Spring is finally here, but that certainly doesn’t mean corporate America will cease to use the cold weather as an excuse for abysmal corporate earnings. Throw a dart at any sector, and you’ll find CEOs blaming the weather in some capacity—well, save for the utilities companies.
One sector that might be able to (on some level) justifiably blame the weather for a weak start to the year is the auto sector. Overall, U.S. auto sales were up eight percent year-over-year, while Canadian auto sales were up four percent. (Source: Isidore, C., “Car sales make a strong comeback in 2013,” CNN Money web site, January 3, 2014.)
In 2013, U.S. auto sales topped 15 million for the first time since 2007. While auto sales of 15.6 million were below the 16.0 million forecast by analysts, it was still an encouraging sign for the auto industry. Ford Motor Company’s U.S. sales were up 11%, while Chrysler Group LLC saw its sales climb by nine percent, and General Motors Company reported a 7.3% increase.
The 2013 auto sales data is encouraging in light of the disappointing December sales numbers; this also happened to coincide with the start of the dastardly winter of 2014. The weak end-of-the-year auto sales sentiment skidded over into 2014. Auto sales missed both their January and February expectations.
So far, 2014 has been good for global auto sales. Global sales hit record territory in February, climbing seven percent year-over-year. Auto sales in China climbed 22%, while car sales in Western Europe climbed year-over-year for the sixth consecutive month. Spain led the way with an 18% jump in auto sales. … Read More
Problems in the Canadian economy are growing and whispers of an economic slowdown are looming in the air. If an economic slowdown does occur, the Canadian dollar will be the primary victim—and investors can profit heavily from this scenario.
The central bank of the country isn’t very optimistic about the growth. Commenting on the country’s first-quarter growth, the governor of the Bank of Canada, Stephen Poloz, said, “What we have seen is that the numbers in the first quarter have been a little shy of what we were expecting.” He added, “It’s easy to point to the weather as a qualitative explainer, but it is hard for us to believe that all of that is just that.” (Source: Woodbury, R., “UPDATE 3-Canada’s Poloz sees a future of slower growth, low rates,” Reuters, March 18, 2014.)
The Bank of Canada lowered its growth estimates from what it originally anticipated. It now expects the Canadian economy to grow at an annualized pace of 2.5% in the first quarter compared to the 2.9% it predicted in December.
The Bank of Canada isn’t the only place that is suggesting the Canadian economy is headed towards an economic slowdown.
The companies traded on Canadian stock exchanges are warning about an economic slowdown, too. We can tell this by looking at their corporate earnings. If their profits start to show troubles, then it means the overall economy may be slowing. Consider this: in the fourth quarter of 2013, 60% of all the companies on the Toronto Stock Exchange (TSX) missed their earnings expectations. (Source: Shmuel, J., “Why is the TSX rallying even as Canadian companies suffer?” … Read More
Income inequality plays an important role in whether or not an economy experiences economic growth. If a small number of people earn the majority of the wages in a country, that sets the country up for a disastrous situation. What this essentially does is create a significant disparity. You can expect to see certain businesses do really well while others struggle severely, which is the result of those who are earning fewer wages spending less and those who are earning a significant portion spending more.
Sadly, this is what we see in the U.S. economy. Income inequality is increasing. It suggests economic growth is a farfetched idea.
According to a study by the Paris School of Economics, in the U.S. economy, the richest 0.1% earns nine percent of the national income. The bottom 90% of Americans—the majority of the population—only earn 50% of the national income. (Source: Arends, B., “Inequality worse now than on ‘Downton Abbey,’” MarketWatch, February 27, 2014.)
Former Federal Reserve chairman Allan Greenspan said, “I consider income inequality the most dangerous part of what’s going on in the United States.” (Source: Well, D., “Greenspan: Income Inequality ‘Most Dangerous’ Trend in US,” Moneynews, February 25, 2014.)
Income inequality in the U.S. economy is very evident, no matter where you look.
As I mentioned earlier, when there is income inequality in a country, you can expect certain businesses to do poorly. For example, consider Wal-Mart Stores, Inc. (NYSE/WMT)—one of the biggest retailers in the U.S. economy known for its low prices. Due to the U.S. government pulling back on its food stamp programs, the company is worried. The executive … Read More
When you are looking at your portfolio and considering making adjustments, it’s important to take into account not only the current environment, but what potential changes could occur in the future that can alter your investment strategy.
Here’s a perfect example of what I’m talking about:
We all know that Japan has been trying to lower its currency in an attempt to stimulate its economy.
What’s a side effect of a weaker economy? Higher import prices, and since Japan relies almost entirely on imported energy, costs are rising significantly, which is hurting the average Japanese citizen since wages are not increasing.
Just recently, Japan announced that it is now drafting a plan that will reopen nuclear power plants, allowing the country to rely on nuclear power for their core power production once again. (Source: Iwata, M., “Japan sees key role for nuclear power,” Wall Street Journal, February 25, 2014.)
We all know about the horrible disaster that occurred at the Fukushima Daiichi plant, but as much as Japan doesn’t want nuclear power, the country is finding that it has no alternative.
This is a significantly bullish scenario for uranium stocks. Obviously, following the disaster, corporate earnings for uranium stocks fell sharply along with the price of the commodity. The natural investment strategy was to avoid this sector until there was some clarity about the potential for a renewed interest in uranium, which should help drive corporate earnings.
It appears we are certainly turning the corner, as 17 nuclear power plants are currently being screened to be restarted by the Nuclear Regulation Authority. In total, Japan has 48 nuclear reactors, which … Read More
Key stock indices were going through a rough patch from the beginning of the year until early February. Now, they seem to have some momentum to the upside. With this, investors are asking what kind of upside potential is possible. Will the key stock indices continue to increase and break above their previous highs, or are we due for another sell-off like the one we saw earlier, and only then will we see some good buying points?
Let me begin by saying what I have said many times in these pages before: 2013 was a stellar year for key stock indices, but now they need to breathe a little. The key stock indices may go above their all-time highs made at the end of last year, but the move isn’t going to be as robust. You might see a slow, dreadful move to the upside.
If this scenario does play out—key stock indices moving slowly and breaking above their all-time highs—the fundamentals are suggesting it won’t be a significant move.
Companies on the key stock indices are warning about their corporate earnings. For example, 66 companies on the S&P 500 have issued negative guidance about their corporate earnings in the first quarter of this year. (Source: “Slightly larger cuts to earnings estimates than average at mid-point of Q1 2014,” FactSet, February 14, 2014.) Corporate earnings estimates by analysts are also being slashed. Mind you, we are just in the second month of the quarter.
