Posts Tagged ‘stock market’
The stock market has an underlying strength to it, seemingly only to be undone by geopolitical events. Fed action always has the potential to shock the system. Negative economic news isn’t fazing this market.
On the back of a pretty decent second quarter, many corporate outlooks predict another year of decent growth, particularly with earnings.
While the stock market retrenched recently, positive days are still led by the Dow Jones Transportation Average, the Russell 2000 Index, and the NASDAQ components, which are traditionally positive for broader sentiment.
Some speculative fervor has come back to two stock market sectors that are traditionally volatile—biotechnology stocks and restaurant stocks.
But there really isn’t an underlying trend to latch onto. Jumping on the bandwagon of risky stocks seems unwise considering the stock market is at an all-time record-high.
This is a market where equity investors have to be highly selective and wait for the right opportunities to present themselves, if you’re considering new positions at all.
This can be in the form of a specific sector theme (like oil and gas, for example) or looking for good companies that have retrenched for their own specific reasons.
In any case, with the stock market at a record high, it’s difficult to find value, and new positions become entirely reliant on market momentum, not necessarily individual corporate achievement.
There are very few companies that I would consider now, but within the context of a long-term stock market portfolio, investors want their money to be put to work.
In equities, I still think that portfolio safety is the name of the game. This is a market that … Read More
A top stock for investors and a strong equity market leader has been, and continues to be, The Walt Disney Company (DIS).
It’s a Dow Jones component, a solid dividend payer and, similar to other dividend-paying blue chips, it’s offered earnings (growth) safety to date. Institutional investors have bid this business tremendously.
The company’s latest quarter, its third fiscal quarter of 2014 ended June 30, 2014, produced a very good increase in sales, from $11.58 billion in the same quarter of 2013 to $12.47 billion.
Earnings grew impressively as well, coming in at $2.25 billion, or $1.28 per diluted share, compared to $1.85 billion, or $1.01 per diluted share, the year earlier.
These are impressive gains for such a mature business, and they support the company’s strong capital gains on the stock market.
Disney’s two-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Within the numbers, there’s an excellent snapshot of what’s happening in the entertainment industry. Business conditions are really good.
The company’s largest operations are its media networks division, which includes cable networks and broadcasting. This division continues to grow and remains highly profitable.
Also growing is Disney’s theme park business, with fiscal third-quarter revenues coming in at $3.98 billion, compared to $3.68 billion last year.
Along with Shanghai Shendi (Group) Co., Ltd., Disney is building the Shanghai Disney Resort theme park for approximately $5.5 billion. Completion is expected to be early next year. Shanghai Shendi owns 57% of the park, while Disney has majority ownership in its management.
The company noted that it is seeing higher attendance and higher average guest spending at its domestic … Read More
The burning question that’s facing economists like me today and that will only be answered in the future: did creating $3.0 trillion in new money out of thin air really make things better or worse for America?
My personal view, as expressed in these pages, is that the rich (the big banks and Wall Street) got richer from the “printing press” era, while the average American did not directly benefit from the Fed’s actions.
In fact, in America today, the spread in wealth between the rich and the poor has never been so great. As for the middle class, they are becoming extinct.
The “Report on the Economic Well-Being of U.S. Households in 2013,” recently published by the Federal Reserve, says 34% of Americans feel they are worse off today than they were five years ago, and 42% said they are holding back on the purchase of major or expensive items. (Source: Federal Reserve, August 7, 2014.)
But the data gets worse…
Of those Americans who had savings prior to the 2008 recession, 57% of them say they have used up some or all of their savings in order to combat the after-effects of the Great Recession.
Only 48% of Americans said that they would be able to cover a “hypothetical emergency expense” that costs $400.00 without selling something or borrowing money. Simply put, about half of Americans have less than $400.00 in emergency funds!
Meanwhile, 31% of Americans say they do not have any retirement savings or pension. Of those who are between the ages of 55 and 64, 24% of them expect to work as long as possible, … Read More
Biotechnology stocks and the Russell 2000 began rolling over at the beginning of July, followed by transportation stocks at the end of the month.
