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Historical Trends, Global Economic Factors Say Stock Market at Risk
By George Leong for Daily Gains Letter | Apr 6, 2015
What if I told you the best six months for investing in the stock market are drawing to an end? Not good news, is it?
As we enter the second quarter, there is optimism based on the price action of the stock market in 2014. Yet as I mentioned, what is historically recognized as the best six-month period during the year for investing in the stock market, particularly the S&P 500 and Dow Jones Industrial Average, according to the Stock Trader’s Almanac, is coming to a close at the end of April. With the S&P 500 having returned only 0.44% in 2015 (better than the 0.26% decline in the Dow Jones Industrial Average), can we really expect much for the stock market following what was supposedly the historically high period for stock market investing this year?
Stock Market Exceptions
The stars in the stock market so far this year have been the higher-beta stocks, as traders and investors search for potential higher gains. The NASDAQ and Russell 2000 advanced 3.48% and 3.99%, respectively, in the first quarter.
Small-caps were tops in March with the only positive move. The Russell 2000 edged up 1.57% versus a 1.74% decline for the S&P 500.
But while the historical pattern for the stock market doesn’t always play out, as was the case in 2013, the odds are in its favor.
Retracing back to April 2014, the DOW and S&P 500 pushed upward, while the higher-beta NASDAQ and Russell 2000 fell 2.01% and 3.94%, respectively. Yet there was negative sentiment towards higher-beta stocks in the stock market that, so far, hasn’t been the case this … Read More
Two Healthcare Stocks to Benefit from Growing Obesity Concerns
By George Leong for Daily Gains Letter | Nov 10, 2014
It’s headline news: America is getting bigger around the waistline and that means that there’s a greater potential for higher healthcare issues down the road—which isn’t a good sign for a healthcare system that is already struggling. (Maybe the government should offer monetary incentives, such as tax credits, for those who join gyms or pursue other healthy alternatives.)
Even though America is struggling with obesity, Americans realize the issues and consequencesthat go along with obesity and an unhealthy lifestyle.
And this is now happening on a worldwide scale. China, for instance, is beginning to see obesity issues surface and rates climb; more alarming is the fact that obesity is occurring withinChina’s youth demographic. While I’m not blaming the problems on the emergence of fast foods in China, you can’t ignore the fact that China currently has thousands of fast food outlets, such as McDonalds Corporation (NYSE/MCD) and the extremely popular Kentucky Fried Chicken (KFC),owned by YUM! Brands, Inc. (NYSE/YUM).
The World Health Organization (WHO) estimates there are more than 500 million people worldwide who are considered obese. (If you count those who are classified as “overweight,” that number skyrockets.)And the numbers in the U.S. are staggering.
Perhaps it’s the rush to have dinner ready and on the table that calls for the need for fast foods, or maybe it’s simply that it’s more convenient. Whatever the reason, obesity is a national and global issue.
But what does this have to do with you, the investor? Well, there may be an investment opportunity or two in it for you.
A small-cap investment opportunity in the weight control area that is worth … Read More
How China’s Alibaba Stacks Up on U.S. Markets and How to Profit
By George Leong for Daily Gains Letter | Nov 7, 2014
The much-anticipated debut of Chinese Internet powerhouse Alibaba Group Holding Limited (NYSE/BABA) has arrived and gone.
Even if you missed out on getting your hands on China-based Alibaba at its pre-initial public offering (IPO) price, you could still have purchased the stock at $82.81 on October 15 and made more than a 30% gain in two weeks. The stock traded at a record on Wednesday, as excitement continues to hold and gain traction in the U.S. stock market.
With the gain and a market cap in excess of $265 billion, Alibaba is now bigger than Facebook, Inc. (NASDAQ/FB), but about $100 billion short of Internet king Google Inc. (NASDAQ/GOOG).
The valuation of Alibaba is in line with the 39-times (X) earnings-per-share (EPS) valuation of Facebook, but more expensive than the quite attractive 18X EPS belonging to Google, which continues to be my top pick in the Internet space.
While Alibaba does look somewhat top-heavy, don’t forget that we are talking about the Internet space, which tends to demand higher multiples than the technology sector. And in China, the Internet is huge.
Alibaba may be new to investors and Internet users in the U.S., but the company has a significant following in China—the biggest Internet market in the world with about 632 million users, according to the China Internet Network Information Center. Plus, mobile usage of the Internet is at a staggering 527 million users in China.
As far as Alibaba’s users, the company had about 217 million active mobile users in September, which is huge. The growth of 139% year-over-year is massive.
In the third quarter, Alibaba’s first as a … Read More
Fear of Ebola Now Creating Weakness in U.S. Stocks?
By George Leong for Daily Gains Letter | Oct 22, 2014
The fear of Ebola has caused an increase in pressure towards the U.S. stock markets, particularly in the travel sector and aviation stocks. The concern is real, and if it is allowed to grow in the United States, Asia, or Europe, we could see a significant decline in travel demand that could impact the next few quarters, as my stock analysis would suggest.
The impact on the aviation space has been evident already, as we have seen travel-related stocks come off their tops; albeit, much of this also has to do with the current stock market risk, based on my stock analysis.
However, a big plus to the travel sector has been the major decline in oil prices to the $80.00 level for both West Texas Intermediate (WTI) and Brent crude. My stock analysis indicates this has translated into lower costs for jet fuel and gasoline—which would help to drive up demand for travel, if not for the Ebola fears, so travel by plane is likely to be most affected.
My stock analysis suggests that the market weakness is an investment opportunity to accumulate travel-related stocks, whether they are the airlines, chain hotels, or online travel operators—but the online travel operators are what I’m most interested in.
The following are what I believe to be good examples of the kind of top online travel operators you can put on your stock investment radar, based on my stock analysis.
The “Best of Breed” in the space is the granddaddy of the online travel sector—The Priceline Group Inc. (NASDAQ/PCLN). For some of you who have been active in the stock market for … Read More
Is This the Discount Sale Investors Have Been Waiting For?
By George Leong for Daily Gains Letter | Oct 15, 2014
October has provided the usual bouts of anxiety that have characterized the month in past years. I warned that we could see volatility and so far, this has been the case.
From small-cap stocks to world-class blue-chip companies, we are seeing some selling capitulation emerge in the stock market.
All of the major key stock indices are below their respective 50-day and 200-day moving averages (MAs). As I said in a recent commentary, the chart risk is high.
Bearish investor sentiment continues to grip the stock market. We saw 354 new lows on the NYSE on Friday, followed by 308 new lows on Monday.
The DOW has reported four triple-digit-loss days over the past five sessions and in that period, it has declined nearly 600 points. The blue chip index is down 1.54% this year.
Technology has led the losers so far in October with the NASDAQ down 6.24% and off 6.08% from its peak.
The S&P 500 breached its 200-day MA for the first time since 2012. The index has corrected 5.89% from its record, so we could realistically see more selling in the weeks ahead; be careful. A decline to 1,792 would represent a 10% correction, based on my technical analysis.
Chart courtesy of www.StockCharts.com
A death cross remains intact on the Russell 2000’s chart, with the index down 13.56% from its peak as of Monday’s close.
Now, we could see further weakness should the earnings season disappoint. And Germany and Europe are already seeing contraction in their economies.
You should begin to look at investment opportunities to buy into weakness. Over the past two years, the S&P … Read More
How to Play America’s Widening Income Gap
By George Leong for Daily Gains Letter | Oct 1, 2014
When it comes to America’s income levels, we continue to be a nation of haves and have-nots—the latter being the majority. There are about 48 million Americans collecting food stamps and many more are struggling to pay rent and put food on the table. In fact, we are now also seeing once-middle-class families going to food banks.
The government wants you to believe all is great, but that’s not true for everyone. Jobs are being created, but the majority are low-income service jobs that don’t require higher-level education. Yet highly educated workers are taking jobs that are far below their skill group and experience just to make ends meet.
As you all know, the income gap between the upper end—or the one percent—and the bottom end has been widening for years, if not decades.
The median family income declined to an inflation-adjusted $45,800 in 2010, compared to $49,600 in 2007, according to the Survey of Consumer Finances published by the Federal Reserve. The survey also suggested the top 10% of households made an average income of $349,000 in 2010 and had a net worth of $2.9 million.
Going back to 1962, the top one percent of income earners had a net worth of 125-times the median household income, according to the Economic Policy Institute. More recently, the gap surged to around 288-times the median household income in 2010 and is likely much worse now given the five-year bull market that has produced many new millionaires and has driven up the worth of the top one percent.
