Daily Gains Letter

earnings season


How to Profit from This Declining Currency

By for Daily Gains Letter | Mar 25, 2014

Declining CurrencyProblems 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


Two Retail ETFs to Get Your Portfolio Through the Last of This Winter

By for Daily Gains Letter | Mar 10, 2014

retail sectorEveryone is blaming the poor economic numbers we have been seeing on the misery of the horrific winter.

Federal Reserve Chair Janet Yellen suggested that the winter was to be partly blamed for the somewhat lousy economic readings in December through to February. With the fierce winter, people are hesitant to venture out to look for work, buy groceries, eat at restaurants, go and watch a movie, or even travel.

While I do agree the harsh winter has impacted the economy somewhat, you can’t blame everything on the weather. If this were true, then we would be starting to witness pent-up demand for goods and services in the upcoming months as the snow and cold dissipate.

Or maybe it’s just because the economy is stalling to some degree.

The jobs market is lousy and will need to pick up some momentum. Maybe with the warmer weather to come, job seekers will venture out and look for work, or perhaps companies are just not hiring as much as the government wants to see, given all of the monetary stimulus that has been spent on driving consumer spending in the country.

The one area that looks pretty fragile at this time is the retail sector. Consumers simply appear to be holding back on expenditures and waiting for deep discounts.

In January, the retail sector reported a 0.4% decline in sales, representing the second straight month of declines on the heels of a revised 0.1% decline in December, according to data from the U.S. Department of Commerce. It’s likely the extreme bad weather conditions in January and February contributed to the soft results—at … Read More


Why These Two China-Based Internet Stocks Are Worth a Closer Look

By for Daily Gains Letter | Mar 3, 2014

China-Based Internet StocksWe all know how hot the social media space is with some sizzling returns shown by such stock market heavyweights as Facebook, Inc. (NASDAQ/FB), Twitter, Inc. (NYSE/TWTR), Yelp, Inc. (NYSE/YELP), and LinkedIn Corporation (NYSE/LNKD) to name a handful.

The valuation of these momentum stocks is especially high, but as long as there are buyers, these stocks will continue to attract major market surges.

Much of the easy money may be gone for now, but there are still some Internet stocks trading here that offer excellent potential for some staggering gains for aggressive traders.

Yet the stocks I’m referring to are based out of China, where the added risk is high due to the questionable reliability of the auditors and subsequent results.

If you are confident on the numbers of these Chinese stocks, it may be worth a speculative trade, but be warned that the risk is high, so don’t go and bet your 401(k) on these speculative Chinese stocks. Use only risk capital and make sure you are diversified; this will take some of the edge off the trade in case the stock goes against you.

If you like Amazon.com, Inc. (NASDAQ/AMZN) but aren’t willing to chase the high stock price and valuation, you may want to take a look at China-based E-Commerce China Dangdang Inc. (NYSE/DANG), which has been referred to as the Amazon of China. The online seller of books, home products, footwear, electronic and personal products, and related accessories has about 8.9 million active users as of its fourth quarter (ended December 31, 2013). The company also said it added about 3.1 million new users in that … Read More


Have These Stocks Already Been Through a Correction?

By for Daily Gains Letter | Jan 28, 2014

Correction Already Under WayIt’s incredible, really, that some investors are surprised that the Dow Jones Industrial Average, NYSE, and S&P 500 are in the red for the year, spooked apparently by weak corporate earnings.

How can this be a surprise? Is it fair to say that 2013 was an irrational momentum play? Has that logic finally caught up to investors? Once again, I enter as evidence 2013’s fourth-quarter earnings—which should not have caught anyone off guard.

The ball got rolling in late 2012, when 78% of S&P 500 companies issued negative earnings-per-share (EPS) guidance for the first quarter of 2013. The negative earnings momentum continued into the second quarter, when 81% of companies on the S&P 500 lowered their earnings guidance.

Against the backdrop of rising key stock indices, a record 83% of all S&P 500 companies waved the white flag, revising their third-quarter earnings guidance.

Still, the S&P 500 climbed higher. And in a desperate bid to help investors avoid the economic iceberg and take profits, a record 88% of reporting S&P 500 companies issued negative fourth-quarter earnings guidance. (Source: “Record high number and percentage of S&P 500 companies issuing negative EPS guidance for Q4,” FactSet, January 2, 2014.)

And here we are in the midst of fourth-quarter earnings season and investors are sending the key stock indices into the red, disappointed, it would seem, with what they were warned was coming.