It’s definitely a signal that the stock market is tired, but after such a strong breakout performance in 2013, the market still hasn’t experienced a material price correction in quite some time.
Second-quarter earnings came in mostly as expected and many blue-chip stocks sold off on good results, while companies backed existing full-year guidance. This happens often, as management teams try to make it easier for the company to “outperform” Street consensus. In a lot of cases, the only reason earnings per share advanced comparatively was increased share repurchases.
But it was mostly a decent earnings season and corporate balance sheets remain strong.
There’s not a lot of action to take in this market. Stocks have gone up tremendously and earnings are playing catch-up with valuations.
A little extra cash isn’t a bad thing with equities at their highs; however, finding good value with the prospect of growth in this market is becoming difficult.
I still think the domestic energy sector has a lot to offer investors, particularly those who are looking for income. Pipelines are a good business to be in as they throw off lots of cash and in many cases, revenues are not tied to the spot price of the underlying commodity.
With speculative fervor now reduced as evidenced by the trading action in biotechnology stocks, initial public offerings (IPOs), and select technology companies, it’s reasonable to expect the next couple of months to be pretty lackluster in terms of trading action. (September … Read More
As evidence of the continuing bull market, Kinder Morgan, Inc.’s (KMI) massive acquisition of its partnership companies is a significant sign that business conditions remain strong in the energy industry.
Kinder Morgan surprised the marketplace by announcing plans to purchase Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR), and El Paso Pipeline Partners, L.P. (EPB) in an enormous $70.0-billion consolidation.
The wealth effect from the news was immediately significant, with all partnership units rising substantially on the stock market.
Kinder Morgan Energy Partners is the largest master limited partnership in the United States and has been a top choice among income-seeking investors. The partnership was worth approximately $80.0 billion, or $80.00 per unit, with a 6.9% yield before news of its acquisition. It opened 20% higher, close to $100.00 per unit, on news of the deal.
Investors can choose cash or take up new shares in Kinder Morgan, Inc., which plans to increase its dividend 16% in 2015 to $2.00 a share. The company also plans to increase its dividend by at least 10% per year until 2020, and it’s likely that there will be a number of smaller divestitures over the coming quarters.
Once the company acquires all its related corporate entities, it will be the largest energy infrastructure company in North America. Management expects its debt to be investment grade, and the combined company should be able to garner a lower cost of capital.
The current environment is a great time to be in energy infrastructure. Transportation and storage of hydrocarbons is a growth business with rising domestic production.
And it’s tough to find double-digit … Read More
The Bureau of Economic Analysis (BEA) surprised even the most optimistic of economists when it reported the U.S. economy grew at an annual rate of four percent in the second quarter of 2014.
On the surface, the number—four percent growth—sounds great. But how serious should we take that gross domestic product (GDP) figure?
Firstly, I’d like to start by pointing out that the BEA often revises its GDP numbers downward. We saw this happen in the first quarter. First, we saw the BEA say the U.S. economy grew by 0.1% in the first quarter, then after a couple of revisions, they said the economy actually contracted 2.9% in the quarter.
I obviously expect the BEA to lower its initial second-quarter GDP numbers again.
But here’s what really worries me…
If the GDP data suggests the U.S. economy is growing, why are investors pricing in an economic slowdown?
The chart below is of the 10-year U.S. Treasury, the so-called safe haven. Back in 2007 to 2009, investors ran to U.S. Treasuries as a safe haven. As the U.S. economy improved, the yields on the 10-year U.S. Treasury started to rise as interest rates rose with general optimism towards the economy.
Chart courtesy of www.StockCharts.com
But since the beginning of this year, yields on the 10-year U.S. notes have declined 18%. This is despite the fact the biggest buyer of these bonds, the Federal Reserve, has stepped away from buying these Treasuries as its quantitative easing program comes to an end.