Major names on the key stock indices are reporting horrible sales. Consider Caterpillar Inc. (NYSE/CAT), a major industrial goods manufacturer, for example. The company reported its … Read More
I was reading an article that suggested investors are underestimating the extent that U.S. corporate profits could grow in 2014. And that the only reason the U.S. economy reported disappointing retail sales and weak jobs numbers and manufacturing data was because of the harsh winter weather. (Source: Shmuel, J., “Are EPS estimates currently too low?” Financial Post, February 18, 2014.)
Fortunately, so the story goes, the economy is so red-hot that once the snow thaws, investors will be rewarded with solid quarter-over-quarter corporate earnings growth. This suggests the weather has not just blinded investors to the fact that the economy has recovered (which it hasn’t), but that we are also so short-sighted that we can’t see the great gains waiting for us just around the corner—because if there’s one thing investors lack, it’s a desire to make money on the stock market…
I think investors are losing faith in Wall Street’s earnings potential because the corporations that go into making up the S&P 500 continue to warn us that their earnings are not going to be as great as they had hoped. And it’s not as if this is a new phenomenon.
Throughout 2013, as the S&P 500 marched steadily higher, an increasingly larger number of companies revised their earnings guidance lower each quarter. During the first quarter of 2013, 78% of S&P 500 companies that provided preannouncements issued negative earnings guidance; the second quarter came in at 81%; a record 83% of S&P 500 companies issued negative earnings guidance in the third quarter; and another record 88% did so in the fourth quarter.
For a country that is supposedly … Read More
We see there’s a significant amount of economic news mounting against the argument that key stock indices will go higher this year. We see major companies on the key stock indices reporting corporate earnings that are dismal to say the very least. We see indicators of prosperity suggesting the opposite is likely going to be true for the U.S. economy. Lastly, we also see troubles developing very quickly in the global economy.
First on the line are the corporate earnings of companies on the key stock indices—which is hands down one of the main factors that drive these indices higher. We see companies showing signs of stress. Consider General Motors Company (NYSE/GM), for example; the company’s corporate earnings declined 22% in 2013 from the previous year. (Source: “GM reports lower-than-expected 4Q earnings,” Yahoo! Finance, February 6, 2014.)
Some might call this a story of the past; we need to look at what the future looks like instead. Sadly, going forward, companies on the key stock indices and analysts look worried as well. Consider this: so far, 57 S&P 500 companies have issued negative corporate earnings guidance, while only 14 have issued positive guidance. At the same time, analysts’ expectations are coming down as well. On December 31, the consensus estimate expected S&P 500 earnings to grow by 4.3%; now, these expectations have come down to 1.5%. (Source: “S&P 500 Earnings Insight,” FactSet, February 7, 2014.)
Looking at the broader U.S. economy, it’s not moving in favor of the key stock indices, either—the economic data isn’t looking very promising.
Industrial production in the U.S. economy declined in January from the previous … Read More
Since the beginning of the year, key stock indices have fallen, and this is making investors nervous. They are asking what will happen next. The first month of the year is usually good for the stock market, but that wasn’t the case this year. The S&P 500 fell more than three percent and other key stock indices showed the same, if not worse, returns.
Will there be a sell-off in February as well?
Looking at historical returns, February is usually calmer on the stock market than January. For example, observing monthly returns from 1970 to 2013, the average return on the S&P 500 in January has been 1.23%; the average return on the S&P 500 in February in the same period has been 0.19%.
Will the S&P 500 rise in February after declining in January?
Between 1970 and 2013, the S&P 500 has declined in January 17 times. Eleven of those 17 times, the returns on the S&P 500 in February were also negative. The average return in those periods—when the S&P 500 declined in February after a decline in January—was 3.26%. If we take out the outlier—February of 2009 when the S&P 500 declined by more than 10%—this average becomes -2.52%. A simple probability calculation would show there’s almost a 65% chance the S&P 500 can go down in February. (Source: “$SPX Past Data,” StockCharts.com, last accessed February 5, 2014.)
Dear reader, remember that this information is from the past; market returns today can be completely different. You shouldn’t rely on historical facts alone when creating an investment strategy. You have to keep in mind that the stock market … Read More
When it comes to big-cap stocks, very few are larger than Apple Inc. (NASDAQ/AAPL).
But there’s one question many investors may be asking: is there an investment opportunity in Apple’s stock at current levels? I believe there may be, even after a strong move up since hitting a 52-week low in April at $385.10.
You have to be careful when looking at big-cap stocks and whether or not there is a strong investment opportunity going forward. Just because a stock has moved up over the past year, that doesn’t mean it’s necessarily overvalued.
There is one key question that you must ask yourself as an investor: can the big-cap stocks you’re considering continue growing their corporate earnings?
At the end of the day, an investment opportunity will only pay off if corporate earnings are generated in the future. I believe that Apple is still a great value at current valuations because the company will continue to drive corporate earnings higher.
Naturally, as with all big-cap stocks, the law of large numbers comes into play. Obviously, a company that is small can grow at a much faster rate than big-cap stocks such as Apple, which has a market cap of just over $500 billion.
However, don’t discount the ability of Apple to utilize its skills at innovation and marketing in generating corporate earnings. Apple, too, sees an investment opportunity in diversifying its customer base and introducing new products.
The big news recently has been the move by Apple into China.
Apple has signed a deal with China Mobile Limited (NYSE/CHL), which has approximately 760 million subscribers. Following the announcement of the … Read More
As the stock market continues moving higher, it becomes that much more difficult to find value stocks. They’re still there, but one needs to dig a bit deeper to find attractive valuations as part of one’s investment strategy.
One company that I’ve been researching lately is Sony Corporation (NYSE/SNE). Everyone is aware, I’m sure, of Sony, as it’s been around for decades. While the stock had a relatively strong performance in 2013, I believe there is potential for a very good year in 2014, in terms of corporate earnings growth.
When people think of Sony, I’m sure it might surprise them that the company is only worth approximately $18.0 billion. These days, when social media companies that don’t generate any income or, in cases such as SnapChat, don’t have any revenue are worth billions of dollars, the valuation of Sony certainly appears interesting.
But when you’re looking at an investment strategy for a company, there needs to be a catalyst for the stock to move higher. I believe that 2014 will present several important drivers that will propel the stock upwards.
My first point is the weakening of the Japanese yen. I believe that we will continue to see the Japanese yen weaken, which will have a positive impact on Sony’s corporate earnings. By incorporating this macro viewpoint into one’s investment strategy, it will help provide a diversified approach to generating returns.
The second point is the introduction of new gaming consoles. At the recent Consumer Electronics Show in Las Vegas, Sony announced that it had sold 4.2 million “PlayStation 4” units as of December 31, 2013. With sales beginning … Read More
What does it take to develop a successful, long-term investment strategy?