As we enter the last week of January, the S&P 500 is down 2.5% so far this year. At this same time last year, the S&P 500 was up roughly 2.2%. The Dow Jones Industrial Average is down 3.5% in … Read More


Why This Chart Should Worry Investors

By for Daily Gains Letter | Jan 24, 2014

U.S. Economy’s Setting Up for a Volatile 2014Every day it seems as though the S&P 500 makes a new high. This strong performance over the past year is creating complacency, as more retail investors are piling into the market.

However, I would certainly urge caution, especially for any new capital being put to work at these lofty levels. With earnings season upon us, we’ve already seen several sectors in the S&P 500 get hit significantly, especially retail stocks.

We keep hearing about resilience among Americans, but consumer sentiment is not as strong as many analysts believe. This is why I wasn’t surprised when retailers disappointed.

One of the common arguments I hear about the S&P 500 is that the market is not expensive historically. I disagree with this argument, and add that the underlying fundamental strength of the U.S. economy, built on consumer sentiment, is far weaker than most people believe.

Regarding the valuation level of the overall stock market, best represented by the S&P 500, an interesting data point comes from Professor Robert Shiller of Yale University, whose research shows that U.S. stocks currently trade at a 25.4 multiple of the cyclically adjusted price-to-earnings ratio—far above the historical average. (Source: The Economist, January 4, 2014.)

Now, it would make sense for investors to pay a premium for S&P 500 companies if the economy and consumer sentiment were accelerating, But this is not the case.

Profit growth by the S&P 500 companies is decelerating. For the third quarter, total profits by corporations in America were $39.2 billion, down from a $66.8-billion increase in corporate profits during the second quarter. (Source: Ibid.)

Not only are companies within the … Read More


Exclusive: Every Time the Government Shut Down, S&P 500 Was Higher Two Years Later

By for Daily Gains Letter | Oct 3, 2013

S&P 500 Was Higher Two Years LaterThe U.S. government shutdown has highlighted two unavoidable and predictable events. The first is pretty obvious, the other maybe not so much.

For starters, the U.S. government shutdown means as many as 800,000 of the country’s 2.1 million federal workers could end up being furloughed (temporary, non-duty, non-pay status). Not surprisingly, members of Congress—those paid by taxpayers to determine their fate—will continue to pull in a hefty salary.

Thanks to their unpopularity, U.S. government shutdowns don’t last very long. The last U.S. government shutdown took place between December 15, 1995 and January 6, 1996—a span of 21 days, the longest on record.

The first U.S. government shutdown occurred back in 1976, during the Ford administration, and lasted 10 days. During the Carter years, U.S. government shutdowns averaged 11 days. And the six shutdowns that occurred during President Regan’s two-term tenure averaged about two days.

No matter how long it lasts, it’s more than a simple economic and financial inconvenience. Aside from the 800,000 federal workers who unfortunately take an immediate and direct hit, it has the potential to negatively impact the vast majority of Americans on many, many levels.

Sadly, Congress knows how a U.S. government shutdown will affect its citizens and continues to act with moral impunity—compromising only after the fact, all the while congratulating each other for doing what they were voted in to do.

Since history has a tendency of repeating itself in Washington, Wall Street knows all too well how a government shutdown will affect the markets. It’s calling the U.S. government’s bluff, and is happy for the buying opportunity.

Despite the fact that the S&P … Read More


These Signs Point to a Bullish Season for This Precious Metal

By for Daily Gains Letter | Jul 22, 2013

Bullish Season for This Precious MetalGold is making a comeback after having lost 21.5% of its value since the beginning of the year. Since the start of July, the precious metal has climbed almost 10%—trading near $1,275 per ounce.

The price of the yellow precious metal began its turnaround in late June after Federal Reserve chairman Ben Bernanke said the central bank would consider tapering its monthly $85.0-billion purchase of Treasury and mortgage-backed security bonds by the end of the year. On top of that, the Federal Reserve said it might even completely end its quantitative easing policies in 2014.

On Wednesday, July 17, gold prices edged higher after Bernanke calmed the storm he created, telling investors that the quantitative easing policies could, depending on the economy, stay in place for longer than expected.

Even though the economy has been improving at a moderate rate, Bernanke said, those improvements have been overshadowed by the national unemployment rate, which stands at a stubbornly high 7.6% (along with a 14.3% underemployment rate).

For investors, that means the era of easy money is going to continue into the near future—and money will continue to pour into the markets. On Thursday, the day after the Fed spoke, the Dow Jones Industrial Average and the S&P 500 rose to all-time intraday highs.