At the same time, we have the stock market finally starting to give in. So if the stock market is a … Read More
The one thing a business can’t do is manufacture growth. An enterprise is at the whim of the marketplace and the economic conditions that are present. This doesn’t mean, however, that there aren’t very good businesses to own, even if they do experience the business cycle.
All companies go through periods of slower, sometimes negative business growth. Once having identified a really good business, the catalyst for ownership becomes valuation.
AAON, Inc. (AAON) is a micro-cap company based out of Tulsa, Oklahoma. This enterprise sells heating, ventilation, and air conditioning (HVAC) equipment. It has a long track record of producing solid business growth and providing good capital gains on the stock market.
The company’s most recent quarter actually came in below consensus, but this is still a good enterprise to consider, as it is fairly valued.
Second-quarter sales were a record $92.3 million, but only grew 1.2% over the same quarter last year. Earnings were down 6.2% during the quarter, from $12.1 million to $11.4 million, comparatively.
Management noted that the increase in sales was mostly due to rising prices. The company finished the second quarter with lots of cash in the bank. The company is debt-free and expects full-year 2014 revenues and earnings to be stronger than last year.
As a business, AAON has a very good record of fairly consistent growth—and this is from the HVAC industry, which is mature and saturated.
The company’s first quarter of 2014 was very strong and contributed to a record first half of the year in terms of sales and earnings.
Another good business that’s very likely to keep producing good capital … Read More
Remember Alan Greenspan? He was the chairman of the Federal Reserve from 1987 to 2006. Several media sources, including this one, blamed the sub-prime mortgage fiasco that led to the Credit Crisis of 2008 on the easy money policies under the leadership of Greenspan.
But the Credit Crisis aside, it is ironic but true that Greenspan has had a knack for calling stock market bubbles correctly.
For example, in December of 1996, while chairman of the Federal Reserve, Greenspan grew wary about the stock market. In a now famous speech called the “Challenge of Central Banking in a Democratic Society,” along with other observations on the value of stocks, Greenspan essentially argued that the rise in the stock market at that time wasn’t reflective of the poor economic conditions that prevailed.
Within two years of that speech, the stock market started to decline and stocks did not recover until 2006.
In an interview with Bloomberg a few days ago, Greenspan said, “the stock market has recovered so sharply for so long, you have to assume somewhere along the line we will get a significant correction.” (Source: “Greenspan Says Stocks to See ‘Significant Correction,’” Bloomberg, July 30, 2014.)
In the interview, Greenspan says long-term capital isn’t growing and as a result, productivity and the economic recovery will be in jeopardy.
Greenspan is out of the Federal Reserve. But the leader of the Fed today, Janet Yellen, also has reservations about the value of certain stocks. As I wrote on July 16, Yellen had been quoted saying tech stocks were priced “high relative to historical norms.” (See “How Many Warnings Can … Read More
The S&P Case-Shiller 20-City Home Price Index, a measure of the housing market in key American cities, declined in May by 0.31% from April—the first monthly decline in home prices in 27 months. (Source: Federal Reserve Bank of St. Louis web site, last accessed July 30, 2014.)
The number of homes being built in the U.S. is also falling. In June, the annual rate of new homes being built in the U.S. housing market declined 9.3% from May to the lowest level in eight months. (Source: U.S. Census Bureau, July 17, 2014.)
And pending home sales in the U.S. housing market declined in the month of June by 1.1% from the previous month. Pending home sales now sit 7.3% lower than they were in June of 2013. (Source: National Association of Realtors, July 28, 2014.) Pending home sales are considered to be a leading indicator of the housing market.
As no surprise, companies directly related to the housing market are struggling. The chart below of the U.S. Housing Index tracks the stock prices of companies involved in construction, mortgages, and home-building materials.
Chart courtesy of www.StockCharts.com
The chart is collapsing, trading near its lowest level of 2014. Over the past few days, the index fell below both its 200-day moving average and its 50-day moving average.
Dear reader, please let me set the record straight: I don’t expect to see an outright collapse in home prices like we saw in 2007. What I am pointing out to you today is that the momentum we saw in the U.S. housing market in 2012 and 2013 is dissipating.