This is the correct question to ask, rather than asking simply which stock(s) to buy. To be successful over the long term, you need to have a comprehensive investment strategy that takes into account your goals and risk parameters.
Having said all of that, at the end of the day, I’m looking for a company that has both an attractive valuation and the ability to increase corporate earnings at a rate above market expectations.
One way to develop an investment strategy is to look at the factors driving corporate earnings for a specific industry and individual company.
A great example is the automotive sector and Honda Motor Co., Ltd. (NYSE/HMC). Based in Japan, Honda actually has several different segments that they sell into, with automotives being their most commonly known products sold worldwide.
Chart courtesy of www.StockCharts.com
Why do I think corporate earnings will continue rising at Honda, and what factors am I considering when looking at this stock as part of an investment strategy?
Looking at the automotive industry here in America, sales are obviously soaring now compared to what we’ve seen over the past few years. Is there any real sign that this will change anytime soon? I don’t believe so, and I think cheap financing will continue for some time.
Globally, car sales will continue to increase as many nations around the world are keeping interest rates low, creating cheap financing.
Another reason I believe Honda will continue to rise is the policies stemming from the Bank of Japan and the government of Japan. For those … Read More
Increasing optimism towards the key stock indices worries me. In the beginning of 2013, you would hear the bears’ opinions all over the financial news channels. Now, it seems they have all disappeared—or have turned outright bullish. No matter where I look, it’s pretty much the same opinion across the board in the mainstream: key stock indices are going higher, they say.
When I see all this, a quote from Sir John Templeton comes to my mind. He said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” (Source: SirJohnTempleton.org, last accessed December 11, 2013.)
You see, I remember exactly what happened in 2007. The opinions toward key stock indices back then were similar to what they are now. I remember watching financial news channels that were overrun with optimistic views on the key stock indices. We were assured nothing was wrong and all was well. Those who spoke against the rising stock markets, the news anchors laughed at them and questioned if they were still in touch with reality. Following this, we saw one of the worst sell-offs on key stock indices in history.
As it stands, the optimism towards the key stock indices today is increasing, while the fundamentals that drive the markets higher are weakening.
For example, corporate earnings outlooks—the main driving force behind the stock market—are looking grim. One can get a general idea of corporate earnings by looking at the guidance provided by companies on the key stock indices. Companies know their business and can see when conditions change well before anyone else.
For the fourth quarter, companies … Read More
The global economy looks to be in trouble, as there may be an economic contraction on the horizon. If all the pieces of the puzzle fall into place, companies on key stock indices might face issues in delivering corporate earnings.
Major economic hubs in the global economy are witnessing an economic slowdown. Those economies aren’t marching ahead, and their growth rates seem to be stagnant. If this continues, then it wouldn’t be a surprise to eventually see the global economy cave in, resulting in a global economic slowdown.
The eurozone, one of the biggest economic hubs in the global economy, remains under severe scrutiny. In the third quarter, the gross domestic product (GDP) growth rate for the common currency region declined to 0.1%, while in the second quarter, the GDP growth rate was 0.3%. (Source: “Second estimate for the third quarter of 2013,” Eurostat web site, December 4, 2013.)
The troubled countries in the eurozone, including Greece, Spain, and Portugal, are stuck in depression-like conditions, but major countries in the region also face economic pressures. For example, Germany’s third-quarter GDP growth rate came in at 0.3% compared to the second quarter, which saw 0.7% GDP growth from the previous quarter. (Source: Ibid.)
Australia, another major economic hub in the global economy, is facing headwinds as well. In the third quarter, the Australian economy grew by only 0.6% from the previous quarter. The annual GDP growth rate of Australia registered at 2.3%. In the second quarter, the Australian economy grew 0.7% and the annual growth rate was 2.4%. (Source: Kewk, G., “Australia’s economic growth falling short,” The Sydney Morning Herald web … Read More
A few days back, I got a call from my aunt, whom I haven’t spoken to in a while. It was shocking to me—no, not her calling, but rather what she asked me. Before I go into any detail, here’s some background information: as an investor, my aunt has a little experience with the stock market, but gave up because it didn’t suit her low risk tolerance.
“I have been saving money for some time now; it’s been sitting in my bank account and earning next to nothing,” she said to me. She heard on the news that the stock market in the U.S. is going higher and that the S&P 500 has reached its all-time high—she wanted to know what I thought she should buy. “I think it’s about time I take some risk,” she added.
My aunt hasn’t bought stocks in a while; in fact, she has missed out on all the gains made since the stock markets bottomed in 2009.
What does this tell me?
I find this a little scary, as should anyone who has been following the stock markets for a while. What my aunt said makes me skeptical; it shows that the notion of missing out is emerging. In the past, we have seen the stock markets reach their all-time highs, which gave investors the feeling they were missing out on gains. They bought, the key stock indices increased a little, and then the sell-off occurred; they got caught in it and lost a significant amount of their portfolio. Historically speaking, there are many examples of this.
As this is happening, I see the … Read More
As the key stock indices are going higher, there’s a growing concern among investors that we are reaching a top. There’s a significant amount of noise that says the key stock indices are running on nothing but free money and the fundamentals that drive them higher are dead. We’re hearing that it’s all going to fall soon.
To some degree, I agree that easy money has a hand in the rise of key stock indices, and that current corporate earnings aren’t all that impressive. However, while observing the markets over time, I have learned that tops and bottoms are not easy to predict; in fact, it’s impossible. That’s because it isn’t clear when they happen and they can only be identified once they have been made.
Going back to 2009—when the key stock indices weren’t in such good graces—there was a significant amount of noise saying they were going much lower. At that time, the bottom was placed in, but it didn’t become clear until later. In 2007, the key stock indices made a top, but it wasn’t apparent until they started to slide lower.
Investors who think the key stock indices are about to form a top, or have already formed one, have to be really careful in their predictions. If they believe their convictions are going to be correct, then they should go in with stops, in case the trade works against them.
Going forward in December, here’s what else investors need to know.
December is generally a quiet month on the key stock indices. For example, the average return on the S&P 500 in December from 1970 … Read More
You really can’t beat the Federal Reserve. Despite weak underlying fundamentals, Wall Street continues to rack up strong gains. So long as the Federal Reserve continues with its more-than-generous quantitative easing policy, the markets will continue to defy the laws of physics and climb higher.
For example, in the lead-up to the corporate earnings season, a record 83% of all S&P 500 companies revised their third-quarter corporate earnings guidance lower; so far, 486 companies on the S&P 500 have reported their third-quarter corporate earnings for fiscal 2013. The average increase in corporate earnings per share for the quarter is up 3.4% year-over-year. Take out all of the stock buybacks, and you’ll probably find that third-quarter corporate earnings were essentially flat.
