Posts Tagged ‘stocks’
Crude oil has pulled back from its recent price strength, but it’s still holding up pretty well above the $100.00-per-barrel mark for West Texas Intermediate (WTI).
Energy is still a top sector for equity portfolios, but it is the case that many oil stocks have already moved up tremendously and valuations are a little stretched.
I’m a big believer in energy infrastructure and pipelines for income-seeking investors and junior energy stocks for risk-capital investors.
It’s more difficult to find value in this market; that’s for sure. But domestic oil and gas production, transportation, and storage remain a growth industry.
Halliburton Company (HAL) just reported another great quarter, with its oil and gas services still being pretty robust worldwide.
In particular, Halliburton’s management noted solid strength in the U.S. market for energy services, and that’s on top of several tremendously good years in recent history.
According to the company, 2014 second-quarter sales came in at $8.1 billion, up solidly from first-quarter sales of $7.35 billion and comparative second-quarter sales of $7.32 billion last year.
Recent quarterly revenues were a new record for Halliburton, with notable strength in its North American operations. In fact, domestic operations are so strong that management plans to immediately add new equipment, transportation capabilities, and work crews for hydraulic fracturing.
The company’s operating margins are rising (internationally, as well), and the board just increased its share repurchase authorization by a huge $4.8 billion to $6.0 billion in total.
Halliburton’s share price is up 40% year-to-date, and I’d say there’s a good probability the position is going higher yet, as it’s not overpriced for double-digit growth.
The company’s … Read More
One stock that’s experiencing serious upward price momentum is in the equipment rental business. Momentum stocks might typically be associated with other market sectors, but United Rentals, Inc. (URI) is doing fantastic operationally and the market is bidding.
It’s kind of odd to think of an equipment rental company soaring on the stock market, but United Rentals is doing just that. In its most recent quarter, the company handily beat Wall Street consensus and raised its full-year guidance.
According to the company, its second quarter produced sales of $1.4 billion, up 16.7% from $1.2 billion in the same quarter last year.
Management said that the company is experiencing solid demand in non-residential construction. It’s renting out more equipment at higher margins than normal.
Second-quarter earnings were $94.0 million, or $0.90 per diluted share, compared to $83.0 million, or $0.78 per diluted share, representing a gain of about 15%.
Adjusted earnings per share were $1.65 on a diluted basis, which was way above Wall Street consensus.
United Rentals is one of the largest equipment rental companies in the world, with more than 12,000 employees. The company is considered a mid-cap stock and has been doing extremely well since the middle of 2012, which you can see in the stock chart below.
Chart courtesy of www.StockCharts.com
Not only did United Rentals beat consensus, but it also raised its outlook for adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and tightened its revenue range to $5.55–$5.65 billion for all of 2014, up from the previous outlook of $5.45–$5.55 billion.
Many companies do not have their SEC Form 10-Q documents ready when they … Read More
The tally as of this morning:
The stock market is up 2.4% so far in 2014 as measured by the Dow Jones Industrial Average, while gold bullion is up 8.1% for the year.
“As an investor, do I get into gold or stocks at this point in the year?”
Well, if you’ve been reading my articles for a while, you know I’m not a fan of stocks right now. I simply believe the stock market has become a Federal Reserve–induced bubble.
And while there has been a lot written about price manipulation in the gold market, and while mighty Goldman Sachs still says the metal is headed lower in price, investors should look at gold bullion right now…that’s both old gold investors (so they can average down their cost) and new gold investors taking their first position.
Here are my reasons why…
In 2013, the Indian central bank and government imposed tariffs and restrictions on the importation of gold bullion into India, as they believed the demand for gold bullion in the country was hurting its national accounts. In the first quarter of this year, India started to ease its gold importation restrictions, and bang, last month, gold bullion imports into the country increased by 65% over June of last year. (Source: Bloomberg, July 16, 2014.) Demand for gold bullion in China, which I’ve documented in these pages, is also very strong.
Inflation, what gold bullion acts as a hedge against, is starting to gain momentum. The Producer Price Index (which tracks changes in the prices producers pay) increased by 0.4% in June from the previous month; that’s an annualized … Read More
The numbers are still coming in pretty good this earnings season and corporate outlooks are holding up well for the year.
Stocks have been trading off of Federal Reserve Chairman Janet Yellen’s monetary policy report to Congress, and less so on earnings.
This market is tired and you can see it in the trading action of individual stocks that beat the Street with their earnings. Most market reaction is pretty mute.
One that wasn’t, however, was Intel Corporation (INTC). The company’s second quarter really got institutional investors fired up. The stock was $26.00 a share mid-May; now it’s close to $34.00, which is a very big move for this company.
Microsoft Corporation (MSFT) doesn’t report until next week, but the company’s shares moved commensurately with Intel’s.
