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

Technology Stocks

Stocks that are involved in the development of new technologies fall into this category. This can involve both hardware and software firms. Electronics, computers, services that develop new software, and periphery businesses all fall under the heading of technology stocks. Technology is being used increasingly in all sectors of the economy, which is why this sector is a growing field. New developments in hardware and software are being made every day and innovation continues to enhance our society.

Rising Earnings Estimates the New Catalyst for Stocks?

By for Profit Confidential

Where Street Estimates Pointing 2015No doubt, trading volume for a lot of stocks has been on the decline, and while this is traditionally a sign of a market that’s topping out, this potential outcome would be well-deserved and no surprise.

It’s the lull between earnings seasons and the beginning of summer trading action. Volume is going to be lighter, and stocks are due for a correction—even a big one. So I don’t think this market is running out of gas; it’s just tired and investors are looking for catalysts.

Following earnings forecasts, old-school technology stocks like Microsoft Corporation (MSFT) and Oracle Corporation (ORCL) are seeing their estimates going up for 2015. And Wall Street’s even nudging estimates for the financials higher.

Even if stocks are tired and volume is declining, rising estimates for next year is a positive trend.

As most blue chip corporations did OK in the first quarter of 2014 (see “1Q Earnings Not Giving the Market the Boost It Needs”), one commonality among many multinational companies was improving business conditions in Europe. It will be very interesting to see if this trend holds during second-quarter reporting. If it does, it increases the likelihood that multinational businesses will see their 2015 earnings estimates nudged higher yet.

Street estimates for Caterpillar Inc. (CAT), which is a very international business, have been going up across the board for this year and next. While the market expects total sales to be basically flat in 2014 (compared to 2013), current consensus is for around six-percent sales growth in 2015.

And there’s a similar scenario with other Dow Jones stocks like Cisco Systems, Inc. (CSCO) … 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

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

Former Momentum Stocks Signpost to Sell?

By for Profit Confidential

Price Momentum Suggests Portfolio RebalancingA good amount of speculative fervor has come out of this market so far this year, but there’s still quite a bit of valuation froth around.

Across the board, 3D-printer stocks have come back. 3D Systems Corporation (DDD) still boasts a trailing price-to-earnings (P/E) ratio of around 150.

Tesla Motors, Inc. (TSLA) is still going strong. It’s one of few super-hyped stocks that made a strong recovery in January after a material sell-off months before. (See “Buy High, Sell Higher: Top Investment Strategy for Buoyant Markets?”) The position just bounced off $265.00 per share. Next year, Wall Street estimates the company will do more than $5.0 billion in sales.

Looking at the stock market currently, there’s a lot of indecisiveness and geopolitical events are overshadowing the action.

Watch large-cap biotechnology stocks (or the NASDAQ Biotechnology Index) for their trading action specifically. This group of stocks reaccelerated strongly in February and is very much overdue for a material correction.

I’ve noticed several key momentum stocks within the group have started rolling over. This should be a strong contributing indicator to the short-term action unrelated to specific events happening in Ukraine.

Gold is holding up well with the geopolitical tensions, and oil prices are too, but to a lesser degree.

Stocks are due for a break. What looked like the makings of a material correction in January, equities reversed direction after the Federal Reserve, once again, reiterated its willingness to be highly accommodative to capital markets.

This kind of market (after such a strong 2013 for stocks) warrants a significant degree of caution. I wouldn’t be jumping onto any bandwagons. … Read More

Should Your Portfolio Strategy Focus on Geopolitical Events?

By for Profit Confidential

Are Geopolitical Events Now the Catalyst for StocksStocks have been choppy since the beginning of the year and geopolitical events are now the near-term catalyst.

It’s a good reminder that it’s worthwhile to review investment risk to equities and what you can tolerate in terms of potential downside with stocks.

As these pages are focused on the equity market, investment risk is always a priority. Portfolio risk can get lost in a bull market, but it’s still a huge part of the equation in terms of overall strategy.

There’s just so much beyond your control as an individual investor. At the end of the day, with stocks, it’s an investment in a business commensurate with a bet that its per-share worth (which is only definitive in the event of a buyout) will be recognized by a marketplace ruled by fear, greed, and emotions.

In late 1999, The Procter & Gamble Company (PG) had an earnings miss and the stock was basically cut in half, as the hype related to technology stocks was coming apart. It took five full years for Procter & Gamble’s share price to recuperate from the sell-off; and while the company was still paying its dividends, that’s a long time for any equity investor.

Stocks always correct themselves eventually, but excessive pricing (like in other asset classes) can last for quite a while. Procter & Gamble’s long-term stock chart is featured below:

PG Procter Gamble Company Chart

Chart courtesy of www.StockCharts.com

In terms of portfolio strategy related to stocks, a multi-faceted investment strategy is key. This means varying holdings among industries, stock market capitalizations, dividend paying stocks, and pure-play bets.

An individual investor certainly doesn’t have to be the … Read More

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