There is very little help for the financially unfortunate. Banks don’t care about this … Read More
This Foreign Market a Hidden Treasure for Growth Investors
By George Leong for Daily Gains Letter | Sep 19, 2014
While the S&P 500 and Dow Jones Industrial Average race to new record-highs, there’s still a sense of caution and vulnerability on the side of investors towards the stock markets here in the U.S.
In fact, a study I read in Bloomberg estimated that around 47% of stocks listed on the NASDAQ stock market are currently in a technical bear stock market, down 20% or more from the highs. On the small-cap Russell 2000, the story is even worse with more than 40% in a bear stock market. And the study shows that the S&P 500 had a mere eight percent of stocks in a technical bear stock market.
There’s even talk of the S&P 500 reaching 2,300 by the year’s end, according to some of the optimistic bulls on Wall Street. I feel it’s pure fantasy that the index will rise by another 15% by year-end.
The reality is that the stock market is stalling. Without any fresh and inviting reasons to buy, I sense the stock market risk is quite high.
An alternative would be to invest in a foreign market, and while I like China, Israel is fast becoming the favorite for growth investors. Israel has produced some top companies in the past, especially in the technology and medical devices sectors.
Israeli stocks are the third most listed stocks on the U.S. stock markets. (China is second.) As a country, Israel may be small, but an excellent investment opportunity can usually be found there. Moreover, the risk for fraud is much lower than with U.S.-listed Chinese stocks. I can’t say that I have ever heard of fraudulent … Read More
Why It’s Not Too Late to Get in on Burger King’s Game-Changing Deal
By George Leong for Daily Gains Letter | Aug 29, 2014
The move by Burger King Worldwide, Inc. (BKW) to acquire Canada-based Tim Hortons Inc. (NYSE/THI) was a genius move and buying opportunity that surprised many in the stock market. Just look at the reaction of the traders after the news surfaced that Burger King was indeed buying Tim Hortons; Burger King stock surged on the news, which I also believe was a very strategic move by the company and a possible buying opportunity for investors.
The initial speculation was valid as an $11.0-billion deal was announced. Tim Hortons stock closed up more than 31% after the announcement and the initial buying opportunity. For the acquisition, Warren Buffett will provide $3.0 billion in financing, so we know the move makes sense if Buffett is supporting it.
Chart courtesy of www.StockCharts.com
Here’s my thinking: Burger King, like many companies in the fast-food sector, is struggling to find growth around the world. Perennial fast-food leader McDonalds Corporation (NYSE/MCD) is no exception, as the seller of the “Big Mac” faces muted growth in the global economy.
Burger King, with its global exposure encompassing more than 12,000 franchise restaurants in North America, Europe, the Middle East, Africa, Latin America, the Caribbean, and the Asia Pacific, also needed a spark to drive its revenue and earnings growth.
The addition of Tim Hortons makes sense due to the cross-marketing opportunities and the ability to cut overlaying expenses, which makes Burger King a possible buying opportunity for investors. There are approximately 4,500 Tim Hortons stores with about 860 outlets in the United States.
While the two companies will be separate, the buying opportunity potential I see is the … Read More
China a Game-Changer for This U.S. Automaker
By George Leong for Daily Gains Letter | Aug 11, 2014
The superhighway that Tesla Motors, Inc. (NASDAQ/TSLA) is building across the United States appears to be taking shape with consumers and investors.
The maker of the quick-charge electric-battery vehicle has recovered since taking a hit on growth and valuation concerns. The stock is still not cheap, but based on what is developing and its longer-term prospects, a stock like Tesla may be worth a closer look as an investment opportunity.
Back in April, I suggested picking up some shares of Tesla as an investment opportunity at a price tag of $193.00. The stock closed at $253.00 last Wednesday, representing a hefty quick gain of 28%.
Chart courtesy of www.StockCharts.com
Now after reporting a decent quarter, Tesla has been receiving kudos from Wall Street. Brad Erickson at Pacific Crest issued an Outperform rating and assigned a price target of $316.00. This price is high, given the stock is already trading at 80-times (X) its 2015 earnings per share (EPS) and an extremely high price-to-earnings growth (PEG) ratio of 5.34. For Internet and social media stocks, the valuation likely wouldn’t be given a second look, but for an automaker, there clearly are some heads shaking.
While I continue to like Tesla as an investment opportunity, I would be more likely to accumulate shares on price weakness than to chase the stock price higher.
In my view, Tesla needs to produce more unit sales of its vehicles in order to reduce the fixed overhead charges per vehicle made, thereby pushing up the operating margins.
We are seeing Tesla vehicle sales steadily rise, but the numbers still pale in comparison to the major automakers, … Read More
What Makes This Beaten-Down Stock So Attractive
By George Leong for Daily Gains Letter | Jul 24, 2014
Chipotle Mexican Grill, Inc. (NYSE/CMG) showed why it’s the hottest restaurant stock out there at this time. The stock has been a favorite of mine since declining to the mid-$200.00 level in October 2013. On Tuesday, the stock surged to above $650.00. Now that’s growth and an excellent investment opportunity.
The company easily destroyed estimates in both revenue and earnings. Chipotle beat the consensus earnings per share (EPS) estimate by a whopping $0.41 per diluted share and surpassed the $1.0-billion quarterly revenue mark for the first time. Easily beating expectations, the key comparable restaurant sales metric rose a staggering 17.3%, which is incredible. The maker of burritos, tacos, and wraps has attracted a loyal following for good healthy food from consumers who may have gone to McDonalds Corporation (NYSE/MCD) or Taco Bell in the past.
Chart courtesy of www.StockCharts.com
While Chipotle continues to be my top restaurant play, the acceleration in its share price has made it somewhat top-heavy, so it’s more of an investment opportunity on price weakness.
A key driver for the restaurant sector is the growing jobs numbers. The more confident people are about their jobs, the more willing they are to go out for meals and spend.
A contrarian restaurant investment opportunity that looks intriguing right now is Noodles & Company (NASDAQ/NDLS), a provider of noodle and pasta dishes.
The stock debuted at $32.00 on June 28, 2013, surging to $49.75 on October 15, 2013, prior to the recent decline to $27.20 on July 17, 2014. In my estimation, the current price weakness offers aggressive investors a good investment opportunity.
Chart courtesy of www.StockCharts.com
Noodles & … Read More
Why I Like This Food Company the Best Right Now
By George Leong for Daily Gains Letter | Jul 17, 2014
The market for natural foods is getting tighter as major supermarket and big-box chains, such as Wal-Mart Stores Inc. (NYSE/WMT), The Kroger Co. (NYSE/KR), and Costco Wholesale Corporation (NASDAQ/COST) invade the territory that had been dominated for years by market leader Whole Foods Market, Inc. (NASDAQ/WFM).
While you cannot ignore the moves by Wal-Mart and Costco, let me be clear: shoppers who generally buy their goods at Whole Foods or some of the smaller chains will not necessarily shift their shopping preference and suddenly go to Wal-Mart. What will happen is that pricing will likely become more competitive with the added rivals entering into the mix.
On the small-cap end, you may want to take a look at a company like The Fresh Market, Inc. (NASDAQ/TFM, $31.74, Market Cap: $1.54 billion), which is looking attractive after declining to a 52-week low of $28.60 on May 22. The stock could decline further, but I like the risk-to-reward investment opportunity in the stock market.
The Fresh Market isn’t new; it’s been around since 1982. The specialty food grocery chain operates a network of approximately 157 stores in 26 states as of May 22, 2014. There are also plans to open another 23 to 24 new stores.
As I said, the stock is an investment opportunity following the recent selling, down 41.65% over the past 52 weeks versus a 17.95% advance by the S&P 500.
The company is growing its sales. Estimates are calling for sales to expand 15.2% year-over-year to $1.7 billion in FY15, followed by 14.8% to $2.0 billion in FY16, according to Thomson Financial. Earnings are predicted to come in … Read More
What the World Cup and the Stock Market Have in Common This Year
By George Leong for Daily Gains Letter | Jul 14, 2014
Last Wednesday, I had fun watching the World Cup game between Argentina and the Netherlands. As strange as it may sound, I actually found that the tension and apprehension throughout the match reminded me of the stock market.
Despite the Dow Jones Industrial Average recently trading above 17,000 and the S&P 500 at another record-high, I still sense the stock market is vulnerable to selling. I think this will be especially true if the second-quarter earnings season pans out as expected, devoid of any major growth in earnings or revenues.