Not to be left out of the party, gold climbed more than one percent, hitting a one-month high of $1,299 per ounce.

Even after the Federal Reserve–inspired euphoria on Wall Street fades, there might be additional reasons for investors to keep their eyes on gold equities and related exchange-traded funds (ETFs).

According to Thackray’s 2013 Investor’s Guide: How … Read More


These Are the Sectors to Watch in an Overvalued Market

By for Daily Gains Letter | Jul 12, 2013

Why Looking at the Dow Jones as a Whole Could Be a Big MistakeWhat a difference 81 years can make. On July 8, 1932, the Dow Jones Industrial Average hit a Great Depression-era low, closing at 41.22, representing an 89.19% loss from its March 1929 peak of 381.17. Over the next 18 months, the Dow Jones Industrial Average gained 150%.

Over the last 81 years, the Dow Jones Industrial Average has climbed 3,700%, and closed at a record-high 15, 461 yesterday. Since hitting a Great Recession low of 6,705.63 in March 2009, the Dow Jones Industrial Average has rebounded almost 130%.

What have we learned over the last 80 years of investing? Maybe that patience is an investor’s most important virtue. When the markets have been faced with wars, terrorism, and economic or political upheaval, they always rebound. Even when the markets are down, there’s always a bullish play waiting to be discovered.

After all, making money in the stock market is about taking advantage of opportunities. People run to and away from stocks for the wrong reasons. In the words of Warren Buffet, “A public-opinion poll is no substitute for thought.” (Source: BrainyQuote, last accessed July 11, 2013.) When it comes to investing, it’s more important to think for yourself than to follow the herd.

That is especially true today. With the Dow Jones Industrial Average hitting a new record, that exuberance has more to do with the Federal Reserve’s $85.0 billion-per-month quantitative easing policy and artificially low interest rates.

In essence, today’s growth on Wall Street can be attributed to Federal Reserve chairman Ben Bernanke, the world’s biggest sugar daddy.

This will become evident after the second-quarter earnings season is in … Read More


How to Make the Most of the Inevitable Changes in the Market

By for Daily Gains Letter | Jul 11, 2013

Downward Growth Revisions Still Offer Chances to ProfitRight now, the S&P 500 is just two percent from its all-time high and the Dow Jones Industrial Average is just half a percentage point away from its own record. That’s why I think it’s the perfect time to short both.

The stock market indices have gotten ahead of themselves. In fact, they might be the only spot in the entire U.S. economy showing signs of growth—the markets are running counter to every economic indicator they are supposed to reflect.

The International Monetary Fund (IMF) cut its growth forecast for both the U.S. and global economics. The downward revisions come on the heels of the Federal Reserve saying it would most likely start to taper its $85.0 billion-per-month quantitative easing policy this year. This action will, of course, lead to an increase in interest rates.

After initially predicting U.S. 2013 growth of 2.2%, the IMF revised it downward to 1.9% in April, then modified it downward again this week to just 1.7%. (Source: “Emerging Market Slowdown Adds to Global Economy Pains,” International Monetary Fund web site, July 9, 2013.)

That means that the IMF has revised its 2013 economic growth projections for the U.S. downward by almost 25%. It also altered its projections for the U.S. economy in 2014, from 2.9% down to 2.7%.

The downward revisions shouldn’t come as a big surprise. Unemployment remains high, S&P 500 companies continue to sit on record sums of cash, and gold prices have tumbled. Japanese government bonds have tanked and China’s economy is cooling; so, too, are interest rate–sensitive sectors, like utilities and homebuilders.

Here at home, the writing has been on … Read More


Is It Time to Jump On or Fall Off the Stock Market Bandwagon?

By for Daily Gains Letter | Apr 26, 2013

Is It Time to Jump On or Fall OffIf corporate earnings are coming in as expected and first-quarter revenues are light, the one thing that is very noticeable is the continuing improvement in balance sheets.

Cash and cash equivalents continue to see increases, and shareholders’ equity is going up. The result of all this continues to be corporations becoming highly reticent to invest in new operations.

As is the case every earnings season, new stock market buyback programs are announced, dividends are increased, and corporations give corporate outlooks that are fairly unspecific. Many corporations reported that they expect business conditions to improve in the bottom half of the year, which is a bit of a cop-out.

No company wants to risk a major earnings flop, and the fourth quarter of 2013 is still just too far off.

