While many seem to be comforted by continued stock market highs, bad news could be brewing for the first-quarter 2015 earnings season.
1Q15 Earnings Season to Affect the Markets?
The stock market continues to see record after record. We had the NASDAQ breaking back above the psychological 5,000 level last Friday; now it’s within distance of its all-time high, but we are heading into the key first-quarter earnings season of 2015.
Small-cap stocks, which had been the doormat in 2014, have regained their luster with a 2.4% advance in March, now sitting at a new record-high.
Everything appears to be firing on all cylinders for the long side, but let me remind you that there are still issues with the weak oil prices, a stalling Chinese economy, fragile growth in Europe and the eurozone, and domestically, a strengthening jobs market but a red flag on corporate growth.
The short-term direction of stocks will again shift its focus in a few weeks to the first-quarter earnings season, and it’s not looking good.
Early 1Q15 Earnings Outlook
The earnings outlook is especially a concern for the large multinationals that derive a big portion of their revenues from outside the U.S., given the massive run-up on the charts for the dollar against the euro and other foreign currencies. The result is higher-priced American-made goods, which will hurt exports and demand.
If the stock market is looking to the reporting season for reasons to move higher, I fully expect some disappointment. The S&P 500 is trading at around 17-times (X) its forward earnings. This isn’t a cheap valuation; in fact, it’s above the five- … Read More
There’s a financial reckoning coming, folks. The easy money pushed through the financial system and economy by the Federal Reserve over the past several years may have given us this six-year bull stock market, but it has also allowed personal debt loads to amass. Heck, even the government has accumulated in excess of $18.0 trillion in debt. But there’s an investment opportunity that could emerge from this.
Investment Opportunity Coming as Interest Rates Rise?
For now, with interest rates near zero, everything is fine. But rates will likely begin to move higher by as early as halfway through this year. With higher rates come a heavier debt burden and financing costs, which will eat the disposable income consumers would otherwise use for spending.
Bankrate.com released a survey that pointed to the growing build-up of debt by Americans. In a survey of 1,000 adults, it was found that 37% have credit card debt that is equal to or greater than their emergency savings. This doesn’t even include other debts, such as mortgages or loans.
What this means is that we could see a financial collapse as interest rates rise. There are already 48 million Americans using food stamps, and this may increase. But while the situation could surely worsen, there will be an investment opportunity. To play this scenario, look for companies that can benefit from a declining middle class and those struggling with their finances.
How to Profit from Rising Interest Rates and Debt: Two Stocks to Watch
A good example of the type of stock to watch during this potential investment opportunity is EZCORP, Inc. (NASDAQ/EZPW), which has a … Read More
Many of you are probably happy to bid farewell to January. Not only was the weather nasty, but the stock market also traded in a volatile manner, with the bias to the downside.
The month ended in the red, with the major stock market indices trading below their respective 50-day moving averages and looking lower. The S&P 500 is below 2,000 once again and has been unable to get its footing above with any sustained momentum (as you can see in the chart below).
For traders who follow the historical cycles of the stock market, we know that the negative month suggests the stock market is in for some difficult times this year. But I’m not convinced the bull market is over quite yet.
Chart courtesy of www.StockCharts.com
When the markets start January down, the tendency is for a down year for the stock market about 80% of the time, but that is not always the case. As we saw in 2014, January also produced a down month but recovered with an up year. That month, the decline in the Dow and S&P 500 was greater than this January’s, but the S&P 500 subsequently closed higher in eight of the next 11 months.
Chart courtesy of www.StockCharts.com
Now, I’m not suggesting the same will materialize this year for the stock market, but it’s something to keep in mind as we move into February, which saw the markets bounce back in 2014.
The key for the main stock indices will be the 200-day moving average (MA), which is just below where the indices are sitting at now, with the exception of … Read More
It’s that time again; another quarter has come to an end. The fourth-quarter earnings season numbers will officially start flooding in for the S&P 500 on Monday, with Alcoa Inc. (NYSE/AA) the first to report. However, the stock market is currently in a funk, beginning 2015 with weakening oil prices and continued concerns over the global economy. The problem: as the stock market searches for a reason to buy, several segments are suffering from the selling pressure. There is, however, one segment expected to look up heading into 1Q15 and that’s the healthcare sector. But more on that potential investment opportunity in a moment…
4Q14 Earnings Season Looks Bleak
A major reason for the selling pressure that’s affecting several stock market segments has been the downward push on oil prices, which continue to search for a floor. West Texas Intermediate (WTI) oil was around $48.00 a barrel at close yesterday and Brent crude was just below $51.00. The oil weakness is a major drag on the market and offers an excuse to sell.
On the charts, the major stock indices, including the DOW, NASDAQ, S&P 500, and Russell 2000, are all below their respective 50-day moving averages (MA) and down more than four percent from their highs.