Earnings strength from these older technology benchmarks is really good news for both the stock market and the economy in general. It means that the enterprise market is spending money again, and that’s exactly what the technology industry needs.
Even Cisco Systems, Inc. (CSCO) got a boost from Intel’s earnings results. This stock has been trying to break out of a long price consolidation. It hasn’t really done anything on the stock market since its bubble burst in 2000.
I actually view Microsoft as an attractive company for equity portfolios looking for higher-quality stocks.
The position is very fairly priced and offers a current dividend yield of just less than three percent. And management has a multifaceted business plan focused on growth in personal computers (PCs), the cloud, and devices.
But the best potential with a company like Microsoft is its prospects for … Read More
The numbers are in from Johnson & Johnson (JNJ) and they’re good. The position sold off on the news, which is no big surprise considering how well it’s done since the beginning of the year.
Johnson & Johnson is still mostly a pharmaceutical play, but it won’t likely be able to produce the same growth results it experienced from its hepatitis C drug in its most recent quarter.
The company adjusted its earnings-per-share guidance slightly higher and lowered its full-year sales guidance also just slightly.
The second quarter saw the company produce sales growth of nine percent to approximately $19.5 billion and adjusted earnings growth (excluding one-time items) of about 12% to $1.66 a share, which handily beat Wall Street consensus. (See “Why This Institutional Favorite Tops My List of Stocks.”)
While I do think that second-quarter earnings from blue chips will be pretty decent, it’s not unreasonable at all for these positions to sell off on the news. Stocks have come a long way, even just since the beginning of this year.
The stock market needs a break, or at the very least, another material price consolidation. It would be a healthy development for the long-run trend.
Another company that just reported a decent second quarter was CSX Corporation (CSX), which is the biggest railroad in the eastern U.S. market.
Management cited broad-based economic momentum in its rail freight business. The company’s numbers basically met consensus with second-quarter sales growth of 6.5% to $3.24 billion and earnings of $529 million, or $0.53 per share, up a penny from consensus.
The company plans to increase its capital spending … Read More
There are two important charts I want my readers to see this morning.
The first is a chart that is an indirect measure of demand in the global economy. Right now, the Baltic Dry Index (BDI) sits at its lowest level of the year. Since the beginning of 2014, the BDI has fallen 60%.
The BDI measures the cost of moving major raw materials by sea in the global economy. The thinking is that the lower the cost to move goods by ship, the lesser the amount of goods to move (a strict demand/supply price situation).
Chart courtesy of www.StockCharts.com
What’s happening with the steep drop in the BDI can be seen in a corresponding slowdown in the global economy.
Germany, the fourth-biggest economy in the world, saw its industrial production decline by 1.8% in May after falling 0.3% in April. (Source: Destatis, July 7, 2014.)
Great Britain, the sixth-biggest market in the global economy, saw its production decline 0.7% in May, while its manufacturing decreased 1.3%. (Source: Office for National Statistics, July 8, 2014.)
France, the fifth-biggest economy, reports no gross domestic product (GDP) growth in the country in the first quarter of 2014. (Source: MarketWatch, July 8, 2014.)
In 2014, the Chinese economy will grow at its slowest pace in years. In Japan, the Bank of Japan (its equivalent to our Federal Reserve) has announced it will start buying exchange-traded funds (in specific, the Nikkei 400 ETF) to “boost the impact of (its) unprecedented easing.” (Source: “Bank of Japan Seen Buying Nikkei 400 ETF,” Financial Post, July 10, 2014.) Yes, the central bank of Japan is buying … Read More
What led to the 2008/2009 stock market and real estate crash and subsequent Great Recession can be attributed to one factor: the sharp rise in interest rates that preceded that period.
In May of 2004, the federal funds rate, the bellwether rate upon which all interest rates in the U.S. are based, was one percent. The Federal Reserve, sensing the economy was getting overheated, started raising interest rates quickly. Three years later, by May 2007, the federal funds rate was 5.3%.
Any way you look at it, the 430% rise in interest rates over a three-year period killed stocks, real estate, and the economy.
My studies show the Federal Reserve has historically taken things too far when setting its monetary policy. It raised interest rates far too quickly in the 2004–2007 period. And I believe it dropped rates far too fast since 2009 and has kept them low (if you call zero “low”) for far too long.
In the same way investors suffered in 2008–2009 as the Fed moved to quickly raise rates, I believe we will soon suffer as the Fed is forced to quickly raise interest rates once more while the economy overheats.