With 97% of S&P 500 companies having already reported results, the percentage of companies reporting revenue above guidance (52%) is below the four-year average of 59%. As for the fourth quarter, 88% of reporting S&P 500 companies have issued negative EPS guidance. (Source: “Earnings Insight,” FactSet web site, November 22, 2013.)
Over the course of a year in which corporate earnings have been flat and revenues subpar, the S&P 500 is up almost 30%. That economic disconnect cannot continue forever—but it will, as long as the Federal Reserve fuels the fire.
A number of transportation stocks could be well-positioned to capitalize on improving micro and macroeconomics. The Dow Jones Transportation Average (DJT) is trading at an all-time high and is outpacing the S&P 500, up more than 36% year-to-date. Supporting the strength in transportation stocks is improved unemployment claims and an increase in building permits. Solid travel numbers over Thanksgiving … Read More
The companies on key stock indices are showing very troubling trends, which can cause them to slide lower and generate losses in investors’ portfolios. Don’t just look at the number on the surface.
As of November 8, 446 companies on the S&P 500 have reported their corporate earnings and 73% of them were able to show earnings above estimates. The corporate earnings growth rate was 3.4%. (Source: “Earnings Insight,” FactSet web site, November 8, 2013.)
These numbers certainly sound surprising on the surface, but just looking a little deeper into the details shows that they’re the only good thing about them. As mentioned earlier, 73% of them beat the corporate earnings estimates; sadly, only 52% of them were able to beat their estimated revenue.
This means that the companies aren’t selling as much; rather, their corporate earnings are coming from somewhere else. One place it could be is from cost-cutting; an example of this could be General Electric Company (NYSE/GE), one of the conglomerates on the key stock indices.
The company’s revenue fell 1.5% in the third quarter to $35.73 billion. The company also said that it has cut costs by $1.0 billion; the original goal was to make these cuts in one year, but it was able to do it in nine months. The CEO of the company expects more cuts coming until the end of the year. (Source: Linebaugh, K., “General Electric Slashes Costs,” The Wall Street Journal, October 18, 2013.)
Currently, the key stock indices are soaring higher each day, and they continue to break new records. Just look at the chart below of the S&P 500, … Read More
Consumer spending is very critical to the U.S. economy, as it makes up a significant portion of the gross domestic product (GDP). If consumer spending declines, then U.S. GDP growth becomes very questionable; when it increases, it can provide an idea about where the U.S. economy is heading.
I look at consumer confidence as one of the indicators of consumer spending. The logic behind this is that if consumers are confident, they will most likely spend more, compared to when they are pessimistic.
Sadly, the consumer confidence in the U.S. economy seems to be deteriorating these days. This is definitely not a good sign if we want the U.S. economy to improve going forward.
Look at the Conference Board Consumer Confidence Index, for example; in October, it witnessed a slide of more than 11%, having stood at 71.2 in October from 80.2 in September. The Consumer Expectations Index declined 15.5% in the same period. (Source: “Consumer Confidence Decreases Sharply in October,” The Conference Board web site, October 29, 2013.)
Some will blame the decline in consumer confidence on the U.S. government shutdown. This may not be completely true, however, as we have been seeing continuous deterioration in consumer confidence. Please look at the chart of the University of Michigan Consumer Sentiment Index below.
Chart courtesy of www.StockCharts.com
The University of Michigan Consumer Sentiment Index stands at the lowest level of 2013 in October. It has been declining since July.
Currently, we are seeing too much attention being paid to the key stock indices making new highs each day, but not to the underlying factors that affect them.
Consumer confidence declining … Read More
September is considered to be one of the most volatile months for the key stock indices. There are many reasons, including volume and trading activity going back to normal after summer. If you look back, you will find that some of the biggest crashes in the key stock indices we have seen were in this period as well. With this knowledge, one may wonder what investors should expect going forward this month. Are the key stock indices headed lower, or are we going to see a move to the upside?
Using the S&P 500 as the benchmark for key stock indices in the U.S. and looking at the monthly data since 1970, the average return for the month of September is a loss of 0.59%. The September with the greatest loss on the S&P 500 was in 1974, when the index declined 11.93%. The biggest gain in September was in 2010, when the S&P 500 increased by 8.71%. (Source: “Historical Price Data,” StockCharts.com, last accessed September 11, 2013.)
From 1970 to 2012, the S&P 500 has provided a negative return in 22 of those 43 years. The last September with a negative return was in 2011, when the index declined 7.19%.
What has been mentioned so far is mainly based on the price action, but investors really need to keep in mind that the returns can fluctuate and be completely different. They have to look at more than just one factor to determine where the key stock indices are headed next.
When it comes to earnings, one of the main drivers of key stock indices, things are looking a little … Read More
Consumer confidence seems to be deteriorating in the U.S. economy, and if it diminishes further, any economic growth will become questionable. When consumers are confident, they go out and spend, resulting in an increase in the consumer spending, which makes up 70% of the gross domestic product (GDP) of the U.S. economy.
Recently, clothing store chain Abercrombie & Fitch Co. (NYSE/ANF) reported that the company’s corporate earnings fell 33% in the second quarter of this year from the same period a year ago. The company’s same store sales declined 11% in the U.S. economy; this resulted in Abercrombie & Fitch lowering its outlook for the third quarter’s corporate earnings. (Source: “Abercrombie & Fitch Profit Slides, Cuts Outlook,” The Wall Street Journal, August 22, 2013.)
Sadly, when it comes to clothing stores, Abercrombie & Fitch wasn’t the only one that became the victim of diminishing consumer confidence; Aeropostale, Inc. (NYSE/ARO) faced scrutiny as well. The company registered a loss of $37.0 million in the second quarter, with the same store sales for the company declining 15%. Aeropostale was also hesitant about its outlook: “Our negative outlook for the third quarter reflects the challenges of a highly promotional and competitive teen retail environment which we expect will continue,” said Thomas P. Johnson, the company’s CEO. (Source: Ibid.)
While the above companies were mainly clothing stores, other retail giants like Wal-Mart Stores, Inc. (NYSE/WMT) and Macy’s, Inc. (NYSE/M) complained about consumer confidence as well, citing an increasingly tough business environment.
Here’s what you need to know: Companies, especially retailers of any sort, see trends in consumer confidence through their sales. If consumer confidence … Read More
Labor Day is coming up. On September 2, the North American key stock indices will be closed for business—no trading will take place. Not only will it mark the end of summer, but it will also be the last long weekend before the Thanksgiving weekend in November.
That said, one question comes to mind: why does Labor Day matter to investors; what’s so important?
First off, during the summer months, the volume on the key stock indices is usually low. This means participation isn’t as high, so major market moves usually don’t occur. In September, the volume then starts to edge higher. Those who were away for vacation come back to their trading desks and start buying or selling—in other words, they start adjusting their portfolio.