One thing that surprised me so far this earnings season is that I really would have thought that share prices would’ve sold off more after reporting. The lack of selling off, which is quite typical in an earnings season, is indicative of a stock market that continues to have positive institutional investor interest.

The stock market already went up tremendously before earnings season began. I think this is a real sign that institutional investors think that this market can go quite a bit higher.

But it is important to the trading action that the stock market does take a meaningful break. Valuations aren’t stretched by any means, but the lack of revenue growth is a problem.

Very few of the large brand-name corporations reduced their full-year outlooks so far this earnings season—this is a good sign. But still, growth expectations are … Read More


Why Corporations Aren’t Investing in the Economy—Again

By for Daily Gains Letter | Apr 25, 2013

Why Corporations Aren’t Investing in the Economy—Again

Revenues are coming in light, but earnings are holding up.

Now that it’s the heart of earnings season, it’s a good time to reevaluate portfolios for risk.

There is still a lot that could go wrong in this market, and there is no help from the rest of the world in terms of economic growth.

Also evidenced by this earnings season is the continuing buildup corporations have in terms of cash. What this signals to me is that corporations are still very nervous about making major new investments, which is holding the U.S. economy back.

Getting corporations to invest in new businesses, plant and equipment, and new employees requires certainty. And this is the one thing that is lacking in so many important markets for the simple reason that there is too much debt.

There are actually a lot of fundamentals that are positive for corporations. Interest rates are very low, so borrowing costs have never been more favorable for big companies.

There is some price inflation in the economy, which translates to higher earnings, and because of the weakness in commodity prices, the cost of raw materials is going down.

But large corporations are not going to invest in major new operations in markets where there is the potential for massive instability—currency instability, for sure.

So the result is just the status quo for many corporations in terms of their business operations. This is why cash balances continue to build and share buybacks are so common.

I would say that given the earnings results so far, the stock market is not overvalued. If there isn’t any meaningful revenue growth … Read More


Online Retailers Holding Up, but Are They Worth the Investment Risk?

By for Daily Gains Letter | Apr 24, 2013

Online Retailers Holding Up, but Are They Worth the Investment Risk?Earnings season is in full swing, and it’s looking like the retail/merchandising sectors are doing relatively well. The data support the case that consumers are spending again; whether this is sustainable or not is another matter, but for the first quarter, it looks like consumers have opened up their wallets.

One company that really surprised to the upside was Overstock.com, Inc. (NASDAQ/OSTK). On the stock market, the company’s been in the doldrums for years, but its current numbers certainly show renewed momentum in its operations.

According to the company, its 2013 first-quarter sales grew 19% to $312 million, direct revenues grew modestly to $41.9 million, and fulfillment partner revenues shot up to $270 million from $221 million in the comparable quarter last year.

Earnings grew significantly to $7.7 million, up from $2.7 million year-over-year. Diluted earnings per share were $0.32, compared to $0.12 in the first quarter of 2012.

eBay Inc. (NASDAQ/EBAY) slightly disappointed the marketplace by reporting revenues that came in just a hair below consensus. The company’s earnings were still very solid, but it reduced its earnings outlook range for the second quarter of 2013, causing investors to sell the stock.

Amazon.com, Inc. (NASDAQ/AMZN) is the big kahuna in the online retail space. The company reports its first-quarter earnings tomorrow; the Street expects adjusted earnings of approximately $0.09 per share, with average revenues of $16.18 billion.

On the stock market, Amazon has had a tremendous run since March 2009. The company’s share price is up fivefold on the stock market since then and is very much due for a break.

The one thing that Amazon keeps doing, despite … Read More


Why the Dow Theory Indicator Needs to Confirm This Stock Market

By for Daily Gains Letter | Apr 16, 2013

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The Dow Jones Transportation Average continues to be one of the most important stock market sub-indices to follow.

The Dow Jones Transportation Average is an old economy gauge, one that is part of Dow theory, and its movements are meaningful in that component companies are the backbone of the U.S. economy, just like the Dow Jones Industrials.

J.B. Hunt Transport Services, Inc. (NASDAQ/JBHT) is an important benchmark stock on the Dow Jones Transportation Average. The company just reported solid revenue growth, with good earnings that just missed consensus.

According to the company, its revenues for the first quarter of 2013 were $1.3 billion, a gain of about 10.7%. Earnings were $73.3 million, or $0.61 per diluted share, compared to $67.7 million, or $0.57 per diluted share, for the first quarter of 2012.