Alcoa Inc. (NYSE/AA) offered up a nice report, but I’m not sure how much it counts, as the company really is not a major bellwether as to the health of the global economy.
The reality is that consumer spending drives the economy and the stock market. I would rather look at what’s happening at bellwether global retailer Wal-Mart Stores Inc. (NYSE/WMT) than Alcoa. The “Death Star” of the retail sector is struggling for growth around the world—and that cannot be good news. Even discount stores, which tend to be more immune to slowing, are showing signs of weakness.
In other words, while the stock market has edged higher, I still wouldn’t get too comfortable at this time. I think we could see another minor stock market correction should earnings tank. Of course, this would provide us with an investment opportunity to buy shares on weakness in the stock market.
Now there’s some optimism following the Federal Reserve’s dovish remarks from its June meeting, as there’s a sense that interest rates will not ratchet higher until after mid-2015, depending on the … Read More
Why This Beaten-Down Stock Is Worth a Closer Look
By George Leong for Daily Gains Letter | Jul 11, 2014
Small-cap stocks made a sweet rebound in June after the Russell 2000 previously declined below both its 50-day and 200-day moving averages. The index actually had been down 10% earlier in the year, prior to staging a nice rally, based on my technical analysis.
While the risk with the higher-beta growth and technology stocks continues to be higher than the S&P 500, the weakness has provided a decent trading investment opportunity for the more aggressive speculators looking for above-average risk-to-reward trades.
In my view, there is no better area as an investment opportunity for speculative trades than technology due to the immense upside; but at the same time, the associated risk is also higher due to the downside.
If you are searching for a beaten-down small-cap technology investment opportunity that could return some quick money, take a look at a stock like Extreme Networks, Inc. (NASDAQ/EXTR), which currently sits at a stock price around $4.27 and a market cap of $412 million. The stock traded as high as $8.14 in January, but it has lost nearly half of its value since then, so I see an investment opportunity here.
Chart courtesy of www.StockCharts.com
Some see Extreme Networks as a stay-away stock, but I view it as a contrarian investment opportunity at a time when the stock has been beaten up and tossed around by the stock market. Now, I’m not saying it’s easy money, but I like the trade risk to reward here; there’s more upside potential than downside risk, which makes it a good investment opportunity.
Extreme Networks develops network infrastructure equipment and services that cater to enterprises, data … Read More
Stocks vs. Bonds: Finding the Best Investment Opportunity Right Now
By George Leong for Daily Gains Letter | Jul 9, 2014
The bulls are continuing to ride the stock market higher with minimal resistance from the bears. After some weakness earlier in the year, stocks continue to want to edge higher.
We are not seeing the mass market participation we want to see in a rallying stock market, but this divergence is clearly not a big deal for traders.
The first half of 2014 saw mixed trading, but the stock market managed to edge higher. We saw multiple records set by the DOW and S&P 500, with both indices closing higher for the fifth straight month in June. Not bad given that historical records suggest muted action.
On the charts, the sense is that the stock market is aiming higher. The DOW broke 17,000 last week, while the S&P 500 is eyeing 2,000 and looking higher on the charts, based on my technical analysis. The DOW is riding consistently above its 50-day and 200-day moving averages.
Chart courtesy of www.StockCharts.com
On the plus, small-cap stocks made a strong rally in June as we saw some money flow back into the higher-risk assets, which technically bodes well for the broader stock market. We are also seeing buying return to the technology sector and the high-momentum plays.
But as is always the case after a rally to new heights, many are calling for a stock market correction.
The chart of the S&P 500 shows the potential of a small correction of approximately five percent. I would view this as an investment opportunity to buy on weakness.
Chart courtesy of www.StockCharts.com
The reality is that the stock market is heading higher, but we could … Read More
Top Two Restaurant Stocks to Watch into 2015
By George Leong for Daily Gains Letter | Jul 3, 2014
There’s simply nothing more enjoyable than a fine wine and a great meal. I’m also a beer and wings kind of guy.
Over the past decade, we have seen the popularity of food shows gain steam. Triggered by the Iron Chef series, cooking shows have become mainstream reality shows with the likes of widely popular British chef Gordon Ramsey and his Hell’s Kitchen and Master Chef series.
Yet the restaurant sector is not always about fine dining. It’s big business and often the most successful restaurant stocks are the fast food and casual dining chains, according to my stock analysis.
The chart of the Dow Jones U.S. Restaurants & Bars Index below clearly reflects the advancement in the sector since late 2012, based on my stock analysis.
Chart courtesy of www.StockCharts.com
The restaurant sector is based largely on income levels and jobs. The more people work and make, the greater likelihood they will eat out. Just look at the emerging wealth levels in China and the associated expansion of restaurants in that country.
A couple of my favorite non-fast food restaurant stocks are Chipotle Mexican Grill, Inc. (NYSE/CMG) and Texas Roadhouse, Inc. (NASDAQ/TXRH), based on my stock analysis.
Chipotle is one of the top restaurant stocks at this time. My stock analysis indicates that the company has been taking market share away from Taco Bell, which is owned by YUM! Brands, Inc. (NYSE/YUM), and McDonalds Corporation (NYSE/MCD).
For Chipotle, there was an excellent buying opportunity in October 2012, when the stock fell to a 52-week low of $233.82 and has since rallied 158%. At the current price, Chipotle is looking … Read More
Getting Ready for the Stock Market’s Coming Bumpy Ride
By George Leong for Daily Gains Letter | Jun 27, 2014
The S&P 500 traded at an intraday record on Tuesday, but it’s not time to relax and take it easy, as was the situation for the past few years since the Great Recession.
It’s time for some hand-holding again. While the broader market has edged higher, I continue to see some nervousness and selling pressure in the small-cap and growth elements of the stock market. The Russell 2000 is holding above its 200-day moving average (MA), but it’s tenuous.
As has been the case in the past years, the direction of the Federal Reserve is helping to support the stock market. Since taking over for the former Fed chairman Ben Bernanke, Janet Yellen appears to be just as, if not more, dovish than her predecessor, and this pleases the stock market.
The reality is that the Fed has said it will likely not begin to increase the historically low interest rates until sometime in 2015, and even then, it will likely only be a small increase. The central bank wants stronger jobs creation and economic growth.
The disastrous first-quarter gross domestic product (GDP) contraction of 2.9% was horrible despite blaming some of the poor results on the winter. A closer look shows declines on spending across the board that negatively impacted the GDP growth. The contraction in durable goods spending in May also supports the continued fragility in the economy and stock market.
The problem is that investors have minimal options for investing compared to the stock market. While the risk is prevalent, it’s clear investors are willing to assume some of the risk, but not to the same degree … Read More
“Discount Aisle” Retailer the Best Investment Opportunity?
By George Leong for Daily Gains Letter | Jun 6, 2014
The retail sector is hurting at this time from the discounters to the luxury brands, with just a few exceptions. Even the dollar stores are facing slower growth.
Yet with the sector down, it’s time to look at picking up some of the damaged retail stocks as an investment opportunity.
A retailer that I feel has declined to an attractive level as an investment opportunity is small-cap Texas-based Stage Stores, Inc. (NYSE/SSI). A seller of reasonably priced brand and private-label apparel, accessories, cosmetics, and footwear to women, men, and kids, Stage Stores is languishing just above its 52-week low, where I see an investment opportunity.
Stage Stores runs approximately 883 stores that are situated mainly in small and mid-sized towns in 40 states. The stores’ sizes vary, from as small as 5,000 square feet to as large as 54,000 square feet. Small towns comprising fewer than 50,000 people account for 65% of the company’s store locations; mid-sized towns with between 50,000 and 150,000 people account for 18%; and the remaining 17% are found in large cities.
I view Stage Stores as a contrarian investment opportunity, given the stock is down 21.4% over the last 52 weeks versus a 16.26% advance by the S&P 500. The stock price should rally if the company can deliver better, consistent results.
Stage Stores reported higher sequential fiscal sales growth from FY05 to FY08 and FY11 to FY13. Sales growth is estimated to continue into FY14 and FY15.
The company does make money, with profits in nine of the last 10 fiscal years. The growth is estimated to continue into FY14 and FY15.
The stock … Read More
Cashing In on America’s Obesity Epidemic
By George Leong for Daily Gains Letter | Jun 2, 2014
I would be the first to admit that on occasion, I have a craving for donuts, fries, and junk food. Luckily, it’s not that often, and I manage to stick to a fitness program.