Keep in mind that the majority of the crashes we have seen in key stock indices occurred during the time between September and November. This includes, Black Monday (October 19, 1987) and the crash after Lehman Brothers failed and filed for bankruptcy (September 15, 2008).
Further, the key stock indices have accumulated some risks that investors shouldn’t forget, as they have increased significantly. Look at the chart below of the S&P 500:
Chart courtesy of www.StockCharts.com
Since the first trading day of the year, the S&P 500 has increased roughly 16%; other key stock indices have shown a similar performance. You have to keep in mind that this rise in the key stock indices was based on very weak growth in the U.S. economy—the gross domestic product (GDP) growth rate for the U.S. is anemic. In addition, the unemployment situation remains bleak.
On top … Read More
Investors need to be careful, as the risks on key stock indices are continuously piling up. They need to keep a close eye on their portfolio, and maybe should consider taking some profits off the table.
Since the beginning of the year, key stock indices, like the S&P 500, have been constantly increasing in value and making new highs. Recently, we witnessed the S&P 500 reach above 1,700, and other key stock indices, like the Dow Jones Industrial Average, entering uncharted territory as well.
With these increases, investors are now asking: how high can the key stock indices really go?
Looking at the broader picture, the U.S. economy isn’t performing as well as the key stock indices are suggesting. In times of high economic activity, the stock market tends to perform well. This is not the case for the U.S. economy as it stands, as the U.S. gross domestic product (GDP) only increased at an annual pace of 1.7% in the second quarter of this year. (Source: “Gross Domestic Product, second quarter 2013 (advance estimate),” Bureau of Economic Analysis, July 31, 2013.)
On top of this, the unemployment situation is still bleak in the U.S. economy, risking deterioration in consumer spending. The average American Joe is still facing many problems: look at food stamp usage and the amount of homes under negative equity, for instance.
Adding to the worries, the global economy is also showing signs of deep stress, with countries across the map showing concerns. For example, China is expected to show a significantly lower growth rate compared to its historical average this year, and the eurozone remains troubled … Read More
Sometimes, smaller companies are better equipped to take advantage of an economy in flux, in part because they can develop strategies and adapt more quickly than larger firms.
That’s what’s happening in the U.S. toys and games industry, as one small company has been showing solid growth while the big boys are faltering.
Traditionally, the toys and games industry is an important contributor to the U.S. economy. In 2012, it is estimated that the U.S. toys and games industry employed 31,000 people and generated around $20.0 billion per year in retail sales. With a 26.3% share of the annual global market, the U.S. is the top retail market for toys. (Sources: “Annual Sales Data,” Toy Association web site, last accessed July 17, 2013; “Toy Markets in the World Annual 2010,” Toy Association web site, October 17, 2011, last accessed July 18, 2013.)
Unfortunately, the weak economy, lower earnings, and changing attitudes are having an impact on some of America’s biggest toy manufacturers. On Wednesday, Mattel, Inc. (NASDAQ/MAT), the world’s largest toymaker, announced its second-quarter corporate earnings.
The company reported that earnings fell 24%, as kids continue to turn their back on its iconic product, “Barbie.” (Source: “Mattel Reports Second Quarter 2013 Financial Results — Declares Third Quarter Dividend and Increases Share Repurchase Program,” Mattel, Inc. web site, July 17, 2013.) Second-quarter worldwide sales of Barbies fell 12% year-over-year, which represents the fourth straight month of declines for Mattel’s flagship product.
By late Wednesday afternoon, investors responded to Mattel’s weak earnings results by sending its share price down more than seven percent.
Investors spooked by Mattel’s earnings also sent Hasbro, Inc.’s … Read More
Investors who have allocated significant portions of their portfolio towards the key stock indices should look into reducing their exposure, as they appear to be heading lower.
While the key stock indices soar and the most prominent stock advisors remain bullish, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), often referred to as the “fear index,” is indicating that they need to be very careful. The key stock indices may be entering a period of turbulence ahead.
Recently, a technical indicator called the “golden crossover” occurred on the VIX’s chart, indicated by the black circles in the chart above. This happens when the short-term or faster 50-day moving average crosses above the long-term or slower 200-day moving average. This is considered a bullish signal among technical analysts.
Please look at the chart below:
Chart courtesy of www.StockCharts.com
What’s even more interesting is that this crossover is the first since July 2011 and fourth since key stock indices like the S&P 500 started to tumble in late 2008. Whenever this type of crossover occurred, the S&P 500 declined, as shown by the green line below the chart above.
But the case for a decline in key stock indices goes beyond this one statistical phenomenon.
Consider this: according to FactSet, 87 companies on the S&P 500 have each issued a negative guidance regarding their corporate earnings for the second quarter so far, while only 21 have issued a positive guidance.
If the number of S&P 500 companies issuing a negative corporate earnings guidance remains at 87, then it will be the highest number since FactSet started to track companies’ corporate earnings … Read More
Despite the raft of negative economic news we’ve been seeing over the last umpteen months, additional sour news that backs up the prevailing negative winds on Wall Street still manages to shock even the most seasoned of analysts.
According to an article headline published by Dow Jones Newswires, “U.S. Factories Show Surprising Contraction.” I’m not sure why the editors at Dow Jones Newswires would be surprised—disappointed, perhaps, but not surprised—but apparently, they are. (Source: “U.S. Factories Show Surprising Contraction,” NASDAQ web site, June 3, 2013.)
They are surprised, in spite of high unemployment, falling median incomes, an increasing number of Americans receiving food stamps, high personal and student loan debt, and stagnant wages. Even Wall Street seems a little tepid. Of the S&P 500 companies that have issued corporate earnings guidance for the second quarter of 2013, almost 80% have issued a negative outlook.
So I’m not sure why anyone would be surprised that U.S. factories showed a contraction.
The Institute for Supply Management (ISM) said its index of economic activity in the U.S. manufacturing sector contracted in May for the first time since November 2012, and only the second time since July of 2009. After flirting with the 50.0 level, the Purchasing Managers’ Index (PMI) fell to 49.0 in May from 50.7 in April. A reading below 50.0 indicates a contraction in the manufacturing sector and, usually, ebbs and flows in step with the health of the economy. (Source: “May 2013 Manufacturing ISM Report On Business,” Institute for Supply Management web site, June 3, 2013.)
And it’s not as if the United States is an economic island. China, the … Read More
Investors interested in making long-term investing commitments in the face of an irrational, Federal Reserve–enhanced bull market need to consider the facts. Sure, the markets are running higher, but it isn’t on sound economic policy.