This observation is consistent … Read More
The Dow Jones Transportation Average is close to breaking its 50-day simple moving average. This, in itself, is not the end of the world; it did so most recently in April and recovered nicely.
But it is worth keeping an eye on, especially because the stock market is looking so tired right now.
Earnings are still streaming in and are generally okay. But there’s diminishing momentum. If the broader market opens up on positive news, on many days, it’s not able to sustain the gains. This is indicative of a stock market due for a break.
Summer action is typically slower, and while a 10% stock market correction would make it easier to put new money to work, the investing guide should be corporate outlooks—and they are pretty good going into 2015.
With Federal Reserve certainty, which includes diminishing quantitative easing and a very low interest rate environment going into 2015, the stock market is well informed regarding monetary policy.
Balance sheets remain in excellent condition, especially among blue chips, and the NASDAQ Composite is maintaining its leadership relative to the other benchmarks, which resumed about one year ago.
While the stock market has definitely earned a meaningful break, it very well could turn out to be another positive year with high single-digit returns, not including dividends. This is on the back of an exceptionally good year in 2013—a breakout year from what I view as the previous long-run cycle, that being a 12-year recovery period for the stock market.
But with this fundamental backdrop, I still view investment risk as being high and that quality is something that equity … Read More
Yesterday, the Dow Jones Industrial Average fell 317 points, while the NASDAQ Composite Index fell 93 points—respective losses of about two percent per index. This morning, stock market futures are down again.
As a reader of Profit Confidential, this “rout” we are now in should come as no surprise. I have been writing for months how overpriced the stock market has become, how the stock market has become one big bubble thanks to the easy money policies of the Federal Reserve, and how the bubble would burst.
Yesterday, those who have been riding the stock market’s coattails higher and higher got the first taste of what is being called a “correction” by the mainstream media. But like I just said, to me, this is a stock market bubble that is bursting—very different than a correction. For months, historically proven stock market indicators (many of which I have written about in these pages) have been flashing red…but very few investors paid any attention to them.
The Dow Jones is now down for 2014. Yes, seven months into the year and big-cap stocks have gone nowhere. So far in 2014, investors would have done better owning gold and silver or U.S. Treasuries.
I have been predicting this will be a down year for the stock market and I’m keeping with that forecast. After five consecutive positive years for the stock market, the bounce from the 2008 market low of 6,440 on the Dow Jones could finally be over.
Dear reader, as elementary as it sounds, interest rates are the catalyst for all this.
After falling for 30 years, a time in … Read More
In what is on par with the course in today’s stock market, biotechnology firm Amgen Inc. (AMGN) posted double-digit revenue and earnings growth while raising its full-year outlook.
The kicker for this stock and its recent price strength was the news that the company plans to cut 12%–15% of its global workforce (2,400 to 2,900 employees) and close four of its facilities in Washington and Colorado. A lot of the job cuts will be to middle management, according to Amgen’s Securities and Exchange Commission (SEC) Form 8-K.
The company’s second-quarter sales grew 11% to $5.18 billion on strong sales and better margins on “ENBREL,” which is a treatment for arthritis. GAAP (generally accepted accounting principles) earnings grew 23% to $1.55 billion, while adjusted earnings per share grew 25% to $2.37.
On the back of such a strong earnings performance, you’d think the company would be hiring. But such is the marketplace with large corporations and large institutional investors.
Amgen has finally broken out of a 12-year price consolidation on the stock market and is set for more capital gains.
A share split wouldn’t be a surprise and the company is well positioned to provide shareholders with another dividend increase at the beginning of next year.
While Wall Street earnings estimates are going up for this company, I would say that a lot of good news (and drug development expectation) is built into the share price. Still, I don’t see Amgen as overpriced considering its business plan for the next few years. The company’s new restructuring plan is substantial and is likely to be rewarding to stockholders.
Healthcare-related stocks are proven … Read More
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