It’s all very simple. The U.S. unemployment rate is getting close to six percent. The real inflation rate is close to five percent per annum, and the stock market is way overheated. The Fed will have no choice but to cool what looks like an overheated economy. But the Fed won’t be able to do it with a quarter-point increase in interest rates here and there. It will need to raise rates by at least … Read More
Stocks are going to gyrate around second-quarter earnings, but that’s exactly what this market needs—the corporate bottom line and expectations for the rest of the year.
With so many stocks trading at their all-time record-highs, I view investment risk in equities as being high at this time.
This is actually a tough environment in which to be an investor looking for new positions. There’s not a lot of value around and good businesses have already been bid.
It’s been years now since the stock market was first in need of a material price correction, and the next one will probably come out of nowhere.
It could be a shock from the Federal Reserve, but the central bank has been extremely delicate in how it effects and communicates monetary policy. More likely, stocks will be vulnerable to an unforeseen shock like a geopolitical event or a big derivative trade gone bad.
The risks are out there and stocks are long overdue for a reckoning.
With this in mind, I’m still a fan of the market’s existing winners, especially dividend-paying blue chips. In the absence of a shock, I think they’ll just keep pushing new highs going right into 2015.
3M Company (MMM) is an enterprise worth following and owning as a long-term, income-seeking investor.
The company’s earnings are material and offer good market intelligence, even if you aren’t interested in owning the stock.
The position has tripled in value on the stock market since the beginning of 2009, while also paying some great dividends.
The stock is still strong in the current environment, and the company represents exactly the kind of … Read More
If there ever was an equity security epitomizing the notion that the stock market is a leading indicator, Caterpillar Inc. (CAT) would fit the bill.
This manufacturer is in slow-growth mode, but it’s been going up on the stock market as institutional investors bet on a global resurgence for the demand of construction and other heavy equipment and engines.
And the betting’s been pretty fierce. Caterpillar was priced at $90.00 a share at the beginning of the year. Now, it’s $110.00, which is a substantial move for such a mature large-cap. (See “Rising Earnings Estimates the New Catalyst for Stocks?”)
The stock actually offers a pretty decent dividend. It’s currently around 2.6%.
While sales and earnings in its upcoming quarter (due out July 24, 2014) are expected to be very flat, Street analysts are putting their focus on 2015. Sales and earnings estimates for next year are accelerating, and it’s fuel for institutional investors with money to invest.
The notion that the stock market leads actual economic performance is very real. Just like there are cycles in the economy, the stock market itself is highly cyclical. And while every secular bull market occurs for different reasons, there are commonalities in the price action.
Caterpillar’s share price is going up on the expectation that its sales and earnings (on a global basis) will accelerate next year.
Transportation stocks, as evidenced by the Dow Jones Transportation Average, are the classic bull market leaders.
Transportation, whether it’s trucking, railroads, airlines, or package delivery services, is as good a call on general economic activity as any. The Dow Jones Transportation Average was … Read More
It’s no surprise that the railroad business is doing well. We’ve been looking at Union Pacific Corporation (UNP) and other railroad stocks consistently in these pages for a number of years.
But not only are pure-play railroads doing well, offshoots within the industry are also booming.
It’s a good time to be in railroad stocks, and if you believe that the economy is ready to experience a new business cycle like I do, then these stocks have a lot more legs in this market.
I still like Union Pacific and Canadian National Railway Company (CNI) both for capital gains potential and income for investors.
The railroad business isn’t complicated. If there is demand for the shipment of freight, railroad companies add railcars. Accordingly, a company that manufactures railcars and other related products is likely doing pretty well considering how strong railroad stocks have performed over the last several years.
The Greenbrier Companies, Inc. (GBX) is a company we’ve looked at before. This business is headquartered in Lake Oswego, Oregon and business conditions are pretty good.
The company manufactures railcars for the North American market as well as Europe. But it’s not just a pure-play railcar supplier; the company makes barges for marine transportation and also sells specialized industrial fabrication for electrical, construction, and energy customers.
A lot of stocks related to the transportation/freight/railroad industry are doing great. The Greenbrier Companies is riding a wave of new manufacturing demand, and the stock just hit a new all-time record-high after reporting another great quarter. (See “Why These Four Rail Picks Are on My Radar.”)
According to the company, its bottom-line … Read More
By no surprise to me whatsoever, the government’s third and final estimate of first-quarter U.S. gross domestic product (GDP) came in at a negative annual pace of 2.9%. (Source: U.S. Bureau of Economic Analysis, June 25, 2014.) The U.S. economy’s growth rate in the first quarter of this year was the worst since 2009.
I’ve been writing since the fall of 2013 that the U.S. economy would see an economic slowdown in 2014. I have been one of the few economists warning of a recession in 2014. My calls are not to scare or create fear; rather, they are based on the government’s own data.
Not to boast, but it’s like the creators of the first-quarter U.S. GDP report have been reading Profit Confidential! Everything we have been warning about came out in this most recent GDP report.