On the stock market, J.B. Hunt has been on a tear. The stock is up almost 50% since last September and is definitely due for a break.

Also needing a break on the stock market is Alaska Air Group, Inc. (NYSE/ALK). This position has been soaring and the kicker is that it’s not even expensively priced with a price-to-earnings (P/E) multiple of just under 14.

Union Pacific Corporation (NYSE/UNP) is a Dow Jones Transportation stock that is a very important benchmark stock for the U.S. economy and industry. Its earnings are due on Thursday. Union Pacific’s stock chart is featured below:

dl_04162013_graph3
Chart courtesy of www.StockCharts.com

A number of companies that are components of the Dow Jones Transportation Average are due for a major break in their share prices. Although it’s very early days, earnings results for the first … Read More


Why These Stocks Will Continue to Be Number One in 2013

By for Daily Gains Letter | Apr 10, 2013

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Investing isn’t all about managing returns; it’s also about managing risk.

Risk is high right now in all categories: real estate, stocks, bonds, currencies, and even cash. On the cusp of a new earnings season, the stock market is going to be very choppy, but I do think that it will trend higher.

There is no real need to be buying this stock market. With so much uncertainty and so many risks beyond your control, the sidelines are a good place to be.

But the powerful breakout of blue chip and transportation stocks at the beginning of the year is very meaningful.

Of course, many stock market investors have been sitting on the sidelines for a long time. This was the case for institutional investors until the beginning of the year, when sentiment changed. The advertised certainty of continued low interest rates provided the catalyst for new buying.

The last three earnings seasons reflected the choppiness and the uneven performance of many industries in the U.S. economy. But the stock market always wants to be in front of any economic news, and institutional investors have no other place to put their money.

With so much risk in this marketplace, the standout companies have become even more attractive. And this is what institutional investors have done since the beginning of the year—they have gone after the safest names, because they see all the risks, as well.

Large dividend-paying stocks will continue to be attractive in this stock market for the rest of this year. Many are still not expensively priced, and there should be decent earnings this quarter. Robust earnings are … Read More


Global Sovereign Debt Skyrockets, Bubble to Burst

By for Daily Gains Letter | Apr 8, 2013

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“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


Stock Market Flying High, but What About Risk?

By for Daily Gains Letter | Apr 4, 2013

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The performance of many blue chips—consumer staples stocks, in particular—is really stunning. And looking at the shares and how much they’ve moved on the stock market, even since the beginning of the year, you really have to wonder how sustainable this stock market rally is.

I am a big believer in blue chips and investing in stocks that pay growing dividends over time. But right now, we have so many companies trading right at their all-time record highs. I wouldn’t say that the stock market is expensively priced, but realistically, other than momentum players, would individual investors be buying these stocks at their all-time record highs? I find that unlikely.

The stock market breakout really is meaningful and pronounced. Consider The Procter & Gamble Company (NYSE/PG), which has been bid up approximately 16 points since last summer. Procter & Gamble’s stock chart is featured below:

dl_04042013_graph1
Chart courtesy of www.StockCharts.com

The stock market is most definitely due for a break. The leadership from blue chips has been significant, but it also reveals the fragility and uncertainty in the marketplace. Institutional investors want to buy stocks, and they are; but they are buying the safest names.

For the stock market’s current momentum to continue, technology stocks are going to have to show more leadership going forward. Investors are buying in anticipation of a decent first-quarter earnings season.

Among the many blue chips that are soaring in this stock market, consider Johnson & Johnson (NYSE/JNJ). This stock has been rising consistently and strongly since the beginning of the year. Its performance is so unusual. It really is a powerhouse breakout. Johnson & Johnson’s … Read More


Stock Market Advance Needs Technology Stocks to Step It up a Notch

By for Daily Gains Letter | Mar 26, 2013

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Most components of the Dow Jones Industrial Average are doing well—some exceptionally well. Alcoa Inc. (NYSE/AA) is one of the laggards, and really, all the position has done on the stock market is return to its historical norm. The company reports in a couple of weeks, and it is currently richly valued on a price-to-earnings (P/E) ratio.

The opposite of Alcoa’s position is 3M Company (NYSE/MMM), which is trading at an all-time record high on the stock market and is not expensively priced. This Dow Jones component has basically been ticking higher since the beginning of 1962. It traded sideways between 2005 and 2012, but it’s a consistent winner for sure.