On Monday, Alcoa will start off the reporting. The company is considered a decent barometer on the global economy, but my expectations are low that we will be able to give reasons for investors to buy.
Earnings growth in the fourth quarter is estimated at a muted 2.6%, well below the 8.4% estimate as of September 30, according to a report from FactSet. … Read More
Strangely, Americans are getting richer and poorer at the same time, and this is benefiting the luxury brand stocks. While the number of Americans requiring food stamps is at a staggering 48 million or so, at the other end of the spectrum, the rich are increasing their wealth to new record-highs at a rapid pace. This is what will help the luxury brand stocks—a widening income gap that’s seeing the rich rapidly becoming richer.
In 2013, there were about 9.63 million households with a net worth of at least $1.0 million, according to Spectrum Group. Given that the S&P 500 has gone up about 200% during this current bull market, it’s not surprising to see the rise of the wealthy. Add in the increase in home prices and real estate, and you have more wealth created since the economy tanked in 2008.
In reality, it has been one of the best five years for material wealth to rise due to the strong upward moves in both the stock market and the housing market, which were fueled by near-zero interest rates and the Federal Reserve’s aggressive and controversial quantitative easing strategy (which has been brought to a halt—at least for the time being).
So, here we are. Investors may not be rejoicing over the gains this year compared to some of the previous years, but the building up of capital continues, which is also a plus for the luxury brands.
The auto sector is sizzling again, but what’s interesting is the rise in the more expensive vehicle segment of the auto market. Classified as vehicles priced at more than $50,000, the … Read More
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
In the 1990s, Microsoft Corporation (NASDAQ/MSFT) was the toast of Wall Street and arguably one of the top technology growth stocks in the world, based on my stock analysis.
At that time, personal computers (PCs) and laptops were the only computing devices around, as portable mobile devices were not widely developed yet. Microsoft, of course, developed the “Windows” operating system and associated applications. There was no real competitor at that time; Apple Inc. (NASDAQ/AAPL) was really not considered a valid threat yet, according to my stock analysis. In fact, Apple was on the fringe as its stock price languished at the dollar range.
Fast-forward a couple decades and now we see Apple at the top of the mobile devices ladder, while every other company tries to latch on, based on my stock analysis.
As my stock analysis indicates, during Apple’s rise, Microsoft was essentially comatose, having focused too intently on its operating system and on the PC platform. The company, under former CEO Steve Ballmer, failed to recognize the move to the mobile space. According to my stock analysis, this left Microsoft in a lurch, becoming a fallen star on Wall Street.
Luckily, Ballmer was cut and replaced with CEO Satya Nadella, who has made Microsoft relevant again to the investment community via his vision and focus on the growing technology spaces, such as mobile devices and cloud computing.
The stock has advanced 29.11% over the past 52 weeks, easily outperforming the 11.64% move by the S&P 500.
Chart courtesy of www.StockCharts.com
In addition to the Windows operating system, my stock analysis notes Microsoft has been shifting its energy into … Read More
The world is not coming to an end—even if it does look that way as global stock markets plummet.
Make no mistake about it; we are clearly witnessing some selling capitulation in the stock market. The bottom may be near for the stock market, or we could be in for further downside moves given that the correction on the S&P 500 has been around six percent, so there’s some wiggle room to the downside.
After multiple records by the S&P 500 and DOW in September, the DOW is now in negative territory in 2014. Meanwhile, the S&P 500 was negative intraday on Wednesday prior to rallying.
If you are looking to buy on weakness, you want to understand the downside risk is still there in the stock market—especially for the higher-risk small-cap stocks and technology growth stocks. The NASDAQ fell on Wednesday, experiencing a 10% correction, but managed to bounce back.
Many small-cap stocks on the Russell 2000 are already entrenched in a bear stock market, down more than 20% from their highs. This is not the area for timid investors yet.
Perhaps it’s time to stop chasing risk and look at adding some lower-risk proven plays in the stock market instead.
I like the consumer staples stocks that tend to perform in both up and down stock markets.
Some may want to go defensive in the stock market. Look to the big banks, consumer staples, and industrial sectors if so.
One of the top stocks over time has been General Electric Company (NYSE/GE), which has been a favorite of widow portfolios in the stock market since the company first … Read More
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
Don’t let the new records by the Dow Jones Industrial Average and S&P 500 trick you into thinking everything is fine in the stock market.
Just take a look…
We have the rising military actions against ISIS in Syria and Iraq that involve five Arab countries, which could really increase the geopolitical risk worldwide.
China is continuing to deliver muted economic results and suggested there would be no additional monetary stimulus at this time. Meanwhile, the slowing in the eurozone and Europe, given the economic sanctions on Russia, will impact the demand for Chinese-made goods.