I’ve been harping on about how the U.S. consumer was tapped out…and low and behold, consumer spending in the U.S. economy increased by only one percent in the first quarter of 2014. In the fourth quarter of 2013, consumer spending increased by 3.3%. The fifth year into the so-called economic “recovery” and consumers are pulling back on spending for the simple reason that they don’t have money to spend.
The poor have no money; the middle class has been wiped out. And the rich are far from spending enough to make up for the lack of spending by the poor and middle class.
But have no fear, dear reader; stocks are up. The stock market is telling us we have nothing to worry about? It seems so.
I, for one, … Read More
There are some companies—mature businesses with well-known brands—that continue to execute in a manner worthy of the finest growth stories.
While the stock market does its thing every day, I find that there are actually very few investment-quality stocks that deliver respectable returns consistently over time.
The business cycle exists, and so does the enthusiasm that institutional investors have for particular companies.
One company that I continue to like for long-term investors is NIKE, Inc. (NKE). Here’s the thing about this well-known athletic footwear and apparel manufacturer—the company just keeps on growing.
The fact of the matter is that the running shoe business is a good one, and solid management execution has allowed this company to deliver continued double-digit comparable growth in a world where mature economies are barely growing at all.
NIKE is worthy of long-term portfolios. The company pays a dividend with a current yield that is approximately 1.3%.
The stock has been in consolidation for a good seven months, but it’s performed incredibly well over the last 10 years and should continue to do so.
Once again, NIKE beat Wall Street consensus and the stock jumped after it reported great 2014 fiscal fourth-quarter and year-end financial results.
Fourth-quarter sales from continuing operations grew 11% to $7.4 billion. Currency neutral, the gain was more like 13%.
NIKE owns the “Converse” brand, and its sales grew in the double digits to $410 million. NIKE-branded products experienced gains in all geographic regions except Japan, where sales were flat on a comparable basis.
The company’s gross margin expanded due to higher average selling prices and more direct-to-consumer sales.
Bottom-line earnings grew … Read More
Every stock market portfolio should consider restaurant stocks if the risk tolerance allows for it.
This industry sector has a long track record of delivering good capital gains to investors, recognizing, of course, that all restaurant chains experience periods of turmoil and changes among consumer preferences.
In the restaurant business, competition is fierce, and because there are so many options, margins are slim.
Sonic Corp. (SONC) just reported its financial results for its third fiscal quarter (ended May 31, 2014).
The company’s system-wide store sales grew 5.3%, with total revenues (including both company-owned drive-ins as well as franchises) growing to $152 million, compared to $147 million in the same quarter last year.
The company opened 10 new drive-ins during its fiscal third quarter and earnings grew to $16.8 million, or $0.30 per diluted share, from $14.8 million, or $0.26 per diluted share, for an earnings-per-share gain of 15%.
Sonic’s two-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
The company expects earnings-per-share growth of between 14% and 15% in fiscal 2014, and the position is fully priced on the stock market.
Operationally, Sonic is experiencing renewed momentum in its business, with most new store openings being new franchises.
The stock did incredibly well from the late 1990s to the end of 2007, until the company’s growth picture turned. It wasn’t until the beginning of 2013 (like so many other stocks) that the company was able to reenergize operations. The stock has doubled over the last 18 months.
All restaurant chains experience periods when they just can’t produce the same growth as they used to. Combined with changes in … Read More
Everything in the stock market experiences its own cycle of enthusiasm among investors. And this is especially well illustrated among speculative issues.
There was a time only a few years ago when some of the hottest speculative stocks were in solar energy. Now this small equity universe is still trying to rebuild itself.
And in more recent history, 3D-printing companies experienced incredible capital gains, only to experience incredible capital losses in what is a commonality among the market’s most speculative stocks.
At the end of the day, high-flying positions are still real businesses that have to deal with managing their own business conditions and hype among institutional investors.
As an investor, you have to consider both realities—the growth an underlying business is experiencing and the enthusiasm the marketplace has for such an enterprise or sector.
Twelve months ago, 3D Systems Corporation (DDD) was trading at $44.00 a share. Then it appreciated to a high of $97.28, before spending most of this year retreating to the $50.00-per-share level.
It’s only recently that the position broke the $55.00-per-share barrier, still sporting a forward price-to-earnings ratio of approximately 46.
Fervor for speculative stocks definitely diminished at the beginning of this year, and it’s part of the cycle that equities perpetually experience.
At the beginning of 2013, the breakout was in large-cap blue chips. Institutional investors had just started buying these stocks, and they led the broader market higher.
Then the NASDAQ Composite began to improve and actually took the lead for a while. But even with the Federal Reserve onside, it didn’t take too long for big investors to just book some profits. … Read More
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