Yet overindulgence and rising obesity levels have become a crisis not only in America, but in many countries around the world. It seems as though as people get wealthier, they also become fatter.
I recently read that about a third of the world is now considered overweight, based on a study by Christopher Murray of the Institute for Health Metrics and Evaluation at the University of Washington. (Source: Cheng, M., “30 percent of world is now fat, no country immune,” Yahoo! Finance, May 29, 2014.) The research suggests that Americans are the fattest people in the world, accounting for a whopping 13% of the total. This shouldn’t be a surprise, given the amount of fast food people tend to eat.
Now, while the rising obesity levels are clearly an issue for the healthcare sector down the road, there are companies that are in the business of helping people shed the pounds—this is a sector you can play as an investment opportunity at this time.
A small-cap stock that is worth a look as an investment opportunity in this area is Medifast, Inc. (NYSE/MED), which has a share price of $31.14 and a market cap of $409 million. Medifast is a producer and seller of weight and disease management products, along with consumable health and diet products. The company’s product line is sold under the Medifast brand and includes meal replacements and vitamins for those trying to … Read More
Conservative Investor? Why Now Is Your Time
By George Leong for Daily Gains Letter | May 19, 2014
The best way to make money in the stock market at this time is to avoid growth and technology stocks while you take some profits off the table.
The reality is that, despite the failure of the Dow Jones and S&P 500 to hold after establishing new record-highs last Tuesday, the stock market wants more reasons to bid stocks higher. The first-quarter earnings season saw about 70% of the S&P 500 companies beat earnings-per-share (EPS) estimates, but the results were largely based on lowered estimates by Wall Street.
Investors took the opportunity to take some profits following the rally last week. This indicates to me that there’s definitely still some vulnerability in the stock market.
Bellwether retailer Wal-Mart Stores Inc. (NYSE/WMT) reported soft results that suggest the global economy is still hesitant to spend after the company fell short on revenues and EPS. And to make matters worse, the company also revised its second-quarter estimates to below consensus. Clearly, the retail sector is struggling, and this will impact gross domestic product (GDP) growth.
On the charts, technology and growth stocks are risky. The Russell 2000 fell back below its 200-day moving average (MA) after failing to hold for the second time in just over a week.
We are seeing some selling capitulation in the small-cap area of the stock market and it could grow deeper.
Companies in the technology sector, specifically the high-momentum stocks, also remain under pressure, helping to drag the broader stock market lower. I don’t expect this to change anytime soon, so this is an area that you need to avoid, liquidate, or protect with put options…. Read More
My Top Stock for the Coming Healthcare Boom
By George Leong for Daily Gains Letter | May 14, 2014
As the country moves forward in providing medical coverage for all Americans, the healthcare sector will be one of the top growth areas for investment opportunity going forward.
As I recently discussed in these pages, there are ways investors can benefit from Obamacare, whether you believe in the new healthcare strategy or not. The reality is that there will be tens of millions of Americans added to the list of those needing healthcare solutions, and that will definitely provide an investment opportunity and a catalyst for growth in the sector.
What I believe is that there will be a tremendous investment opportunity for investors over the next few decades, as the Baby Boomers, Generation Jonesers, and early Generation Xers move into retirement and the demand for healthcare solutions accelerates across the country.
We will see an investment opportunity among the providers of health plans, along with the pharmaceutical and medical device makers that will market to a much larger user base.
Besides the rising demand for drugs as America increases its health coverage and its citizens age, I also expect a significant increase in the demand for medical devices. Today, you can already get replacements for hips and knees, along with other extremities. I expect the range of products and demand to continue to rise as American seniors grow older and research and technology advance.
There are numerous medical device companies that could benefit from the shifting healthcare space. An interesting contrarian investment opportunity on medical devices may be SurModics, Inc. (NASDAQ/SRDX), which has a share price of $21.25 and a market cap of $287 million.
SurModics develops a technology … Read More
How to Navigate the Ridiculous World of Social Media Stocks
By George Leong for Daily Gains Letter | Apr 10, 2014
The tension in the stock market is clearly evident, especially with the NASDAQ and Russell 2000 breaching their respective 50-day moving average (MA).
What we have seen in the stock market is a shift away from higher-beta growth and small-cap stocks to the perceived safety of blue chips and large-cap stocks, which I recently wrote about.
Driving much of the current malaise in the stock market has been the selling in the technology groups, specifically the high-momentum stocks that attracted major buying euphoria in 2013, in spite of what were high valuations and overdone optimism.
While I continue to like technology for growth investors in the stock market, I have also been quite vocal in not chasing some of the outrageous valuations that were assigned to these stocks by the stock market. With some of the brand-name momentum plays trading at more than 100 times (X) earnings, you have to step back, pause, and consider these metrics are ridiculous and undeserved.
There are some analysts in the stock market coming out and advising to buy on this dip, but I’m not as convinced, especially toward the high-beta and high-valuation momentum plays in the stock market.
The extreme valuation in the stock market is most evident in the social media space, which saw some impressive gains over the past few years even though many were not even making any money. These stocks are definitely not the kind that investment guru Warren Buffett would buy.
Take a look at Twitter, Inc. (NASDAQ/TWTR). This has to be one of the most overvalued stocks in the stock market at this time. The company has … Read More
Double-Digit Gain or 30% Crash: How to Profit from S&P 500 No Matter Where It Goes
By John Whitefoot for Daily Gains Letter | Apr 1, 2014
After a miserable winter of weak economic indicators (which were mostly blamed on the weather), the warmer spring weather will be a godsend for Wall Street. Unless, of course, there’s more holding the U.S. economy back than cold winds and snow.
That riddle will be answered in the coming weeks, but the long-term prognosis for the U.S. economy is a little murkier. While the S&P 500 is trading at record-highs, there is mounting evidence to suggest the U.S. economy could slow down, putting the brakes on the bull market.
Naturally, it depends on who you ask and what their time frame is. Despite mounting risks, such as ongoing troubles in Ukraine, slower growth in China, and the threat of increasing rates, some predict the S&P 500 will hit 2,075 by the end of the summer. That would represent an 11.5% gain from where it currently trades and a 12.5% gain for the first half of the year. (Source: Levisohn, B., “Don’t Call It a Comeback: Dow Jones Industrials Gain 120 Points, More to Come?” Barron’s, January 7, 2014.)
The double-digit growth is expected to come as a result of increased investor sentiment in the U.S. economy. For starters, investors have experienced a relatively easy ride over the last year. And over the last two years, any corrections on the S&P 500 have been shallow, short, and sweet. It’s the perfect recipe for ongoing enthusiasm and confidence for investors to pour more equity into the S&P 500.
It doesn’t matter if the S&P 500 is overvalued, some investors only care that it keeps going up. And should first-quarter earnings of S&P … Read More
Should You Be Prepared for a Bullish Run in Gold Bullion?
By John Whitefoot for Daily Gains Letter | Mar 26, 2014
After 12 years, gold bullion’s glorious bull run ended with a thud in 2013, retracing 30% and locking in the biggest annual decline since 1981. Many speculate that gold bullion prices melted in 2013 as investors tried to figure out when the Federal Reserve was going to be cutting its generous $85.0-billion monthly bond purchases.
Investors lean toward gold bullion and other precious metals as a hedge against both a weak U.S. dollar and inflation. A tapering of the Federal Reserve’s monetary policy suggests that the U.S. economy is getting stronger. While there was no real sign of sustained economic strength in 2013, just the idea that the Federal Reserve would have to start tapering at some point was enough to send gold bullion prices lower.
That coupled with a strong—but misguided—run on the S&P 500 also helped push gold bullion prices lower. I say “misguided” because quarter after quarter, more and more companies on the S&P 500 revised their earnings guidance lower. At the same time, companies masked their weak earnings and revenues with cost-cutting measures and near-record-high share repurchase programs.
That came to a crushing halt at the beginning of 2014, when the Bureau of Labor Statistics reported abysmal January payroll figures. Instead of adding the forecasted 196,000 jobs—the U.S. economy added just 74,000.
Weak January payroll data coupled with political tension in Ukraine helped send gold bullion prices higher. Between the beginning of January and the middle of March, gold bullion prices rebounded, climbing 15% year-to-date to around $1,390 per ounce.
