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

Posts Tagged ‘stock prices’

One in Five Companies Warning on Earnings?

By for Profit Confidential

All of a Sudden, Quarterly Corporate Earnings Are in TroubleTraditionally, the first big American public company to kick off each new corporate earnings season is Alcoa Inc. (NYSE/AA). For the current quarter, Alcoa reported a net loss of $178 million, or $0.16 per diluted share. The company stated it had some special restructuring costs in the quarter; if you were to exclude them, its corporate earnings were $0.09 per share. (Source: Alcoa Inc., April 8, 2014.)

As usual, investors grasping for any good news as a reason to push stock prices higher didn’t hold back. The chart below shows what happened as soon as the market for Alcoa shares opened after its corporate earnings release.

Alcoa Inc ChartChart courtesy of www.StockCharts.com

Alcoa’s stock prices gapped up almost five percent on its news that “it lost money but really didn’t lose money if restructuring charges were excluded.”

But how did Alcoa really do? The first thing I would do as an investor is see if sales at Alcoa are rising. In this case, Alcoa reported its revenue fell 6.5% in the quarter from the same quarter last year.

Then I would look at stock buybacks. Did Alcoa buy back any of its stock in the quarter that would have the effect of boosting its quarterly per-share earnings? Well, lo and behold, in the first quarter, the number of Alcoa’s diluted shares declined by more than five percent!

Please don’t get me wrong. I’m not saying Alcoa shares are a sell. In fact, I don’t follow the company at all. But when I see the stock market pushing the stock price of a company higher despite the company reporting a corporate earnings loss, … Read More

The “Big Thing” for Companies This Year

By for Profit Confidential

Here Come the Job CutsLast year, the “big thing” with companies was buying back their shares to boost per-share corporate earnings. In 2013, share buybacks hit their pre-financial crisis high. If big public companies didn’t buy back so much of their own stock in 2013, per-share corporate earnings just wouldn’t be that great.

This year, I expect share buybacks to continue at the pace we saw in 2013. Another “big thing” companies will do this year will be labor force reductions (cost-cutting) to make corporate earnings look better in light of generally weaker sales.

Companies have already started to lay out their plans for employee cuts…

Intel Corporation (NASDAQ/INTC) said it will be reducing its workforce by 5,000 this year. Here’s what the company spokesman, Chris Kraeuter, had to say: “This is part of aligning our human resources to meet business needs.” (Source: Randewich, N., “Intel to reduce global workforce by five percent in 2014,” Reuters, January 17, 2014.) Intel had flat fourth-quarter 2013 corporate earnings.

Hewlett-Packard Company (NYSE/HPQ), another major company in the key stock indices, is taking a similar approach. In 2014, it is expected to cut its workforce. According to its long-term restructuring plan, 34,000 jobs, or 11% of the total workforce, will disappear.

And job cuts aren’t just happening at companies in the personal computer (PC) industry…

We see this phenomenon occurring across the board. Companies in the retail sector are struggling as well. Macy’s Inc (NYSE/M) said it will be reducing its labor force to lower costs. As part of the company’s cost-cutting program to boost corporate earnings, it will be eliminating about 2,500 jobs in 2014. (Source: … Read More

Why I Would Buy This $1,000 Stock Over a $10.00 Stock

By for Profit Confidential

Why I Would Buy This $1,000 Stock Over a $10.00 StockI was looking at the chart of priceline.com Incorporated (NASDAQ/PCLN) the other day, as the stock surpassed the $1,000 level. But why would I consider paying so much for a stock when there are cheaper comparables in the same online travel space?

It’s true; there are less expensive online travel stocks than priceline.com. But when you are stock picking, you should look at the comparative valuation and growth metrics, and not simply stock prices. The problem is that many investors will tend to base their stock picking on the share price, but the reality is that determining which stock to buy is not like shopping for goods—you don’t always go for the lowest-priced item. It’s like the old adage, “You get what you pay for.” This also applies to stock picking.

