revenue growth
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
Investing in a Post-QE3 Market
By George Leong for Daily Gains Letter | Oct 31, 2014
The Federal Reserve made it official on Wednesday, announcing it would be cutting the remaining $15.0 billion from its monthly bond-buying program, also known as QE3.
So with that, the period of easy money flowing into the pockets of investors is over. Remember, it was the Federal Reserve’s relaxed easy monetary policy that helped to drive the S&P 500 up nearly 200% since 2009—and now it’s over, folks.
The stock market reacted with stocks heading lower, as there was a slight sliver of hope the Federal Reserve would decide to hold back on eliminating QE3. Investors will now have to deal with bond yields that could begin to move higher on the Federal Reserve’s move.
The Federal Reserve didn’t give a timeframe for when interest rates will begin to move higher from their near-zero levels, but the consensus is calling for the rate increase to begin sometime in mid- to late 2015. As you know, higher rates by the Federal Reserve will drive up yields and carrying costs for both companies and personal debt. Just think about the more than $17.7 trillion in national debt and how the higher interest rates will impact the government’s out-of-control carrying costs.
We are at what I would call a crux.
Stocks want to go higher but need a fresh catalyst to do so. The advance reading of the third-quarter gross domestic product (GDP) growth came in at a healthy annualized growth rate of 3.5%, which while down from the booming 4.6% in the second quarter, is nonetheless indicative that the economy is expanding.
At the end of the day, a strong economy, continued … Read More
Three Plays to Benefit When OPEC Cuts Oil Production
By George Leong for Daily Gains Letter | Oct 27, 2014
Oil prices are struggling to hold above $80.00 a barrel for West Texas Intermediate (WTI) crude. Even the more widely traded Brent oil prices are hovering around the $80.00 level.
Excess supply—especially from the fracking for oil in the United States and the gush of oil that will come from the tar sands in Canada—is helping to drive oil prices lower. Then add in the slowing in Europe and China, and you have concerns on the demand side.
In Economics 101, when demand declines and supply rises, a downward pressure on prices surfaces and that is exactly what is happening to oil prices.
The oil cartel, the Organization of the Petroleum Exporting Countries (OPEC), from the Middle East has said it will not cut its oil production given the decline in oil prices. You have to wonder how valid this is, though, especially when oil prices fall to below $80.00 a barrel.
The reality is that oil prices will need to be artificially pushed higher by cutting production, as many countries in the Middle East and elsewhere require higher oil prices to break even. So it’s likely OPEC won’t have much of a choice.
Moreover, an escalation of the conflict in Syria and Iraq could also offer oil prices some support.
And oil will move higher on evidence of a recovery in the global economy.
If you believe this premise, then it’s time to look at some of the many downtrodden oil plays that have been sold off on the declining oil prices.
On the small-cap driller side, take a look at battered-down Parker Drilling Company (NYSE/PKD) out of Houston, … Read More
The Stocks to Watch This Earnings Season
By George Leong for Daily Gains Letter | Oct 8, 2014
The country’s gross domestic product (GDP) growth and jobs creation has been edging higher and providing some optimism for the stock market as we head into the third-quarter earnings season that begins officially with Alcoa Inc. (NYSE/AA) today.
A strong earnings season could likely be enough to drive stocks upward towards new highs. But as long as the outlooks from companies look good, the stock market will be heading northward.
The results from Alcoa will be closely watched, as the company is considered a barometer of the global economy due to the use of aluminum in many applications and across many sectors.
I want to see some leadership from the financials and technology sectors in the earnings season to help drive the broader market.
Over the past several earnings season quarters, the revenue side has been muted and earnings have been driven by cost-cutting rather than strong revenue growth. Based on the current estimates for the third-quarter earnings season, it looks like much of the same this time around as revenue growth is predicted at 3.7% for the S&P 500 companies versus 3.5% as of June 30, according to research from FactSet. (Source: “Earnings Insight,” FactSet web site, September 26, 2014.) The growth in this earnings season, while not earth-shattering, does show some promise, as it’s slowly rising, which is what we want to see.
Earnings are estimated to advance 4.7% in the third-quarter earnings season, which is well below the 8.9% estimate provided as of June 30. Again, this isn’t great, but it would be higher on a sequential basis.