The bullish run in gold bullion didn’t stop the bears from warning investors to avoid the … Read More
Two Underlying Factors You Need to Consider Before Buying Stocks
By Sasha Cekerevac for Daily Gains Letter | Mar 21, 2014
When many investors think of blue chip stocks, a common name that pops up is McDonalds Corporation (NYSE/MCD).
A blue chip stock is traditionally a well-established company generating stable corporate earnings and usually paying out an attractive dividend yield. McDonald’s certainly hits the bull’s-eye on these blue chip metrics, which is especially attractive in today’s low-interest-rates world with its forward dividend yield of approximately 3.3%.
The real question to ask is what is McDonald’s potential for corporate earnings growth over the next few years?
There are two underlying factors that I would like to bring to your attention for consideration: 1) the financial health of the company’s primary customers, and 2) the cost of inputs.
While McDonald’s may keep its blue chip status, the growth of corporate earnings remains in doubt. As we all know, both the U.S. and global economy are becoming increasingly split between higher income and lower income people. As we know, neither the U.S. nor the global economy is firing on all cylinders, as seen by the still significantly high unemployment levels.
Wages remain stagnant, and while companies can increase corporate earnings through share buybacks, at some point, revenues must accelerate.
The problem for McDonald’s that could really impact corporate earnings growth is that the costs of inputs, specifically for beef, are rising substantially. The price of beef in February had the largest monthly increase since November of 2003. (Source: “CPI – Item Beef,” United States Department of Labor web site, last accessed March 19, 2014.)
McDonald’s is already struggling with its one-dollar menu. The company has begun shifting its marketing strategy away from the “McDouble” … Read More
How a Giant Chinese Tech IPO Will Benefit These Other Top Stocks
By Sasha Cekerevac for Daily Gains Letter | Mar 19, 2014
As many people know, one of the hottest areas in the market right now is technology stocks. Investor sentiment has continued piling into this sector—with good reason in some cases.
The danger for investors is when investor sentiment becomes too bullish—technology stocks might be entering this territory.
The latest of the technology stocks that has announced it is going public is the Chinese powerhouse Alibaba Group. Started in 1999 by a former English teacher, the company has now grown to be the largest e-commerce company in China and will soon be a public firm with a valuation of more than $140 billion.
While it can be said that investor sentiment has become too enamored by recent technology stocks such as SnapChat, which doesn’t generate any revenue or earnings, Alibaba is a real business producing billions of dollars in revenue.
For American investors, the biggest beneficiary of Alibaba has been Yahoo! Inc. (NASDAQ/YHOO). Over the past year, as rumors continued to circulate that Alibaba would go public, investor sentiment has become ever more bullish on Yahoo!, since the firm owns 24% of Alibaba.
This could be a “buy on rumor, sell on fact” event, as investor sentiment has pushed Yahoo! to multiyear highs amid a backdrop of both positive investor sentiment towards technology stocks and a buildup in anticipation for the initial public offering (IPO) of Alibaba.
If investor sentiment continues to be overly bullish for technology stocks in general and Alibaba specifically, what will happen is that the IPO price and the subsequent trading activity will capture a huge premium to the current business environment.
This is great for Yahoo! … Read More
Why Investors Should Prepare for a Rebound This Spring
By John Whitefoot for Daily Gains Letter | Mar 14, 2014
The winter storm that recently tore across the northeastern United States will, no doubt, take the blame for the continuing weak economic news and data that have been coming out of Wall Street. Having been the economic scapegoat since December, there’s no reason to change tactics.
But the raft of ongoing disappointing economic news and data suggests there’s more to the nation’s weak economic news than cold weather. After all, it’s not as if the U.S. economy had been red-hot and then suddenly hit a brick wall in December. If there’s one thing the U.S. economy has been—it’s consistently weak.
For example, while the S&P 500 and other stock indices have been enjoying prolonged bull runs, the U.S. economy has been stalling. Since the magical bull market began in 2008, the U.S. unemployment numbers have remained stubbornly high and the underemployment numbers eye-wateringly high. At the same time, wages are stagnant and, not surprisingly, retail sales have disappointed. More and more Americans are saddled with out-of-control debt and a record 20% of American households (one in five) were on food stamps in 2013.
Speaking of 2013, while the S&P 500 notched up a 30% annual gain, each quarter, an increasingly larger percentage of companies revised their earnings guidance lower. Saving the best for last, during the fourth quarter of 2013, a record 88% of S&P 500 companies that provided preannouncements issued negative earnings guidance.
But 2014 didn’t start out that well, either. For the first quarter of 2014 so far, 80% of the S&P 500 companies that have issued guidance revised their earnings lower; this compares to the 78% of … Read More
Three Stocks for Celebrating the Bull Market’s Fifth Anniversary
By John Whitefoot for Daily Gains Letter | Mar 12, 2014
Normally, an anniversary is worth celebrating. But with the S&P 500 having recently celebrated the fifth anniversary of its bull market run, there are many economic reasons to question its longevity. Considering the economic data of the last five years, it may make more sense to question how the bull market ever got to this point.
On March 9, 2009, the S&P 500 hit bottom, closing at 676.53 and capping a 16-month sell-off that saw the S&P 500 shed more than half of its value. Over the last five years, the S&P 500 has more than made up for the loss, climbing almost 180%. The average American has not fared quite as well.
For starters, the S&P 500 is only as strong as the stocks that make up the index. And because those stocks are a reflection of the U.S. economy, they should (one would think) run in step with the economic data. But this hasn’t been the case.
Over the last five years, the U.S. has been saddled with high unemployment, stagnant wages, high consumer debt levels, weak durable goods numbers, a temperamental housing market, waning consumer confidence levels, and a growing disparity between the rich and the poor.
In an effort to appease shareholders, businesses implemented a form of financial engineering, masking weak earnings and revenues with cost-cutting measures and unprecedented share repurchase programs. In fact, in 2013, share buybacks amounted to $460 billion—the highest level since 2007.
More recently, in 2013, the S&P 500 notched up 45 record closes—climbing roughly 30% year-over-year. Yet despite a year full of all-time highs, each quarter, a larger percentage of companies … Read More
When Cash Is King for Stock Market Investors
By Moe Zulfiqar for Daily Gains Letter | Mar 11, 2014
The optimism on the key stock indices is increasing as the fundamentals that suggest the rally will go on continue to deteriorate. Investors beware; this disparity doesn’t end well. The possible upside gains look to be very small, and the downside risks are increasing.
To me, it feels like we are back in 2007 all over again—when key stock indices were making fresh highs and fundamentals across the board were tormented. Stock advisors were telling their clients to buy more. Irrationality was exuberant. I remember one celebrity stock advisor saying something along the lines of, “I know it doesn’t make sense buying overvalued stocks, but don’t worry; they are going to go higher.”
We see something similar now.
Investors are buying stocks. According to the data from Investment Company Institute, in January, investors purchased $23.9 billion worth of long-term stock mutual funds. This was the highest amount since January of 2013. (Source: “Historical Flow Data,” Investment Company Institute web site, last accessed March 7, 2014.)
As key stock indices are hitting their all-time highs, investor sentiment is turning bullish. According to the American Association of Individual Investors’ (AAII) Investor Sentiment Survey—which measures investors’ sentiment, be it bullish, bearish, or neutral—in the latest survey, which was on March 5, more than 40% of investors were bullish on the key stock indices. Bears were only 26.6%. (Source: “AAII Investor Sentiment Survey,” American Association of Individual Investors web site, last accessed March 7, 2014.)
This isn’t the only reason why 2014 looks like 2007.
Consider this: more and more companies are being listed on the key stock indices. According to Dealogic—a platform for … Read More
Two Retail ETFs to Get Your Portfolio Through the Last of This Winter
By George Leong for Daily Gains Letter | Mar 10, 2014
Everyone 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
Following the Weak Durable Goods Data, These Three Plays Look Good
By John Whitefoot for Daily Gains Letter | Mar 3, 2014
If the stock market is only as strong as the companies that go into making up the index and their earnings are contingent upon consumer spending, then the durable goods numbers don’t really look all that great.
New orders for manufactured durable goods slipped by one percent, or $2.2 billion, to $225.0 billion—the third decrease in the last four months. Analysts had forecasted a January drop of 0.7%. The one-percent drop in January comes on the heels of a 5.3% decrease in December. (Source: “Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders January 2014,” United States Census Bureau web site, February 27, 2014.)