U.S. unemployment remains stubbornly high, as does personal debt. U.S. wages are stagnant, and first-quarter U.S. gross domestic product (GDP) growth came in well below the expected expansion rate. Of the S&P 500 companies that have issued corporate earnings guidance for the second quarter of 2013 so far, almost 80% have issued a negative outlook.
It’s fair to say the run-up on Wall Street has more to do with the Federal Reserve’s $85.0-billion-per-month quantitative easing policies and artificially low interest rates than it does an economic rebound.
Still, there are potential investing areas that even the Federal Reserve can’t touch. Case in point: no matter what happens on Wall Street, over the next 18 years, roughly 10,000 Americans will turn 65 every single day.
And over the next 20 years, they will each spend $142,000 in medical expenses, though that estimate is an average number and does not include long-term care costs that some retirees may incur. Or at least that’s according to a recent study that examined commercial data from 2002 through 2010 and Medicare data claims from 2006 through 2010. (Source: Yamamoto, D.H., “Health Care Costs—From Birth to Death,” Health Care Cost Institute web site, May 2013.)
Not surprisingly, the study found that the amount of health care a future retiree will need varies by their current age and life expectancy. If you retire at 55, you’ll spend about $372,400 ($744,800 for a … Read More
Even with some better economic news, it’s very important that investors not lose sight of the fact that the stock market is due for a massive correction.
The run-up since the beginning of the year is pronounced, but the stock market has basically been going up since the March 2009 low.
Corporate earnings are still being reported and, for the most part, the first quarter of 2013 was pretty decent.
It was very evident that revenues were light, but earnings at many companies beat consensus. What the numbers also revealed was a pronounced increase in cash balances at many brand-name companies. The financial health of U.S. corporations is getting better.
But with these fundamentals, the U.S. economy still has a long way to go in its recovery, and it’s important to view the stock market as a leading indicator that represents bets by institutional investors.
Institutional investors are paid to play. When they take in money, it has to go to work, because that’s what customers are paying for.
Corporations are also playing their role in this rising stock market. They’ve been very good at managing their earnings and satisfying what shareholders want—that is, earnings maintenance in a slow-growth environment, increasing share buybacks, and rising dividends.
What I gathered from first-quarter earnings season is that many corporations expect the bottom half of the year to be stronger.
It’s my view that institutional investors are betting on this expectation, because they have cash inflows that need to be put to work.
I’m actually quite surprised the stock market has not corrected already. Like earnings, the flow of economic news has some … Read More
Get ready for a stock market shakedown. It’s coming. It’s overdue.
I’m not as worried about blue chips. It’s the smaller companies that are all over the place, both operationally and on the stock market.
The lack of uniformity in smaller company sales and earnings exemplifies the jagged state of the U.S. economy. There is no rising tide to lift all boats, that’s for sure. But here are three companies that highlight the good, the bad, and the ugly in this jagged economy.
AAON, Inc. (NASDAQ/AAON) has doubled on the stock market since 2010.
Based in Tulsa, Oklahoma, the company manufacturers heating, ventilation and air conditioning (HVAC) units for rooftops. The company sells to new construction and replacement markets, and is about as old economy as you can get.
Its sales in the fourth quarter of 2012 grew a solid 23% to a record $78.0 million, up from $63.4 million in the comparable quarter. Earnings improved significantly, growing 770% to a record $7.6 million.
This position just hit a new record high on the stock market. Management expects another solid year in 2013.
U.S. Auto Parts Network, Inc. (NASDAQ/PRTS) is an online auto parts provider selling aftermarket engine and performance parts, along with accessories.
Sales in its latest quarter (ended December 29, 2012) fell to $62.8 million, down 19% from the comparable quarter. Changing search engine algorithms were an issue.
Earnings were a huge net loss of $30.8 million, or $0.99 per share, compared to a net loss of $7.0 million, or $0.23 per share.
On the stock market, this company is now worth one-quarter of … Read More
Very soon, the stock market will be overbought. It’s time to be extremely cautious.
Even in the face of mixed earnings and economic news, institutional investors keep buying this market. And while fundamentals don’t particularly support a rising stock market, there are a number of reasons why institutions have to buy. Here are just three of the reasons:
1. They Have the Money
There is a tremendous amount of cash sitting on the sidelines. Both individual and institutional investors have been very frazzled over the last few years, and corporations have, as well.
Earnings results from large mutual funds and investment corporations recently revealed billions of dollars of new cash inflows allocated to equities. That money has to be put to work, because that’s what customers are paying for.
2. There Is Nowhere Else to Go
Because interest rates are so artificially low, there is no other asset class, other than real estate, where investors can allocate their capital and expect to get a return that is greater than the rate of inflation.
Even if the stock market doesn’t do anything and corporations don’t show any growth in earnings, dividend payments and share buybacks are very well assured.
Institutional investors need to invest in this stock market, because bonds, currencies, and commodities no longer offer the right combination of income, safety, and prospective capital gains. This is why so many blue chips have been outperforming—they offer what the rest of the world does not.
3. They Have to Keep Up with the Joneses
Without a doubt, a herd mentality exists on Wall Street. Investment companies have been chasing the safest … Read More
“Buy low, sell high.” It seems so easy. Could there be a more simplified (read: misguided) piece of investing advice out there? In this economic climate, many investors who want to come in off the sidelines are wondering if a better adage would be, “buy high, and sell higher.”
On the other hand, after an explosive ascent, other investors are waiting patiently to buy on the eventual dip. The big question, of course, is when will there be a dip or market correction (a pullback of 10% or more) for investors to take advantage of?
It’s not as if there isn’t enough of a global impetus to drive a market correction. The U.S. is racked with massive debt and high unemployment, gross domestic product (GDP) growth has been revised downward, consumer confidence is down, retail sales are down, and personal debt is up. Building permits have declined since January, while foreclosure rates are picking up.
Not surprisingly, poor economic numbers are finally catching up with the red-hot S&P 500, where 78% of the listed companies have issued negative earnings per share (EPS) guidance. U.S. first-quarter corporate earnings results are trickling in, and it’s not looking great—Bank of America Corporation (NYSE/BAC), Yahoo! Inc. (NASDAQ/YHOO), and Intel Corporation (NASDAQ/INTC) all disappointed.
Then there are the global economic indicators. Jens Weidmann, the head of Germany’s central bank, said it could take 10 years for Europe to recover from the debt crisis. Those ever-optimistic bulls need only look to Cyprus to be reminded of the fragile state of the eurozone—and how the global markets would respond if the local governments (Italy, Spain, etc.) followed … Read More
It’s now the avalanche of corporate earnings season, and so far, it’s not too bad.
There are going to be disappointments. And there will be even more disappointments. But on balance, I don’t care what anybody says; in the U.S. economy and the global economy, any growth is good.