The reduction in earnings isn’t impacting any of the … 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
Why This Travel Company’s Stock Just Keeps Going Up and Up
By George Leong for Daily Gains Letter | Sep 3, 2014
The travel market in China continues to be strong in spite of the country’s economic growth stalling around 7.4%. Spending has been triggered not only by personal travel, but the country is on the verge of surpassing the United States in the area of business travel.
Just take a look at the industry metrics. In 2013, total travel business spending in China came in at $225 billion, based on research by the Global Business Travel Association.
In the country, you can witness the explosive growth in travel infrastructure, which includes airlines, high-speed rail transit, cars and car rentals, and hotels.
In fact, China is already the world’s largest market for airlines, cars, and rail. The country is spending hundreds of billions of dollars in these areas and it’s only going to get bigger. And with more than 1.3 billion people in China alone, you know the travel market within the country will also expand.
You can now travel from Shanghai to Beijing in a few hours by taking a high-speed train and based on the government’s ambitious plans, the high-speed rail network is only going to expand.
In the airline sector, just ask The Boeing Company (NYSE/BA) about China and you’ll realize it’s becoming the most lucrative global market for airplanes.
The vehicle market is also continuing to be the largest in the world, only held back by quota restrictions placed on car sales by the government in an effort to limit pollution.
With all of this added travel in the skies, on the roads, across the water, and by rail, you know the demand for hotels is also surging. … 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
How to Profit from This Housing Market Oversight
By George Leong for Daily Gains Letter | Jul 18, 2014
The housing market continues to show growth and offer a good buying opportunity. While the major upward push in the housing market may be behind us, I still see opportunities.
As long as interest rates and mortgage rates remain relatively low, you can expect the support for the housing market to hold for the next few years.
While housing starts and building permits numbers continue to be fairly strong, the National Association of Homebuilders (NAHB)/Wells Fargo Housing Market Index (HMI), which reflects the confidence of the homebuilders, increased to a healthy reading of 53 in July, up from 49 in June. A reading above 50 indicates positive sentiment in the housing market. It was the first move above 50 since January.
And the key components of the HMI point to optimism. The reading that reflects expectation for future sales jumped to 64. (Source: “NAHB, Builder Confidence Surpasses Key Benchmark in July,” National Association of Homebuilders web site, July 16, 2014.)
The HMI suggests the housing market will continue to show steady growth. As an investor, you may consider buying the homebuilder stocks or the suppliers of building materials to the industry.
A small-cap housing market play on the residential and commercial building markets that I like is Installed Building Products, Inc. (NYSE/IBP), which has a share price of $12.22, a post–initial public offering (IPO) range of $11.75–$15.47, and a market cap of $373 million. The company was recently listed in February at $12.30; so the stock has done little, which in my view, represents a buying opportunity for investors.
Chart courtesy of www.StockCharts.com
While the company is new on the … Read More
How This Small-Cap Stock Beat Even Google to the Punch
By George Leong for Daily Gains Letter | Jul 10, 2014
The U.S. military extensively uses unmanned drones to spy on foreign countries (and maybe its own citizens). In some cases, the military uses drones to take out the enemy, which is what recently happened when drones killed terrorists at a meeting in a remote region.
Interestingly, Amazon.com, Inc. (NASDAQ/AMZN) wants to use drones for an entirely different reason: to deliver your books and other merchandise.
Likewise, Google Inc. (NASDAQ/GOOG) wants to deliver groceries to your home in real time via its solar-powered drones that came into the company’s hands after Google acquired Titan Aerospace. Leave it to Google—self-driven cars and drones delivering goods.
The employment of drones is extensive if it receives clearance from the Federal Aviation Administration (FAA), which is likely still a long shot, especially in the more populated areas of the country, based on my stock analysis.
If the FAA approves it, the use of drones in commercial applications will likely rise, but it could take some time before they are used for broader applications, as my stock analysis suggests.
The market for U.S. drones is estimated at $82.0 billion by 2022, based on information from IHS Jane’s. (Source: Medina, D.A., “Drone markets open in Russia, China and rogue states as America’s wars wane,” The Guardian, June 22, 2014.)
The major players are the big aerospace companies, such as The Boeing Company (NYSE/BA). On the small-cap stocks side, my stock analysis indicates that an interesting company to watch is AeroVironment, Inc. (NASDAQ/AVAV). As my stock analysis notes, the company is best known for its efficient energy systems (EES) division, which makes electric vehicle (EV) charging solutions.