In January, shipments of manufactured durable goods, which have been down for two consecutive months, decreased $0.9 billion, or 0.4%, to $232.3 billion. This followed a 1.8% decrease in December.
Inventories—the number of products sitting on a shelf—increased by 0.3% ($1.0 billion) in January to $389.1 billion. This represents the highest level ever recorded and follows a 0.9% increase in December.
Non-defense orders for capital goods in January slipped by 3.9% ($3.2 billion) to $78.3 billion. Shipments decreased by one percent, or $0.8 billion, to $75.1 billion, while unfilled orders increased by 0.5%, or $3.2 billion, to $644.7 billion. Inventories increased $0.5 billion, or 0.3%, to $177.5 billion.
Even the less volatile core durable goods numbers fail to really impress. Orders for long-lasting U.S. durable manufactured goods, minus the more volatile transportation industry, climbed 1.1% in January, the biggest jump since May. This sort of balances out the higher-than-expected 1.9% drop in December. Analysts had forecasted a 0.1% decline in January core durable goods.
Still, … Read More
Why These Two China-Based Internet Stocks Are Worth a Closer Look
By George Leong for Daily Gains Letter | Mar 3, 2014
We 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
Two Precious Metal Plays for Waning Consumer Confidence
By John Whitefoot for Daily Gains Letter | Feb 27, 2014
Against a backdrop of record-highs for stocks, consumer confidence is waning—seeing its greatest drop in four months. The S&P 500 touched record intra-day territory earlier in the week, suggesting the bull market remains intact and the well-earned and (far too) short-lived mini correction may be over.
Investors and analysts, it seems, have embraced blaming the cold weather for all our economic ills, effectively brushing aside weak U.S. housing numbers, jobs data, and manufacturing and retail sales.
Meanwhile, consumers—those who need jobs, houses, cars, and other items that support the companies that actually make up the S&P 500—seem to have lost faith in the economy. Consumer confidence levels in the U.S. fell more than expected in February, as Americans became more pessimistic about the economy and jobs.
Consumer confidence levels fell to 78.1 in February from a revised 79.4 in January. Economists were expecting consumer confidence levels to increase in February to 80.2, proving, once again, that Wall Street does not have its finger on the pulse of American consumer confidence levels. (Source: “The Conference Board Consumer Confidence Index Declines Moderately,” The Conference Board web site, February 25, 2014.)
Not to fear though; The Conference Board said the decline in February’s consumer confidence toward business conditions, jobs, and earnings was only “moderate,” meaning, I suppose, that it could be worse.
But not too much…
Those optimistic Americans claiming jobs are plentiful increased slightly to 13.9% from 12.5%. Those who think jobs are hard to get were virtually unchanged at 32.5% from 32.7%. It’s incredible, really, that The Conference Board can, with a straight face, proclaim that our appraisal of current economic … Read More
More Economic Indicators Show Next to Nothing Has Changed for U.S. Investors
By John Whitefoot for Daily Gains Letter | Feb 24, 2014
Two things have been consistent this winter: bad weather and bad economic news. And both just keep on rolling. With spring just around the corner, the weather will clear up; the U.S. economic news, on the other hand, might not be so lucky.
Over the course of the last week or so, a raft of weak economic news and earnings has welcomed the markets.
For starters, a higher number of Americans filed applications for unemployment benefits for the week ended February 8. Jobless claims climbed by 8,000 to 339,000; the four-week moving average for new claims increased to 336,750 from 333,250.
For the week ended February 15, applications improved—though barely—by 3,000 to 336,000, which was less than what was forecast. The four-week moving average (which is considered a less volatile figure), increased by 1,750 to 338,500.
And then there’s more bad economic news on the home front. Last week, the National Association of Home Builders (NAHB) said that its monthly housing sentiment index tanked from 56 in January to 46 in February, the largest monthly drop in history. The negative sentiment goes hand in hand with the two-percent drop in applications for U.S. home mortgages for the first week of February. Mortgage application activity continued its nascent drop in the second week of February, falling 4.1% to 380.9.
Further weakness is being felt in U.S. manufacturing. Economic news from both the New York and Philadelphia indices disappointed. The New York manufacturing gauge slowed in February after hitting a 20-month high in January. Manufacturing conditions slipped to 4.48 in February from 12.51 a month before. Analysts had forecast a much more … Read More
Why Analysts Can’t Just Blame the Weather for Poor Housing Numbers
By John Whitefoot for Daily Gains Letter | Feb 21, 2014
No matter where you turn, bad earnings or economic indicators are being blamed on the cold weather. Weak January car sales figures were blamed on the weather; disappointing January housing data was blamed on the weather; Wal-Mart Stores, Inc. (NYSE/WMT) revised its earnings guidance lower because of the weather; and even Panera Bread Company (NASDAQ/PNRA) says the cold weather negatively impacted its results.
Because no one saw the cold winter weather coming, Americans have been left hungry, cold, and without vehicles or shelter. Though somehow, people too cold to get bread, groceries, or other staples still managed to stock their shelves with soup. Campbell Soup Company (NYSE/CPB) bucked the winter-blaming trend and said its quarterly profits surged 71% year-over-year to $325 million, or $1.03 a share.
But that’s not what I’m getting at…
The most recent industry to use the weather-related get-out-of-jail-free excuse is the housing market. I mentioned recently that the National Association of Home Builders (NAHB) said its monthly housing market sentiment index experienced its largest drop in history, from 56 in January to 46 in February. A score above 50 indicates positive sentiment; below that, it’s negative. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)
In line with negative homebuilder sentiment, perhaps it’s not a huge surprise to discover that construction of new homes sank in January. U.S. housing market starts tanked 16% in January to a seasonally adjusted rate of 880,000—the lowest reading since September and the largest month-over-month drop in three years. Further breaking down the housing market starts, single-family housing construction … Read More
How to Profit from the S&P 500—Even if Earnings Disappoint
By John Whitefoot for Daily Gains Letter | Feb 20, 2014
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
What Retailers Are Saying That Makes Me Believe Economic Growth Is Slowing
By Moe Zulfiqar for Daily Gains Letter | Feb 20, 2014
Conditions in the U.S. economy are deteriorating fairly quickly. The economic data suggests it’s slowing down. We already saw the U.S. economy decelerate in 2013 compared to 2012; now, investors are asking if this is going to be the case in 2014 as well.
All sorts of businesses in the U.S. economy are worried. This is not a good sign when you are hoping for robust growth.
Homebuilders in the U.S. economy have become very skeptical. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) witnessed a massive drop in February. The index, which looks at the confidence of homebuilders in the U.S. economy, plunged from 56 in the previous month to 46. Any reading below 50 on the HMI means homebuilders expect market conditions to be poor. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)
Unfortunately, homebuilders aren’t the only ones who are worried and suggesting the U.S. economy isn’t going in the desired direction.
Retailers with major operations in the U.S. economy are feeling the same. Wal-Mart Stores, Inc. (NYSE/WMT)—one of the largest retailers—lowered its profit guidance for the fiscal fourth quarter, ended on January 31, 2014. The CEO of the company, Charles Holley, said, “We now anticipate that our underlying EPS [earnings per share] for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70.” He added, “For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to … Read More
How to Invest in a Stock Market Correction
By John Whitefoot for Daily Gains Letter | Feb 12, 2014
Has the stock market rebounded? Some seem to think so. After recording the worst month in more than a year and the first monthly loss since August, some analysts think the worst is behind us and February will be a winner.
What further evidence do the bulls need than to point to the numbers! After falling more than three percent in January, the S&P 500 is up 0.75%; the NYSE is up a little more than 0.50%; the NASDAQ is up roughly 0.75%; and the Dow Jones Industrial Average is up around 0.50%. Not a spectacular display of strength—but enough to buoy up some investors.
But the euphoria may be short-lived. While stocks are holding up right now, there are more than enough warning signs (technical, economic, and statistical) that are pointing to a correction.
For starters, February is the second-worst-performing month for the S&P 500 and Dow Jones Industrial Average so far, and it’s the fourth-weakest month for the NASDAQ. Plus, according to historical data, February tends to perform even worse when January is negative. Since 1971, when January ended on a negative, the S&P 500 extended its losses into February 72% of the time—falling an average 2.4%. For the Dow Jones Industrial Average it ends down 65% of the time and 57% of the time the NASDAQ ends down, too.