The stock market is going to go where it’s going to go, but the most important factors are the earnings, revenues, balance sheets, and corporate outlooks.
Here’s why the stock market can go higher:
Institutional investors have money that needs to go to work. Money is flowing back into the stock market, and investors don’t pay fund managers to sit on cash. Fund manager BlackRock, Inc. (NYSE/BLK) announced very good first-quarter earnings and net new inflows of funds grew to $39.4 billion, of which $33.7 billion was for the stock market.
It’s early, but earnings last quarter weren’t bad for a lot of companies, and blue chips all around are reporting growth. Certainly, not every company is going to meet or beat earnings expectations, but when you have a mature corporation like Johnson & Johnson (NYSE/JNJ) report first-quarter revenue growth of 8.5% (10% if not for the stronger dollar), that’s impressive in the global economy. Lots of other blue-chip companies are reporting solid numbers—numbers that have beat expectations. The numbers aren’t perfect in large-cap technology, but old economy companies are holding up, as are most banks.
The Fed and Interest Rates
The Federal Reserve is absolutely committed to reinflating assets. It’s been doing this for some time now and, according to the stock market, it’s working. But … Read More
Sporting goods store Cabela’s Incorporated (NYSE/CAB) is up 20 points on the stock market since the beginning of the year.
In the fourth quarter of 2012, the company reported that comparable store sales grew 12%. Fourth-quarter revenues grew 15% to $1.1 billion, while earnings rose a solid 20% to $89.9 million.
The company’s first quarter of 2013 should be very good. Wall Street analysts have been increasing the company’s earnings estimates across the board for this year and next.
Both Wal-Mart Stores, Inc. (NYSE/WMT) and Target Corporation (NYSE/TGT) have been exceptionally strong performers on the stock market. Both of these positions are trading at all-time record highs.
For its fiscal 2013 third quarter, ended February 28, 2013, NIKE, Inc. (NYSE/NKE) reported exceptionally good results for such a mature global brand.
According to the company, its third-quarter sales grew nine percent to $6.2 billion, with growth experienced in all geographies except Greater China and Japan.
NIKE’s gross margin improved 30 basis points to 44.2%, while earnings rose 16% to $662 million and earnings per share grew 20% to $0.73. The company’s stock chart is below:
Chart courtesy of www.StockCharts.com
NIKE has done an exceptional job on the stock market and operationally for such an old brand name. Wall Street earnings estimates are increasing, and NIKE should report another great quarter in June.
Specific brands in the retail universe are doing great. But weather is a big factor in retail merchandising, and this past winner likely kept a lot of shoppers indoors. First-quarter same-store sales could be underwhelming.
There is continued momentum available in the stock market. Earnings results don’t need to … Read More
Earnings season has begun. Companies on the S&P 500 are issuing their corporate earnings reports for the first quarter of 2013. But with all of this comes a significant amount of noise. Some stock advisors are calling for a reversal in the markets, saying we can’t go any higher; others are saying that we are only going to go higher.
Unfortunately, the amount of noise is increasing each day. On the upside, I have heard estimates that say the S&P 500 will go to 1,700 by the year’s end; but on the downside, some are predicting it will go below 1,400.
What you need to know for the first quarter of 2013 is that companies on the S&P 500 are expected to show negative corporate earnings growth of 0.6%. (Source: FactSet, April 5, 2013.) In the fourth quarter of 2012, companies reported corporate earnings growth of 4.2%, while in the third quarter, they saw a contraction.
Looking at the different sectors of the S&P 500, four out of 10 are expected to show negative growth. The rest are expected to show an increase in corporate earnings. The energy sector is projected to see the fastest decline in earnings by 4.3%, and a 7.9% improvement in corporate earnings is expected for the utilities sector.
For the first quarter, a significant number of the S&P 500 companies have issued warnings about their corporate earnings. Out of the 110 S&P 500 companies that provided guidance for first-quarter earnings, 86 companies, or 78%, issued negative guidance.
With all this said, should you sell what you have or buy more? At the very core, what … Read More
“Risk” is a four-letter word.
It’s the kind of thing you wish you spent a lot more time thinking about before a shock actually happens.
Right now, the Federal Reserve is re-inflating assets while sovereign debt skyrockets. It’s been doing so for a number of years now, and the stock market is moving.
Stock market action illustrates that it doesn’t pay to fight the Fed. But one of the biggest trends in the stock market’s performance over the last few years is the strength in blue chips that pay dividends. You don’t need a highflying technology stock in this kind of market.
With so much sovereign debt growth and uncertainty that continues unabated, I think all investors need is to take a fresh look at their portfolios and re-evaluate all holdings related to risk.
The sovereign debt crisis in Europe and the U.S. is ongoing. There is a failure on the part of policymakers in many countries to be more public and more aggressive in dealing with this issue.
The stock market is at risk. All market participants, including investment banks, individual investors, and institutions, need to be more vocal in talking about debt and its consequences for individuals and countries.
News of massive new monetary stimulus from Japan, a copycat strategy in a sense, is just totally irresponsible. Japan’s gross government debt as a percentage of gross domestic product (GDP) is now over 230%, according to the International Monetary Fund (IMF). Greece’s performance has actually improved, now sitting somewhere around 170%. And the IMF estimates the U.S. economy’s total sovereign debt as a percentage of GDP at approximately 107% … Read More
What goes up will come down. But the action is the action, and if you own the stock market, you should be making good money these days.
The price action in the stock market and most blue chips has been very strong, obviously. But trading volume hasn’t spiked with prices; it’s been consistently flat during the recent run-up. There is tremendous pressure now on first-quarter earnings season to deliver the goods. If it doesn’t, this will be the catalyst for a stock market correction.
The recent breakout in the stock market is reminiscent of the action at the beginning of 2012 when stocks crossed their 200-day moving average on the upside. The market advanced strongly for the first three months of 2012, then retreated on first-quarter earnings news. This year, a similar scenario seems likely, as the stock market is absolutely due for a break. The stock chart for the Wilshire 5000 total market index is featured below:
Chart courtesy of www.StockCharts.com
While a great number of companies are expected to report flat comparable earnings in the first quarter, many of the current stock market leaders have seen strong increases in estimates over the last 30 days. Countless Dow stocks are seeing a significant increase from Wall Street in their earnings estimates, for this year and next. Some include United Technologies Corporation (NYSE/UTX), The Home Depot, Inc. (NYSE/HD), The Walt Disney Company (NYSE/DIS), Pfizer Inc. (NYSE/PFE), General Electric Company (NYSE/GE), and Wal-Mart Stores, Inc. (NYSE/WMT).
Increased earnings estimates are a bullish indicator, but it is just one of many. The stock market is really charged up on slightly better economic … Read More
Action in the stock market is robust. Some economic news has shown improvement, but really, investors are just betting on first-quarter earnings.
