Daily Gains Letter

old economy


Why Plunging Commodity Prices Are Great for the Stock Market

By for Daily Gains Letter | Apr 17, 2013

170413_DL_clarkThe big drop in the value of many commodities is very good news for this stock market.

All of a sudden, raw materials are cheaper in price. This is going to translate right to the bottom line of many corporations.

And one of the best developments is the weaker price of oil. Big oil stocks have done consistently well in the stock market, but smaller corporations have struggled due to the fact that the spot price has not been able to move much past the $95.00-per-barrel level. Now that spot oil is below $90.00 a barrel, transportation stocks are really going to benefit.

Of course, it takes time for big oil corporations to reduce gasoline prices. It’s common knowledge that when the spot price of oil spikes, gasoline prices immediately go higher. But when oil drops, it always takes much longer for gasoline prices to reflect reality. This is the nature of big oil, and there’s nothing that can be done about that.

The stock market is currently digesting a slew of earnings from corporations, as well as economic news that continues to show economic struggle.

But with gold, silver, and oil all trending lower, this is an absolute gift to the majority of old economy corporations.

It never used to be this way until recently, but the U.S. stock market now trades off of China’s economic data. And while China is still growing significantly, it’s all about expectations for high growth, not the degree to which the economy may be contracting.

The plunging spot price of gold is partially a reflection of the sentiment that investors have regarding risk. … 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:

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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


Avoid the Eurozone Mess: How to Profit Domestically

By for Daily Gains Letter | Mar 28, 2013

280313_DL_clarkMost investors will consider utility stocks in saving for retirement, or when looking for regular stock market income while in retirement. This is a group that has a better track record on the stock market than you might think. Old economy stocks can still generate solid investment returns, even if they are well-established utilities.

The Dow Jones Utility Average has a good long-term track record of wealth creation, but it has not been without volatility. Clearly this is a group that is less volatile than many other stock market sectors and these stocks experience waves of enthusiasm from institutional investors.

Utility stocks are not for everyone. A lot of investors feel that they would be better off in faster-growing, brand-name companies that have long-term track records of paying dividends. But in terms of dividend yield, utility stocks are definitely a group that is worth looking into.

One of the standout utility stocks is The Southern Company (NYSE/SO). The stock has been a powerhouse wealth creator, with much less volatility than the rest of the group. The company’s long-term stock chart is featured below:

dl_03282013_image001Stock chart courtesy of www.StockCharts.com

In my estimation, Southern is one of the few utility stocks that combine excellent dividend payments with solid potential for further capital gains on the stock market. Considering Southern today, you might say that it is fully priced with a current price-to-earnings (P/E) ratio of approximately 17. But the dividend yield is 4.3%, which is very substantial in today’s environment. And you know that this business is still going to be there and that people are still going to be moving to … 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


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


Another Old Economy Company Soars on the Stock Market

By for Daily Gains Letter | Feb 19, 2013

DL_Feb_19_2013_MitchellAnother great company is dropping out of the stock market. News that H. J. Heinz Company (NYSE/HNZ) has been bought out by Warren Buffett and a partner firm is more conformation of just how well old economy stocks are doing in this market.

H. J. Heinz has been a great long-term performer on the stock market, and I consider it to be old economy in the sense that it’s a traditional brick-and-mortar business, selling essential products that consumers use every day.

Now Buffett has another cash-generating machine on his hands. On the day that he announced he was buying the company, H. J. Heinz was yielding 3.4%. On the stock market, H. J. Heinz hasn’t done a lot over the last dozen years or so; but if you eliminate the price spikes, it’s been smooth sailing for the last 20 years. The company’s five-year stock chart is below:

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Chart courtesy of www.StockCharts.com

There are a lot of boring businesses out there that make a lot of money, both operationally and on the stock market. Old economy stocks are back—and they’re back with fervor, because we’re in a slow growth environment. When there’s little growth, institutional investors will pay for consistency and dividends; right now, the stock market is rewarding these attributes.

Countless old economy names are doing great on the stock market at this time, even though the main stock market averages are treading water. This doesn’t mean, however, that they are good buys at this particular time; only that they would be worth looking at on major price retreats.

Two old economy stocks that are worth considering when they’re … Read More