Online travel provider priceline.com beat Google Inc. (NASDAQ/GOOG) to become the first company to break the $1,000-a-share barrier (excluding Berkshire Hathaway Inc.). This is an amazing accomplishment for a stock that debuted at $75.25 on March 31, 1999.

The key to priceline.com is that it was the first company to really drive the online travel segment and innovate its service offering along the way in spite of a growing number of competitors. This is why it is tops in the online travel sector.

Priceline.com Inc Chart

Chart courtesy of www.StockCharts.com

Of course, there are competitors such as Expedia, Inc. (EXPE) that you could consider when stock picking, but the company is over seven-times smaller than priceline.com, based on market cap.

Expedia Inc Chart

Chart courtesy of www.StockCharts.com

Based on comparative valuations, however, Expedia is more attractive, trading at 14.4X its 2014 earnings per share … Read More

Stock Market Correction: Why it’s Limited

By for Profit Confidential

earnings seasonsUnless we get a major shock like war or something related to the sovereign debt crisis in Europe, I don’t think the stock market is going to experience a lot of further downside. Stock prices might drift and then trade range-bound for a couple more months, but stock market valuations are fair and this provides a lot of cushion.

I do think there is more downside potential in gold, silver and oil prices and it’s not just related to slower growth in the global economy. A lot of the price weakness in these commodities is related to strength in the U.S. dollar, which experiences renewed enthusiasm every time there’s an uncertain development in the eurozone.

There remains, in my view, an underlying strength to the stock market at this time. Institutional investors want to be buyers in this market; they only need a reason to do so. I fully expect that large-cap companies that pay dividends will continue to be the market leaders going into 2013, because, in a slow growth environment, dividends income is crucial. I think it’s fair to conclude that expectations for capital gains are fairly low among all stock market investors, so dividends become the only way to beat the inflation rate.

Because we’re now in the lull between earnings seasons, increased dividends announcements are reduced. I think we’ll get another round, however, during second-quarter earnings season, largely because companies can and want to keep shareholders happy. The cash hoard among most large-cap companies remains substantial.

When share prices go down, yields for dividends go up of course. Most of the stock market’s leaders haven’t actually … Read More

What’s Really Going on with Big Banks

By for Profit Confidential

Big bank stocks have had a tough year in 2011. They’ve been beaten and bruised. Some big banks, like Belgian financial giant Dexia, have needed a government bailout. During the past week, all of the big banks have had a strong rally due to the added liquidity provided by the Federal Reserve and world central bankers, but do we really know what’s going on behind the scenes?

Why Michael’s Feeling Vindicated
this Morning

By for Profit Confidential

How do I feel this morning? Vindicated.
I’ve been writing on these pages for months that the stock market has been in a bear market rally that started in March 2009 and that stock prices would move higher before Phase III of the bear market ultimately sets in and brings stocks back down to their March 2009 lows. Over the past few weeks, I’ve been getting e-mails from my readers telling me that I’ve been in “bear market rally” mode for too long and that the markets were done…the bear market rally was over. And, presto, what do we get? A single-day 490-point jump for the Dow Jones Industrial Average yesterday—its biggest one-day gain in years!

Debt Crisis Aside—Let’s Get Down to Business with the Real Numbers

By for Profit Confidential

The European debt crisis has not gone away. The fix comes only at the end of the debt crisis’ beginning. Frankly, I’m kind of annoyed it took this long for policymakers to act. The domestic stock market has suffered long enough because of a lack of firm action on the European sovereign debt crisis. It isn’t going away anytime soon, but thankfully, the debt crisis is now being addressed.

Dow Jones at 12,000 Again:
Here’s What Happens Next

By for Profit Confidential

The Dow Jones Industrial Average blew past the psychologically important 12,000 level yesterday. What a feat! Less than a month ago, on October 4, 2011, the Dow Jones Industrial Average was at its lowest level since September 2010: 10,400. The widely followed stock index has gained 1,800 points, or 17.3%, in less than a month.

