, 2014) weren’t that bad.

Same-store sales for the company grew 1.4%, but total revenues dropped slightly to $109.7 million, down from $111.1 million in the same quarter of last year.

Earnings were $4.1 million, or $0.07 per diluted share, compared to $3.6 million, or $0.06 per diluted share.

In a trend that’s so prevalent these days, the company repurchased $51.0 million of its own shares during the most recent fiscal quarter at an average price of $19.14 per share. This represents approximately five percent of the company’s total shares outstanding. Since the beginning of fiscal 2012, the company has bought back $125 million of its own stock, or 17% of total shares outstanding.

Management anticipates earnings will grow 14% to 15% this fiscal year (compared to adjusted non-GAAP earnings). They also expect to buy back another $80.0 million of the company’s shares this fiscal year. Sonic’s five-year stock chart is featured below:

Sonic Corp ChartChart courtesy of Read More

My Top Investment Strategy for a Stalling Stock Market

By for Profit Confidential

How to Guarantee a Selling Price for Your StockThe current stock market sentiment is bullish and based on the charts, there are indications that the market wants to go higher, especially technology and small-cap stocks.

The S&P 500 is eyeing another record-high and it may just reach it by the time you read this.

While stock market investor sentiment continues to display bullish new highs and new lows, there’s also a sense that the road to higher gains will not be an easy path.

The economic renewal is maintaining a muted pace, in part due to the harsh winter conditions, but what if the economy was actually showing signs of slowing?

Jobs growth in February improved over January, but the jobs market still has not reached a level of self-sufficiency without continued help from the Federal Reserve via low interest rates.

What I expect, after looking at the stock market indices, is that we will likely see new records broken on the horizon. (Read “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”) However, the advance will be more hesitant than in 2013 and the past years, since the current bull market is into its fifth year and is very much absent of a major stock market correction, based on my technical analysis.

Given this, I’m somewhat nervous, but there are alternative investment strategies you can consider at this time.

If you feel the stock market may pause and trade in a sideways range through the spring and summer months, you may look at writing covered call options on some or all of your existing long positions that have associated options…. Read More

What These Two Large-Cap Techs Are Saying About the Upcoming Quarter

By for Profit Confidential

What These Two Companies Signal for Tech Stocks This QuarterYou know another earnings season is right around the corner because Oracle Corporation (ORCL) and Adobe Systems Incorporated (ADBE) always report their fiscal results just ahead of the calendar quarter end.

Both technology stocks are bellwethers, and while they are mature enterprises, they do help set the tone in sentiment. It’s exactly what the marketplace needs now so investors can have something else to worry about over geopolitical events.

Oracle’s been going through its own issues trying to generate top-line growth. Revenue and earnings the last several quarters have been very modest.

And so have Adobe’s numbers, but Wall Street analysts have been boosting their earnings estimates for the company in 2015 and the stock has doubled over the last 18 months.

Oracle is definitely more of a value play, and the company pays a dividend. Adobe is expensively priced and while much smaller, still boasts a stock market capitalization of approximately $34.0 billion.

In previous quarters, it was pretty obvious what the Street was looking for in terms of earnings results. At the beginning of 2013, investors just wanted to know that corporate earnings would hold up. Then they were happy with modest growth so long as dividends were increased.

This quarter, there doesn’t seem to be a financial metric that the market is looking for just yet. The choppy trading action is a reflection of all the uncertainty in the world, but also a market that hasn’t experienced a material price correction since 2008/2009, which is a long time to go.

As much as a broad stock market correction would be a healthy development for the long-run trend, … 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

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