Yet … 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
The Only Sector I Believe Will Deliver as Corporate America Struggles
By George Leong for Daily Gains Letter | Jun 16, 2014
We are a few weeks away from the second-quarter earnings season and again, there’s a lot of hope and optimism that corporate America will be able to deliver the goods. But we also said that for the first-quarter earnings season—and prior to that, we said the same for the fourth-quarter earnings season.
Before, what we saw instead was sluggish revenue growth along with companies having an easier time on the earnings front, as Wall Street does what it usually does—lowering earnings estimates to meet the changing situation, making it easier for companies to meet expectations. In the first-quarter earnings season, it was about the strain placed on companies by the bitter winter. That’s fair, but there really are no more excuses for this quarter.
The nation’s jobs numbers are looking better after the country managed to recover all of the 8.7 million or so jobs lost since the start of the Great Recession. If the economy can continue to generate jobs growth at more than 200,000 new jobs monthly, then we would expect consumer spending and confidence levels to improve. Yet having said this, there’s clearly still some trepidation out there, especially with the decline in wealth levels of the middle class and below.
The rich are getting richer, but even as a group, they cannot spend the economy to stronger growth without the help of the middle class. We need to see income levels expand across middle-class America in order for companies to have any hope of expanding their revenues better than what we are seeing now. This makes sense to me: spread the wealth and the economic renewal … Read More
How Godzilla’s Box Office Success Could Offer Your Portfolio the Same
By George Leong for Daily Gains Letter | May 28, 2014
Godzilla (2014) is running wild at the box office, as this classic B-movie remake has delivered a record opening weekend for specialized movie theater operator IMAX Corporation (NYSE/IMAX).
If you have ever had the IMAX experience, you likely agree that Godzilla was probably as life-like as possible through the big-screen format of an IMAX theater, surrounded by about 12,000 watts of mind-blowing sound via a network of more than 40 speakers.
The screening of major Hollywood blockbusters on IMAX screens has been a big winner for the company and an excellent investment opportunity. IMAX has shown such major movies as The Hunger Games series, The Avengers, the newest Batman series, and The Hobbit: An Unexpected Journey.
Yet the appeal of IMAX has not only been its expansion in North America, but its ability to grow rapidly worldwide in places such as Western Europe, Japan, China, and Russia, which makes the stock a good investment opportunity. As of March 31, 2014, there were 840 IMAX theater systems installed in 57 countries worldwide.
The expansion into China is especially intriguing as an investment opportunity. With more than 1.3 billion people and the ongoing debut of Hollywood films in China, the investment opportunity is tremendous. At this time, there are about 150 IMAX theater systems in the country with contracts to open another 400 or so. In fact, if IMAX catches on, we could easily see hundreds more theater systems installed.
Fundamentally, the company reported higher annual revenue growth in 2009, 2010, 2012, and 2013. Revenues are estimated to grow 5.7% to $304.46 million in 2014, followed by 15.2% to $350.64 million in … Read More
This Health Food Giant’s Issues Growing Profitable for Investors
By George Leong for Daily Gains Letter | May 9, 2014
For years, Whole Foods Market, Inc. (NASDAQ/WFM) was the top of the food chain in the sale of natural and organic groceries. Yet with success often comes competition.
Whole Foods is now finding itself in a fierce battle with new rivals, established grocers, and big-box stores all looking for a piece of the action in this higher-margin business, based on my stock analysis.
Whole Foods’ stock was devastated on Wednesday after the reporting of weak first-quarter results that clearly displayed the negative impact of competition on the company.
Whole Foods was also hurt by margin pressures, as the company cut prices in response to the competition, as my stock analysis indicates. Given the squeeze on margins, my stock analysis suggests that Whole Foods will have to come up with some innovative strategies to attract customers and stop them from venturing over to its rivals’ outlets.
Yet as my stock analysis indicates, this will not be easy as the market for natural and health food is crowded. You not only have the smaller, emerging players, but Whole Foods also needs to watch the established big-box stores, such as Wal-Mart Stores Inc. (NYSE/WMT) and Costco Wholesale Corporation (NASDAQ/COST).
If you are looking for a small-cap natural and health food play, take a look at Natural Grocers by Vitamin Cottage, Inc. (NYSE/NGVC). I have been following this company for years, watching it rise to a high of $44.60 prior to its subsequent collapse.