The Stock That Says a Thousand Words

By for Profit Confidential

What a difference a couple of months make! If we think back to early August of this year, we can remember several days in which the Dow Jones Industrial Average fell 400 to 500 points in a single day. As the stock market continued to deteriorate, stock advisors started throwing in the proverbial towel and turned big-time bearish.

Thinking of Investing in the Auto Sector?

By for Profit Confidential

As I have been saying for the last few years, the auto sector in the U.S. and around the world remains terrible; it’s a bad place to have placed your capital. Even with the recent decline in stock prices of automakers to decade lows, we are still not buyers and will not be in the near future. General Motors Corporation (NYSE/GM) recently fell to its lowest point since the 1950s. Its current market- ap is a mere $3.7 billion, which is quite amazing given the company once was the darling of Wall Street and the institutional crowd, and has long been considered a “widow” stock with a nice dividend. That was then. I would not touch GM. Its current ividend yield of 15.30% looks attractive, but stay away, as it is

based on a weak stock price. And given that GM has about $23.0 billion in net debt, it would not be a surprise to see management cut the dividend out partially or entirely to economize.

 Now some of you may be looking at the distressed auto sector and wondering if it is time to enter into positions. Our advice is a sound “No.” The sector is struggling with declining demand and the need for a major industry restructuring. Major car dealers are offering no interest financing, yet even this is having some problems in attracting buyers given the economic uncertainties. Even Japanese automakers are cutting estimates for car sales and you know this is a major red flag.

 News circulated today that billionaire investor Kirk Kerkorian cut his holding in troubled Ford Motor Company (NYSE/F) to 6.1% and added … Read More

The Strongest Indication Yet That
Stocks Are Short-term Oversold

By for Profit Confidential

Without getting too technical, investors have two ways to bet on the price direction of stocks. They can go “long” the market, which means they believe that stock prices will rise. Or they can go “short” the market, which means they are betting that stock prices will fall. Going “long” is easy; all investors need to do is buy stocks. And usually, when investors have a strong general consensus that the stock market will move higher, like they last did in October of 2007, stock prices go the opposite way and fall.

Four Reasons Why Stock Prices
Will Bounce Higher Now

By for Profit Confidential

Stocks have become severely oversold. The stock market is acting as if we are already in a recession. The dividend yields on many major corporations are back up over four percent…in an environment where the 10-year U.S. Treasury is yielding 1.9%.

Lots of Companies Doing Well, But
the Marketplace Isn’t Listening

By for Profit Confidential

You might not know it, but there is real strength in this market from a number of well-managed, dividend-paying stocks. When the broader market is gyrating and investor sentiment is weak, outperformance comes in the form of stability. Plenty of stocks in this market are outperforming the broader stock market and, in spite of all the worries about the sovereign debt crisis and the outlook for economic growth, the earnings picture continues to look good.

Reverse-merger Stocks:
A Game of Risk and Reward

By for Profit Confidential

Chinese stocks continue to struggle given the stalling in the Chinese economy. Yet this does not mean we should all run way from Chinese stocks. There are numerous strong Chinese companies with a worldwide presence. For instance, to take advantage of the country’s massive cell phone market of over 800 million users, I like China Mobile Limited (NYE/CHL).

New Higher Margin Requirement
for Gold an Investor Opportunity

By for Profit Confidential

After months of patient waiting, the gold stocks came to life yesterday. Right across the board, whether it was junior or senior gold producers, the stock prices of gold companies were up sharply Wednesday. Hopefully, my readers have been following my guidance and seeking refuge in the gold-mining companies. Since the spring of this year, gold bullion prices have been rising sharply, while gold stocks stood pat. I have been writing that the leaders of the gold bull market would shift from the actual bullion to the gold stocks, and that’s what started happening Wednesday.

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