And while the domestic economy is holding, the Organisation for Economic Co-operation and Development (OECD) recently cut its gross domestic product (GDP) growth estimates for the United States to below two percent this year.
The Federal Reserve is helping to support the stock market via the likely extension of its near-zero interest rate policy into mid- or late 2016, but this will help only so much.
The stock market risk is evident on the charts.
Technology and small-cap stocks are attracting the most selling, with investors dumping high-beta stocks as overall stock market risk rises.
The small-cap Russell 2000 lost 1.6%, moving back below its 50-day and 200-day moving averages (MAs) on Monday. The index is now down nearly four percent in September. Considering the risk, I would be careful when looking at small-cap stocks in the stock market at this time.
Technology is also at risk in the stock market despite the NASDAQ continuing to lead the major indices this year with an advance of close to nine percent. Higher-beta stocks are generally the … Read More
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
I’m not sure how many of my Daily Gains Letter readers realize that Chinese stocks, as reflected by the Shanghai Composite Index (SCI), have outperformed the S&P 500 so far this year. After offering up underwhelming performances since 2009, the SCI has rallied 9.98% this year, compared to 8.44% for the S&P 500 and 3.23% for the Dow Jones Industrial Average as of Monday.
We’re not talking about resurgence in Chinese stocks and a return to the glory days more than five years ago; instead, I’m simply saying there’s finally some buying in an oversold Chinese stock market.
Chart courtesy of www.StockCharts.com
Of course, there’s the high anticipation of China-based Alibaba (NYSE/BABA) joining the U.S. capital markets on September 19; this move will likely stroke the enthusiasm of investors here. The Internet services company is massive and will give U.S. companies a run for their money, further opening the U.S. market to consumers and businesses worldwide. You can wait and pick up shares of Alibaba or you can play the company via Yahoo! Inc. (NASDAQ/YHOO), which holds a 23% stake in Alibaba.
Now, if you’re a regular reader, you may know that I have been, and continue to be, bullish on the Chinese economy and China. Yes, the economy is stalling, but we are still talking about growth of around 7.5% this year, which is far greater than the rest of the G7 countries.
Just like Facebook, Inc. (NASDAQ/FB) in the social media market with its more than one billion users and enormous potential, I feel the same towards China and its 1.3 billion people. When you have a market … Read More
Apple Inc. (NASDAQ/AAPL) will launch its next-generation “iPhones” to the world on Tuesday and, while the expectations are high, it likely won’t blow away investors or competitors, based on my stock analysis.
In my view, it’s more about the apps and functionality of the smartphone, rather than screen size and aesthetics.
Of course, Apple also has to deal with the embarrassing leak of private pictures from “iCloud” belonging to several celebrities last week. The company believes the leaks weren’t due to any flaw in its security system but that they were a result of targeted attacks. Apple has had security issues in the past that were blamed on the operating system infrastructure, so I wouldn’t rule it out.
Apple stock has done well, easily beating the S&P 500 over the past 52 weeks with a 48.0% advance versus the 22.1% move by the index. The stock reached a new record high of $103.74 last Tuesday, but as my stock analysis indicates, how much more it can rise will be dependent on the “iPhone 6” and new phones from rival Samsung, multiple “Android” phones, and the upcoming launch of BlackBerry Limited’s (NASDAQ/BBRY) new operating system “10.3 OS” that will include access to the Amazon.com, Inc. (NASDAQ/AMZN) “Appstore” and its 200,000-plus apps.
While BlackBerry products are somewhat passé, I wouldn’t count the company out yet; however, the stock should only be regarded as a trade and nothing else, based on my stock analysis.
Going back to Apple, the iPhone 6 is expected to have a bigger screen. The company is also expected to launch a new $400.00 or so computerized watch that … Read More
There is a lot of hurt out there in the retail sector as consumers have yet to come back in full force. The soft consumer sentiment has impacted retailers across the board, from the specialty retailers to department stores. Even the discount and big-box stores, which are pretty resilient when spending declines, are hurting at the register.
Consequently, we saw a consolidation in the discount sector after Dollar Tree, Inc. (NASDAQ/DLTR) decided to snap up rival Family Dollar Stores, Inc. (NYSE/FDO) in a cash and stock deal valued at $8.5 billion, or about $74.00 per share.
I last talked about picking up a company like Family Dollar Stores in April as an investment opportunity when the stock was trading at $58.31.
Now for both companies, the merger makes a whole lot of sense, especially at a time when consumers are tighter with their spending habits. The merger will likely mean eliminating overlapping stores in the same vicinity, since there will be 13,000 stores in the network.