The stock has retrenched to the low $20.00 level, where I see a contrarian investment opportunity, based on my stock analysis. (I liked the stock in the $30.00 range—but I … Read More
Profitable Investment Opportunities in a Fragile Housing Market
By George Leong for Daily Gains Letter | May 8, 2014
The housing market continues to hold. But there are some warning signs. Famed investor Warren Buffett suggested the housing market was overvalued and due for an adjustment.
Now, while there are some indications of an overhyped housing market, I’m not convinced it’s bubble-like quite yet. But be warned: mortgage rates and interest rates are heading higher. This means it will become more expensive to finance mortgages going forward.
We are already seeing some fragility in the housing market on nearly all fronts. Home prices continue to edge higher across the nation, but that’s because of the limited inventory in the housing market.
Pending home sales, a good indicator of what is to happen on the horizon, fell eight percent in March based on data from the National Association of Realtors (NAR).
Housing starts were weaker than expected in March, with 946,000 annualized starts in the month, below the consensus 970,000. Worse yet was the March building permits reading that showed an annualized 990,000 in the pipeline, below the consensus estimate of 1.01 million and the 1.018 million in February. The soft showing is a red flag that points to some stalling ahead.
Of course, the horrible winter conditions across the country were largely blamed, but with the warmer months ahead of us, there will be little excuse if we see weaker numbers. This is especially true since the jobs market is showing some increasing strength.
Given what we’re seeing in the housing market, I would be hesitant to jump in and buy the homebuilders. A good alternative in the housing market would be to play the companies in the area … Read More
How to Profit from the Greedy Oil Companies
By George Leong for Daily Gains Letter | May 5, 2014
I just went to fill up my gas-guzzling SUV, and what I paid was one of the highest bills ever. With oil prices managing to hold around $100.00 a barrel for West Texas Intermediate (WTI), the price of gasoline at the pumps continues to be absolutely insane—not as expensive as Europe and parts of Asia, but nonetheless a major hit to your wallet.
Yet while consumers and companies pay the brunt of the high oil prices, the fat cats at the oil companies are quickly adding to their coffers and making tons of oil profits.
The only positive news here is that the country has reduced its dependence on Middle East oil and that, folks, really is a good thing. We don’t want to be held hostage by OPEC oil.
Of course, as many of my astute readers know, the major reason why we are becoming less dependent on foreign oil (excluding oil from the Canadian tar sands), is the rapidly growing extraction of domestic shale oil from the hotbeds in North Dakota and Montana.
In 2012, shale gas represented 39% of total natural gas production in the United States, according to the U.S. Energy Information Administration (EIA). Canada was second at 15%. These numbers are estimated to grow even bigger. The U.S. has the best technology for squeezing oil out from between rocks in the shale deposits, and it will only improve as we move forward.
The rising production of shale oil has made the price lower in comparison to the more expensive and heavier Brent Crude oil at around $109.00 per barrel.
Take a look at the chart … 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
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
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
Three Strong Stocks for Lean Times
By John Whitefoot for Daily Gains Letter | Nov 18, 2013
On the surface, the S&P 500 third-quarter earnings season is looking pretty good. The S&P 500 is up 25.4% year-to-date and is up 32% year-over-year. So far so good!
By the end of the first week of November, of the 446 companies on the S&P 500 that reported third-quarter results, 73% said they beat their earnings projections. All is well on Wall Street and Main Street! Numbers don’t lie! (Source: “Earnings Insight,” FactSet web site, November 8, 2013.)
Or do they? That number is pretty solid, at least until you factor in a record 83% of all S&P 500 companies revised their third-quarter earnings guidance lower. It’s a little easier to clear a hurdle when you significantly lower the bar. But sadly, not even that was enough for some S&P 500 companies.
What about revenues? Roughly half (52%) were able to beat revenue projections. The percentage of S&P 500 companies that beat revenue estimates is above the fourth-quarter average of 48%—but again, everything is relative. On the other hand, third-quarter sales are below the 59% average recorded over the previous four years.
What do these numbers mean? That a large percentage of S&P 500 companies are reporting better-than-expected earnings on less-than-stellar revenue. That’s a pretty tough equation to figure out, unless you toss in cost-cutting measures and share repurchase programs.
It’s going to be difficult for S&P 500 companies to continue to wow investors with artificially high earnings if sales remain stagnant. The writing is on the wall.
Of the 85 S&P 500 companies that have issued earnings-per-share (EPS) guidance for the fourth quarter, 73—an eye-watering 86%—have issued negative EPS … Read More