The Dow Jones Industrials have been strong, outperforming the other indices and revealing how skittish investors are about the stock market’s advance. Investors are buying Johnson & Johnson (NYSE/JNJ) because it’s safe. When the party ends, Johnson & Johnson is less risky.
Institutional investors are betting on stocks because there really isn’t anywhere else to go. The bond play is over, currencies are too risky, and the commodity price cycle is taking a break. While it does seem unbelievable, the Dow Jones Industrials will likely keep ticking higher before the month is out.
While the action is hard to believe, considering the Main Street economy, the Dow Jones Transportation Average is still plowing ahead, leading the rest of the stock market. Regardless, this is the classic sign of further strength in share prices.
The stock market is not expensively priced, and it’s up to corporate earnings to tick higher, so they we don’t create a bubble. Practically, as a stock market investor, it doesn’t pay to fight the Federal Reserve or the tape. The action is the action; if you want to play the market, “why” doesn’t matter too much.
But if you’re an investor and you own, or would like to own, shares in blue chips like the Dow Jones Industrials, it’s tough to be a buyer when the stock market is at all-time highs.
I wouldn’t buy this market, but when there is a major correction, it will be an interesting opportunity to consider. Of course, … Read More
The U.S. economy is going to be low and slow for quite a long time. Cuts to government spending, persistent unemployment, and stagnant incomes all make for a real age of austerity at both the sovereign and individual levels. And there is inflation in this economy, and it’s keeping disposable incomes down. In an economy that is about 70% based on consumer spending, this is not good.
I’ve never been bearish on the U.S. economy, because no other country on the planet is able to pull up its bootstraps and move forward as quickly. But times have changed and after experiencing persistent financial crises (savings and loan, tech bubble, subprime mortgage crisis) and unreasonable government spending, I fear the system can no longer recover from these shocks like it used to. The reason for this is the lack of financial flexibility caused by too much government spending and a lack of will on the part of policymakers to enact ongoing, practical solutions to keep the ship sailing.
And the lack of financial flexibility is present in all the levels of government, particularly following the troubles in the real estate market after the subprime mortgage bubble had burst. I hate to say this, but government spending is a large part of gross domestic product (GDP) in all Western countries. This is why the eurozone is in such trouble, and it’s also why that region is destined for economic mediocrity for years to come.
I fear that the U.S. economy is going down the same path, and breaking out of this cycle is going to be extremely difficult. The single greatest strength … Read More
Corporate earnings are still pouring in, largely from smaller companies that take longer to put their financial results together. The numbers continue to be generally good, and if there is a trend, it’s that earnings are beating consensus, but revenues are coming in just slightly short. For the most part, companies are confirming existing earnings guidance for 2013.
In terms of portfolio strategy, I’m still very hesitant about buying this stock market. We’re at five-year highs and general economic conditions are still pretty slow. But there’s one thing I’m not and that’s bearish. The stock market is appropriately valued, considering current earnings and forecasts for a great number of blue chips are for high single-digit growth in revenues and earnings for 2013. Combined with dividends, this should produce another decent year.
While stock market investment risk is high, a lot of risks in global capital markets are actually priced into the stock market, bonds, and currencies. The sovereign debt crisis and economic weakness in the eurozone is still very pronounced, but the market knows this. U.S. fiscal problems and the inability of policymakers to deal with them decisively are priced into this market. Investors are looking beyond the previous trading catalysts and are now focusing (finally) on what corporations are saying about their businesses. Revenues and earnings are now the big catalyst.
The key, leading index for the stock market remains to be the Dow Jones Transportation Average. Its breakout late last year led the broader market to a new upward trend, and many component stocks within the index are doing great. And corporate earnings from this group came in … Read More
Smartphones and personal gadgets have gained some extra attention these days. With that said, many investors only focus on the makers of these phones, and not on the other things associated with them—such as accessories.
A report by ABI Research, a market intelligence firm, indicated that the market for mobile device accessories will grow at a 10.5% compounded annual growth rate from 2012 through 2017, due to the growth in smartphone sales. (Source: “Aftermarket Mobile Accessory Revenues to Reach $62 Billion by 2017 as Market Value Moves to Smart Accessories,” ABI Research web site, November 14, 2012, last accessed February 28, 2013.) The firm expects revenues for mobile device accessories to reach $62.0 billion by 2017.
The report also indicated that products like protective cases and stereo-wired headsets are predicted to show the highest growth rates of 18.2% and 15.6%, respectively. ABI Research tracks 13 accessory product segments.
As I have been saying in these pages, when there is a gold rush, a person selling the shovel can make the most money.
In that case, look at companies like ZAGG Inc. (NASDAQ/ZAGG). Please note: this is not a specific buy recommendation; rather the following information is meant to serve as an example of the type of opportunity you should look for.
ZAGG designs, manufactures, and distributes protective coverings and other products for electronic devices. Its flagship product, “invisibleSHIELD,” is a thin, scratch-resistant covering that’s custom-cut to fit invisibly on the screens and displays of Apple “iPhones” and other smartphones, laptops, GPS devices, and so on. The company also offers additional accessories, including headphones for “iPods” and MP3 players, and decorative … Read More
The U.S. is expected to overtake Saudi Arabia as the world’s top oil-producing nation by 2017; and by 2030, it’s also expected to become a net exporter of oil to the global economy—meaning it will be self-sufficient when it comes to energy consumption, according to a report published by the International Energy Agency (IEA). (Source: Rosenthal, E., “U.S. to Be World’s Top Oil Producer in 5 Years, Report Says,” The New York Times, November 12, 2012.)
In addition to the U.S. becoming a major oil producer, the IEA also indicated that the U.S. will overtake Russia as the world’s top natural gas producer by 2015. (Source: Ibid.)
Having said that, how can investors take advantage of this growth in energy production in the U.S. economy but not invest in oil and gas plays?
Hercules Offshore, Inc. (NASDAQ/HERO) provides shallow-water drilling and marine services to companies involved in oil and natural gas exploration and production worldwide. The company is based in Houston, Texas; Hercules’ fleet of jackup rigs is the largest in the U.S. Gulf of Mexico, and it’s the fourth-largest in the world. In addition, the firm is also the operator of the largest inland barge drilling fleet across the U.S Gulf Coast, and the largest lifeboat fleet worldwide. (Source: Hercules Offshore, Inc. web site, last accessed February 25, 2013.)
Chart courtesy of www.StockCharts.com
Currently trading near $6.70 with an average three-month volume of about 3.2 million per day, almost 74% of Hercules is held by institutions and 18.5% is held by insiders. The company’s book value stands at $5.57. (Source: Yahoo! Finance, last accessed February 25, 2013.)
On … Read More