The Dow Jones Transportation Average and the Dow Jones Industrial Average have been leading the stock market in recent history. The strength in transportation stocks is highly significant in terms of a leading indicator for the rest of the stock market. And the strength in the Dow Jones Industrials isn’t as much an expansion of valuations for these specific old economy stocks; it’s because business conditions for these companies are pretty decent.

Institutional investors have been buying safer names, which is why Dow Jones component companies like The Procter & Gamble Company (NYSE/PG) and Johnson & Johnson (NYSE/JNJ) have traded up so strongly since the beginning of the year. These companies are appreciating like fast-growing technology stocks. It is a bull market signal.

We’re on the cusp of a new earnings season, and the numbers, so far, have been decent, peppered with a few disappointments. In order for the stock market to keep advancing, it needs greater leadership from … Read More


The Inflation Apocalypse: Here Comes the Next Super Cycle

By for Daily Gains Letter | Mar 22, 2013

220313_DL_clarkTwo big trends are about to collide: global warming and global re-inflation. And the result is going to create a lot of shocks and opportunity. I’ve heard people refer to the recent tsunamis, rising temperatures, floods, and droughts as the “weather apocalypse.” Whatever you call it, the re-inflation in prices combined with global warming is going to create a new super cycle in agriculture and agribusiness.

The business cycle is changing in financial markets. Currencies are being devalued. The bull market in bonds is over. Central banks are repatriating their gold. There’s massive monetary stimulus, and now there are rising prices, which should help boost earnings initially. The stock market could go a lot higher this year.

The re-inflation cycle has staying power, even through the next U.S. recession. An inflationary business cycle, product scarcity, increasing demand, and the weather represent a fundamental, long-term uptrend for agriculture—the final leg of the commodity price cycle.

The stock market’s recent breakout was very powerful. Wall Street is now ahead of first-quarter earnings season. Before the next big crash, I think the stock market will have one final push higher—a lot higher than current levels.

I absolutely agree with Jim Rogers’ view about agriculture. But hey, even Jim has something to sell you. The re-inflation definitely has consequences, but global monetary stimulus is on a tear. And as an investor, it doesn’t pay to fight it.

The stock market is holding firm ahead of first-quarter earnings season. Its performance is very similar to the strength experienced during the first four months of last year. “Sell in May, and go away?” I think it’s … Read More


Wal-Mart Stock Breaks 12-Year Consolidation; Why the Retail Sector Is Looking Up

By for Daily Gains Letter | Mar 21, 2013

210313_DL_clarkThere is a resilience to this stock market, and regardless of the reason, it’s a play by institutional investors that first-quarter earnings season will be decent, as well as further earnings growth later this year.

While it’s tough to think about with the stock market at its highs, this market could go a lot higher yet, based on continuing stimulus from the Federal Reserve and a slight improvement in business conditions.

One of the best things available from the massive cash balances that large corporations have accumulated is increasing dividends. The stock market saw a lot of new dividend announcements last year, partially because of tax changes but also because companies can afford it.

This is a trend that is going to continue this year, and it’s good news for blue chip investors who are saving for retirement.

There are a lot of attractive blue chips that are growing their earnings and are not expensively priced in this stock market. Wal-Mart Stores, Inc. (NYSE/WMT) is five points below its recent high; it has a current dividend yield of 2.6% and a price-to-earnings (P/E) ratio of about 14.5. Wal-Mart’s longer-term stock chart is featured below:

dl_0321_image001Chart courtesy of www.StockCharts.com

Wal-Mart has been trading sideways for years, and its recent stock market breakout is meaningful. Again, Wal-Mart is not expensively priced, and Wall Street continues to nudge the company’s 2013 earnings estimates higher.

This upcoming earnings season is make or break for the stock market. Most corporations were coy with their forecasts last quarter, but they do this on purpose so as to show outperformance. But even with these conservative forecasts, most … Read More


No Place Left to Go, Institutions Buying

By for Daily Gains Letter | Mar 19, 2013

190313_DL_clarkWhat 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:

dl_0319_chart1Chart 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


Dow Jones Industrials Still Hot; How to Play the Correction

By for Daily Gains Letter | Mar 18, 2013

180313_DL_clarkAction 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


Retail Sales Up, but Many Retail Stocks Down—What Gives?

By for Daily Gains Letter | Mar 15, 2013

150313_DL_clarkWith the uptick in stock market sentiment and economic news, first-quarter earnings season is increasingly likely to be decent. Already, the earnings reports we’re getting show solid growth, particularly in stocks directly related to consumer spending.