But the stock markets are only as strong as the stocks that make them—so statistics on their own are a little short-sighted. Every quarter since the beginning of 2013, more and more S&P 500-listed companies are revising their quarterly earnings lower. During the first quarter of 2013, 78% … Read More
Why January Auto Sales Point to Bleak Future for U.S. Economy
By John Whitefoot for Daily Gains Letter | Feb 5, 2014
Despite assurances from analysts, economists, and central bankers, the U.S. economy isn’t faring so well—and the markets are finally beginning to see what we’ve been warning about in these pages all last year.
For sustainable growth, the U.S. economy needs to be reporting consistently strong fiscals. But it isn’t. For starters, the key stock indices, a reflection of the U.S. economy, have extended their sharp January losses. The S&P 500 is down 5.6% year-to-date, the Dow Jones Industrial Average has lost more than seven percent of its value so far this year, the NYSE is down roughly six percent, and the NASDAQ is in the red by four percent.
Every quarter since the beginning of 2013, an increasingly larger number of S&P 500-listed companies have revised their quarterly earnings lower. During the first quarter of 2013, the number stood at 78%. This time around, 81% of S&P 500 companies have revised their first-quarter earnings lower.
Why the big losses? That depends on whom you talk to. The Bank of America, without even a hint of a smirk, blames the much colder-than-expected weather for the weak U.S. economy, meaning the U.S. economy and global markets are performing poorly because of a snow storm…
I suggest the U.S. economy is doing poorly and the U.S. markets are tanking for entirely different reasons. For starters, the U.S. economy needs steady jobs and earnings growth. Instead, the U.S. economy is facing high unemployment and stagnant wages. For the week ended January 25, jobless claims jumped more than forecast to a seasonally adjusted 348,000.
And a record number of Americans rely on food stamps. Interestingly, … Read More
Three Stocks to Watch as Activist Investors Unlock Value
By Sasha Cekerevac for Daily Gains Letter | Feb 5, 2014
One of the most hotly debated topics these days is the role of activist investors. Some people have the impression that an activist investor is not a positive factor when it comes to long-term investing. I disagree, as many times, the investment strategy recommended by these activist investors ends up benefiting all shareholders.
Probably the most well-known, and certainly the wealthiest, activist investor is Carl Icahn. One of the things I like most about Icahn’s investment strategy is that he is willing to buy when others are selling and be vocal about his intentions.
A perfect example of his long-term investing ideology was when he stepped in to buy shares of Netflix, Inc. (NASDAQ/NFLX). If you remember a few years ago, Netflix shares were trading around $60.00 and many analysts were recommending an investment strategy to stay away from Netflix. Icahn saw an opportunity to accumulate a solid company for long-term investing purposes and has held on, making a return well in excess of 500%.
I would never recommend someone simply follow a successful activist investor like Icahn; rather, I would investigate any investment strategy he advocates to see if it matches my own risk profile. For long-term investing purposes, if I was a shareholder and he became active, I would certainly be happy.
Chart courtesy of www.StockCharts.com
His recent investment strategy in Apple Inc. (NASDAQ/AAPL) makes perfect sense. The recent sell-off, I believe, is an excellent opportunity for investors to take a look at Apple as a possible long-term investing option, since the current valuation is only 10.9X its forward price-to-earnings (P/E). That is an extremely attractive valuation for … Read More
Three Stocks to Profit While Market Struggles with Positive Return
By John Whitefoot for Daily Gains Letter | Feb 4, 2014
If January is any indication of the stock market action in 2014, we’re in for a long year. After a scorching year, the key stock indices are ending the first month of 2014 in the red. As we say goodbye to January, it’s worth noting that the S&P 500, after notching up five-percent in the first month of 2013, gave up three percent of its value during the first month of 2014.
The other indices aren’t faring any better. The NYSE posted a 3.8% gain in January 2013, but lost 3.2% of its value in January 2014. The Dow Jones Industrial Average gained six percent in January 2013, but at the close of January 2014, it’s down almost five percent.
But, if you listen to the overly optimistic statisticians, a bad January does not necessarily portend a bad year. Since 1962, in January, the S&P 500 has fallen by more than four percent nine times. But, when that occurs, the S&P 500 is actually up between February and the end of the year—though barely. During those nine years with losing Januarys, the average February–year-end returns tallied 1.08%. (Source: Ratner, J., “A weak January for stocks isn’t as bad as you think,” Financial Post, January 31, 2014.)
Though, there are some statistical anomalies in there that might just be helping the so-called as-goes-January seasonal anomaly, in two of the nine years (1968 and 2009), the S&P 500 reported double-digit gains over the final 11 months of the year. In 1968, the S&P 500 was up 12.1%; in 2009, it was up 35.3%.
In the same time, the S&P 500 saw a … Read More
These Three Railroad Stocks Look Great
By John Whitefoot for Daily Gains Letter | Jan 31, 2014
Back in early October, I mentioned that some railroad stocks would be some of the biggest winners of the Bakken oil play in North Dakota and Montana and the tar sands in Alberta. My position still holds true today.
Since last discussing pipeline and railroad stocks, Canadian National Railway Company (NYSE/CNI, TSX/CNR) has seen its share price climb more than 10%. Meanwhile, Canadian Pacific Railway Limited (NYSE/CP, TSX/CP) is up more than 15% and Union Pacific Corporation (NYSE/UNP) has increased 14%.
Of the oil and gas pipeline stocks I mentioned, Magellan Midstream Partners L.P. (NYSE/MMP) is up more than 15%, while Energy Transfer Equity, L.P. (NYSE/ETE) has soared almost 26%.
While a new pipeline was recently completed in the Bakken oil fields in North Dakota, thanks to a dithering President Obama, North American oil production continues to outpace oil pipeline capacity. That’s a boon for both oil pipeline stocks and railroad stocks.
After dragging his heels for five years, President Obama has still yet to render a decision on the Keystone XL pipeline that would connect Canada to Texas. Obama’s delay is nothing but good news for railroad stocks. Unlike a pipeline, the joy of sending oil and gas by railroad is that it requires no approval by the U.S. Department of State.
Regardless of what President Obama decides, oil and gas will continue to flow south, whether it’s through existing pipelines or by railroad stocks. And increasingly, it’s being sent by rail.
For the week ended January 18, U.S. railroad traffic increased 4.5% year-over-year. Petroleum and petroleum product carloads increased 13.3% year-over-year. In Canada, shipments of Canadian crude oil … Read More
Have These Stocks Already Been Through a Correction?
By John Whitefoot for Daily Gains Letter | Jan 28, 2014
It’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
What to Really Look for in This Overvalued Market
By John Whitefoot for Daily Gains Letter | Jan 27, 2014
When it comes to investing, I think it’s important to have a balanced investment portfolio made up of value and growth stocks. I also think it’s important to be balanced in the way you look at or research stocks through both fundamental analysis and technical analysis. Being too extreme or having too much allegiance to one investing methodology means excluding a rich pool of information.
I have an acquaintance who’s an investor. He swears by day-trading, even though he’s lousy at it. Here, I’d like to employ Dr. Phil’s mind-numbing, near-sighted phrase, “How’s that workin’ for ya?” but to be fair, I don’t really know too many successful day-traders anymore.
Anyway, my friend, whom I call “the investing dandy,” is a pure technical analysis trader, meaning he doesn’t even care what stock he’s trading and most times, he doesn’t even know what the company does.
Technical analysis attempts to forecast future price movements based on past price and volume movements. The idea is to find patterns within the past movements, and use those chart patterns and past price performance to predict what will happen to the stock in the future.
Fundamental analysis, on the other hand, looks at a company’s financial statement in an effort to predict a trend. Unlike technical analysis, which considers the past direction of a chart to predict a stock’s future movements, fundamental analysis focuses on the forward-looking picture.
My friend contends that because the markets have been performing so well over the last few years in spite of lukewarm earnings, there’s no reason to consider a fundamental analysis.
Therein lies his folly. While he’s right … Read More
Why This Chart Should Worry Investors
By Sasha Cekerevac for Daily Gains Letter | Jan 24, 2014
Every 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
Top Four Stocks for Income During Period of Low Interest Rates, Bond Yields
By George Leong for Daily Gains Letter | Jan 23, 2014
An interesting conversation on investments surfaced recently at a dinner party with some friends. The topic was whether it was better to buy large-cap dividend-paying stocks, such as General Electric Company (NYSE/GE) and The Procter & Gamble Company (NYSE/PG), or look at smaller dividend-paying companies.
Of course, I spontaneously said it depended on a host of factors, including the risk appetite of the investor and the economy.
When the economy is growing, and especially as it emerges from a recession like we saw it 2008, it would be advantageous to stock up with smaller dividend-paying companies. The reason is because small companies tend to fare better when adjusting out of a slow period than larger companies, which take much more time to strategize and put a plan into effect.
Another way of looking at it is that it’s easier to steer a smaller boat versus a larger ship in calm waters, but when it gets rough out there, I would rather stay on a bigger ship. The same analogy applies to the question of small-cap versus big-cap stocks.
Now, as far as dividends are concerned, the most important thing is the underlying strength of the company and its previous and forward ability to pay dividends. You want to buy dividend-paying companies that have a valid and sustainable business—no fad stocks here.
Another major monetary benefit of small dividend-paying stocks is the much superior upside price appreciation potential that’s often associated with small-cap stocks. So while companies like General Electric and Procter & Gamble will consistently do well over decades, in the short run, adding some small dividend-paying stocks can help … Read More
Weak Q1 Earnings to Finally Trip Up the Illogical S&P 500
By John Whitefoot for Daily Gains Letter | Jan 22, 2014
Stock markets are only as healthy as their stocks—well, at least they technically should be. But despite its stellar year in 2013, the S&P 500’s component stocks weren’t supporting the growth with strong revenue and earnings growth.
I might sound like a broken record, but the fact of the matter is that the S&P 500 was fuelled by the Federal Reserve and its $85.0-billion-a-month quantitative easing efforts and artificially low interest rates, and the fact that businesses were streamlining operations and implementing aggressive share repurchase programs.
When it comes to financially engineering quarterly results, companies on the key stock indices logged a record-high for share buyback activity. In fact, in 2013, share buybacks amounted to $460 billion—the highest amount since 2007.
Companies on the S&P 500 embraced cutbacks and share repurchase programs because their earnings were nothing to talk about. Despite a year full of all-time highs, each quarter, a larger percentage of companies on the S&P 500 revised their earnings guidance lower—a seemingly obvious disconnect.
During the first quarter, 78% of S&P 500 companies revised their earnings lower; 81% did so in the second quarter; and a record 83% of firms offered lower earnings guidance in the third quarter. Not to be outdone, the fourth quarter saw 94% revise their guidance lower. (Source: “Record high number and percentage of S&P 500 companies issuing negative EPS guidance for Q4,” FactSet, January 2, 2014.)
In spite of the earnings disappointment, the S&P 500 continues to march illogically higher. The index might have gained 30% in 2013—but did it come at a cost? To keep growing, stocks actually have to start posting … Read More
Are Retail Sales Indicators Really as Positive as They Seem?
By John Whitefoot for Daily Gains Letter | Jan 16, 2014
Depending on who you ask, sales in the retail sector may be either brisk or failing to gain traction. Like most things in the stock market, when it comes to the retail sector, it’s all about perspective.
According to the U.S. Department of Commerce, December retail sector sales advanced 0.2% month-over-month, beating analyst forecasts that expected a one-percent increase. Auto sales fell 1.8%, pulling total retail sales numbers down. Not surprisingly, the weak December auto sales numbers are considered more of a reflection of the bad weather than a weak economy. (Source: “U.S. Census Bureau News: Advanced Monthly Sales for Retail and Food Services December 2013,” United States Census Bureau web site, January 14, 2014.) Excluding auto sales, December retail sector sales climbed 0.7% after a 0.2% increase in November.
Are these retail sector sales numbers the latest indication that the economy is getting stronger as we begin 2014?
Well, that depends on how you look at it. Month-over-month, the retail sector sales data looks encouraging. But if you step back a bit and look at the last few months—or even year-over-year numbers—the retail sector and, by extension, the U.S. economy don’t look so bright.
Overall sales of furniture, sporting goods, building materials, garden equipment, electronics, and appliances fell month-over-month. Electronics and appliance stores, two key gift-buying outlets during the holiday season, tripped in November and December. Year-over-year, electronics sales were up a paltry 0.7%.
Department store revenues were essentially flat in November compared to October and were down slightly in December. Overall 2013 department store sales were down 4.7% from 2012.
So now I ask you, will the good … Read More
How to Play Seasonal Anomalies for Profit
By John Whitefoot for Daily Gains Letter | Jan 13, 2014
As all investors know, no two equities march to the same drum. This would then mean that, technically, it should be impossible to predict future returns based on readily available information. However, this might not be entirely true, as it turns out there may be something to be said for some seasonal investing patterns after all.
First off, when it comes to gathering statistics, there’s no better place to look than the stock markets. Monthly price data for equities on the New York Stock Exchange (NYSE) goes back to the early 1900s and data from the other indices goes back to their infancy. So it’s possible to gather objective data and weed out irregularities.
One of the most popular investing seasonal anomalies is the “January effect,” which really runs from late December to at least the end of February. The January effect theorizes that small-cap U.S. stocks have a history of outperforming the S&P 500.
The January effect was first observed by investment banker Sidney B. Wachtel and published in his paper “Certain Observations on Seasonal Movements in Stock Prices,” which appeared in The Journal of Business of the University of Chicago in 1942. In his paper, Wachtel shows that since 1925, small-cap stocks have outperformed the broader market in the month of January. (Source: Wachtel, S.B., “Certain Observations on Seasonal Movements in Stock Prices,” The Journal of Business of the University of Chicago April 1942: 15 (2); 184–193.)
Why is this? Most analysts theorize that tax-loss selling ramps up near the end of the year, when investors sell losing positions. Larger stocks can absorb the hit—but smaller stocks, not … Read More
Why This Software Tech Stock Is So Attractive
By George Leong for Daily Gains Letter | Jan 13, 2014
Unless you have been living in a bunker over the past few years with no access to the Internet, you likely know of the increasing significance of cloud computing in what I consider the next phase of the technology advancement, based on my stock analysis.
Cloud computing is simply a way for companies to store applications, solutions, or data, and allows users to easily access these materials from anywhere.
The growth estimates are staggering. My stock analysis indicates that we are seeing cloud start-ups springing up everywhere, almost as rapidly as the time it takes to register a company name. Simply the use of the term “cloud” in a company’s name or business description has the ability to drive buyers to the stock, according to my stock analysis.
But as my stock analysis suggests, while the estimates of the potential size of the cloud computing market vary, one thing that’s for sure is that the size of the market worldwide will be massive. In fact, the value of the cloud market could be a staggering $270 billion by 2020, according to Market Research Media. (Source: “Cloud Computing Market Size – Facts And Trends,” CloudTweaks web site, July 7, 2012, last accessed January 10, 2014.) However, in the report, Forrester predicts the cloud market will be valued at around just $55.0 billion this year and will reach $241 billion by 2020. That’s massive growth, and while these are only estimates, my stock analysis notes that the potential is nonetheless enormous, so you want to have some exposure to the cloud computing market.
And while there are some major players in cloud … Read More
Economic Indicators Pointing to Weaker Growth in 2014
By John Whitefoot for Daily Gains Letter | Jan 6, 2014
If the stock market is an indicator of U.S. economic health, then 2013 was a stellar year. The Dow Jones Industrial Average closed out 2013 with a 26% gain. The S&P 500 was up 29%, while the NASDAQ Composite was up 34%.
Despite a stellar 2013, the crystal ball for the U.S. economy and Wall Street in 2014 remains murky. That’s because investors might have to actually consider the health of the U.S. economy this year. Now granted, the U.S. economy kicked into high gear last January after the federal government avoided the dreaded fiscal cliff. Thanks to some recent economic indicators, the start of 2014 has been more subdued.
Factory activity in China hit a three-month low in December. While Germany and Italy reported healthy manufacturing numbers, British manufacturing growth eased and France hit a seven-month low of 47.0 (scores below 50 indicate contraction). Here at home, the U.S. economy got a boost after it was announced that manufacturing hit an 11-month high in December of 55.0, up from 54.4 in November. (Source: Weisenthal, J., “This Manufacturing Report From France Is Just Plain Ugly,” Business Insider, January 2, 2014.)
To show it believes the U.S. economy is improving, the Federal Reserve recently announced that it will begin to taper its quantitative easing efforts this month. Instead of pumping $85.0 billion per month into the U.S. economy, it is going to purchase just $75.0 billion in bonds.
And to quell investors’ fears, the Federal Reserve said it will continue to keep interest rates artificially low until the unemployment rate hits 6.5% or lower—a target that probably won’t be reached until … Read More