Recently, we saw strong financial growth from Costco Wholesale Corporation (NASDAQ/COST), Cabela’s Incorporated (NYSE/CAB), and Target Corporation (NYSE/TGT). The month of February experienced solid growth in consumer spending and Wal-Mart Stores, Inc. (NYSE/WMT) should see its share price tick back up to its high before it releases its earnings report mid-May.

The Federal Reserve has actually been reporting some positive wealth trends over the last two quarters. If you believe the central bank’s statistics, U.S. household debt in the fourth quarter of 2012 grew at its strongest pace since 2008. The data basically imply a little more confidence. A positive sign for consumer spending, household net worth rose by $1.1 trillion to $66.0 trillion in the fourth quarter; we’re seeing the effects of this now in retail sales figures.

The stock market wants to keep going upward over the near term; it just needs more positive news in order to do so. Statistics from the eurozone continue to be terrible, and Britain’s recent industrial production numbers were exceedingly bad. That county is likely to experience continued recession this year.

The picture in the retail/merchandizing sector of the stock market isn’t uniform. You have Macys, Inc. (NYSE/M) in a steady uptrend, very close to its all-time record high, but J. C. Penney Company, Inc. (NYSE/JCP) is getting killed. Macy’s chart is below:

dl_03152013-image001Chart courtesy of www.StockCharts.com

 

On the stock market, Sears Holdings Corporation (NASDAQ/SHLD) … Read More


Breakout in Transportation Stocks Gains Strength—How to Play the Disconnect

By for Daily Gains Letter | Mar 13, 2013

130313_DL_clarkThe Dow Jones Transportation Average experienced a powerful breakout this past December. And it’s been a stealth rally ever since, with an expansion in valuations, not earnings.

The stock market’s strongest sector over the past few months has been transportation stocks, which have been much stronger than technology stocks or the S&P 500 companies. Even though it doesn’t seem real, leadership in the Dow Jones Transportation Average is a classic stock market sign.

Helping the cause are lower oil prices. Countless names among large-cap transportation stocks are soaring. And at new 52-week highs, they still aren’t expensively priced on the stock market, which means they can go higher.

The stock market likes betting on the future. Institutional investors are not fighting the Federal Reserve; they are buying in anticipation of first-quarter earnings season. Fourth-quarter earnings season wasn’t that bad for corporations, but for individuals, it’s another story. This is why the stock market and the Dow Jones Transportation Average can still tick higher—valuations and oil prices. The stock chart for the index is featured below:

dl_031313-image001Chart courtesy of www.StockCharts.com

The stock market will use first-quarter earnings season as its new catalyst for action. My expectation is that we’re in for a meaningful correction, even if first-quarter numbers are decent.

There is a real disconnect in the U.S. economy between the stock market and the Main Street economy. Corporations have all the money, and any modest uptick in economic activity will amplify the bottom line. Corporations, being lean and mean with dividends and share buybacks, are way better than individual incomes.

This is a very difficult market to play. Risk for … Read More


The Final Countdown: The Stock Market’s on Its Final Leg to Recovery

By for Daily Gains Letter | Mar 7, 2013

070313_DL_clarkSkepticism is very high among individual investors. Institutional investors who run buy-and-hold mutual funds don’t need to be as worried; they get paid to buy stocks. The stock market’s run makes total sense in that the Federal Reserve continues to promise low interest rates and continues to increase the money supply, while revenues and earnings from corporations are growing modestly.

Other than real estate, there is no other place for an investor to put his or her money to generate income above the inflation rate. So the stock market is likely to keep ticking higher over the near-term. Now, all the power is with corporations.

I believe we’re on the final leg of the bull market recovery from the March 2009 low. All investors want to see is revenue growth and they will keep buying stocks. Growth is the name of the game as corporations have actually done a great job keeping a lid on costs. I expect more new announcements regarding share buybacks and rising dividends this upcoming earnings season.

The toughest problem facing the Main Street economy is employment conditions. But even though the Federal Reserve has catered an extravagant menu of stimulus to Wall Street and corporations, large companies just don’t want to invest in new plant, equipment, or employees. The cash hoarding will continue; the beneficiaries are stock market investors, not workers.

In the final leg of this stock market recovery, there are some attractive buys out there. One particular investment theme that I believe in is that corporations will begin to open their wallets, but the cash won’t be spent on new employees; it will … Read More


Top Stocks to Watch This Decade

By for Daily Gains Letter | Feb 28, 2013

280213_DL_clarkThere is a lot of investment risk in the global marketplace, not to mention the risk of policy action by the Federal Reserve, lack of policy action in Washington, and slow economic growth in many mature economies. Yet, with all the doom and gloom, corporations are reporting very good numbers, and many are doing great on the stock market.

Action in the U.S. economy is going to be low and slow for the next several years. This is a pretty decent bet. It’s also a decent bet that the M2 money supply (which includes all money in circulation plus savings deposits, balances in money market mutual funds, and deposits) will continue to rise, and we’ll have artificially low interest rates and underreported inflation. But, this doesn’t mean that corporations can’t grow their earnings and because stock market valuations are reasonable, it also doesn’t mean that share prices won’t go up.

Here are several corporations that I think can serve as an example of what could make for a solid equity portfolio going forward: PepsiCo, Inc. (NYSE/PEP), Johnson & Johnson (NYSE/JNJ), Chevron Corporation (NYSE/CVX), Cracker Barrel Old Country Store, Inc. (NASDAQ/CBRL), Bank of Montreal (NYSE/BMO), The Procter & Gamble Company (NYSE/PG), and Union Pacific Corporation (NYSE/UNP).

Naturally, with the stock market at a five-year high, most of these corporations are also trading right near their highs. That’s not a problem. I think stock market investors looking to take on new positions over the coming quarters will be much better off sticking with the stock market’s existing winners, rather than trying to buy value or a turnaround opportunity.

The reason for this … Read More


Great Dividend Stock Could Be Ready for Breakout

By for Daily Gains Letter | Feb 27, 2013

270213_DL_clarkThere are a lot of great dividend paying stocks out there, but a good number are trading right at their 52-week or all-time highs on the stock market. Equity investors know that it’s tough to buy a stock trading right at its high.

Among dividend paying stocks, E. I. du Pont de Nemours and Company (NYSE/DD), otherwise known as DuPont, is a higher-yielding stock that’s worth having on your radar screen right now. The company’s last two earnings reports weren’t the greatest, and the stock hasn’t participated like other successful dividend paying stocks in the Dow Jones Industrials.

DuPont has been in a stock market downtrend for the last two years, and it really hasn’t done much over the last dozen years. The stock currently yields around 3.6%, but its valuation is fair at around 16-times current earnings.

Like I say, DuPont is a company to watch right now because a lot of the stock market isn’t currently worth buying. Higher dividend paying stocks, especially those in the Dow Jones Industrials, are almost always worth buying when they’re down. DuPont’s long-term performance on the stock market is modest, but the one thing the chart below doesn’t include is reinvested dividends.

dl_0227_image001

Chart courtesy of www.StockCharts.com

According to Morningstar.com, DuPont’s simple rate of return over the last 3.5 years (right after the financial crisis low) is about 45%. With dividend reinvestment, the return jumps to over 65%.

Currently, Wall Street expects DuPont to produce earnings growth of around 17% this year and 12% in 2014. Combined with the company’s dividend and valuation, those are pretty decent financial metrics if you’re a stock … Read More


What Rising Dividends Are Telling You About the Market

By for Daily Gains Letter | Feb 26, 2013

260213_DL_clarkThere’s a very good trend developing this year, and it’s benefiting the stock market and income investors. Dividends are going up, and not just with the usual suspects, like the big brand-name companies. Dividends are rising among smaller companies, and it’s a great sign of improving business conditions.

Right now, the stock market is highly uncertain about its future, and rightly so. Musings from the Federal Reserve’s last meeting showed the same sentiment. I don’t see Ben Bernanke suddenly withdrawing massive amounts of monetary stimulus, as he’s always been Wall Street’s biggest booster. Besides, interest rates are too artificially low and the Fed continues to increase the “M2” money supply (the amount of money in circulation, plus savings deposits, balances in money market mutual funds, and deposits) at a substantial pace. The Fed loves the stock market too much to quit.

What’s most important for your investment decisions going forward is what corporations report about their businesses. The numbers and corporate outlooks say it all. And the increased dividends we’re getting are a vote of confidence from corporations, which for the most part, are the strongest and healthiest participants in this economy.

One smaller company that just reported solid financial results and an increase in its quarterly dividends is McGrath RentCorp (NASDAQ/MGRC). This interesting company sells and rents modular buildings and containers to all kinds of customers in different industries. The company’s stock chart is below:

 

dl_0226_001Chart courtesy of www.StockCharts.com

 

In the fourth quarter of 2012, the company reported that its total sales grew 20% to $102 million. Earnings were down slightly to $11.9 million from $13.2 million … Read More