At the smaller end of the spectrum, a discounter that is an investment opportunity and worth a look is Five Below, Inc. (NASDAQ/FIVE), which has a share price of $35.27 and a market cap of $1.94 billion. The stock debuted on July 19, 2012 at $26.05, but has reported several soft quarters, which drove some investors to the exits. Yet at just above its 52-week low of $33.94, the stock offers a decent contrarian investment opportunity for speculators.
With Five Below down over the past 52 weeks, compared to a 17.39% advance by the S&P 500, there could be a good investment opportunity here…. Read More
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
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
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
The stock market is looking higher. The DOW and the S&P 500 closed up for the fifth straight month as we enter into the second half of what has largely been a mixed and cautious year.
For growth investors, the good news is that small-cap stocks came back in June with a 5.15% advance and are easily leading the broader market. Technology also fared well with the NASDAQ up 3.9% in June. Blue chips and large-caps trailed the growth side. In the first half, the S&P 500 leads with a 6.07% gain followed by the 5.54% advance in the NASDAQ.
And while stocks are edging higher towards new records, we are also seeing positive gains in the critical jobs numbers. This is essential for the economy and consumer confidence.
We saw strong non-farm payroll jobs numbers for June last Thursday with the creation of 288,000 new jobs, which easily beat the consensus 215,000 estimate and the 244,000 jobs in May. Better yet, the unemployment rate also fell to 6.1%, the lowest level in nearly six years.
The growth in the jobs numbers will gain more traction in the stock market when the reading can surpass the 300,000 level, which could trigger heightened optimism.
What the higher jobs numbers mean is more business for the jobs placement firms, from the everyday jobs to management and executive positions.
A contrarian and speculative play on the jobs numbers recovery is Monster Worldwide, Inc. (NYSE/MWW), which currently sits around $6.85 per share with a market cap of $623 million.
Monster Worldwide runs the widely known job search web site Monster.com and was the first … Read More
One of the most common traits I find in successful companies is that they often have a multinational presence. That’s not to say that domestic-only companies are not successful, but for real growth, many of the top S&P 500 companies are global, based on my stock analysis.
Whether it’s in the industrial, technology, financial, aerospace, or healthcare sectors, the commonality is the global exposure that many of the world’s top companies all exhibit.
In fact, the failure to capitalize on foreign markets can really limit a company’s growth, according to my stock analysis.
There are only two avenues to drive revenues: A company can increase its price to the consumer, but this doesn’t always come across as being prudent. Or a second and more viable way is to expand outside to foreign markets, as my stock analysis suggests.
Companies can expand nationwide or internationally like many of the world’s multinational companies. Just take a look around and see how many American companies are found outside of our borders and spread across Europe, Asia, and Latin America. China is a perfect example of where companies go to seek added growth, as my stock analysis indicates.
Technology companies like Microsoft Corporation (NASDAQ/MSFT), Google Inc. (NASDAQ/GOOG), Facebook, Inc. (NASDAQ/FB), and Apple Inc. (NASDAQ/AAPL), to name just a few, all have a major global presence.
An example of moving to the global sphere too late is Target Corporation (NYSE/TGT), with its first foreign foray into Canada. It has been a bust so far, given that rival Wal-Mart Stores Inc. (NYSE/WMT) has been in Canada since 1994, being the market leader in the country and … Read More
The recent selling in small-cap stocks has provided numerous investment opportunities to accumulate on price weakness, albeit the stock market could see more weakness.
A high-potential region that I have discussed in the past is Israel, which has turned into the technology incubator of the Middle East and is an investment opportunity.
I have been following Israeli companies for years, and in that time, I have come across numerous high-growth and rewarding technology and healthcare companies that make the country an excellent investment opportunity.
Israel ranks third as far as foreign companies on the NASDAQ, trailing only China and Canada.
What makes Israeli companies intriguing as an investment opportunity is the strong trust from this region. You actually never hear about financial irregularities out of Israel, which makes the country a solid investment opportunity.
A small-cap technology Israeli company that I’d watch as an investment opportunity for the speculative investor is EZchip Semiconductor Ltd. (NASDAQ/EZCH), which has a share price of $25.44 and a market capitalization of $745 million.
The company is a fabless semiconductor company, meaning it doesn’t manufacture anything; rather, it simply develops the chip and produces it via a third party. EZchip designs ethernet network processors for networking equipment companies, such as carriers, along with cloud, data center, and enterprise network equipment. The company will soon be launching its newest and most powerful network processors that will drive revenues higher.
The risk with EZchip has been with the mounting concerns that some of its clients are developing their own in-house chips. So far, it has not been a factor, but it could be if EZchip began to … Read More
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
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
You can’t deny it: there are outright signs of stress on the key stock indices. We see investors are worried, and they just don’t like risk. We see huge selling in the growth stocks, with names like Amazon.com, Inc. (NASDAQ/AMZN) and Twitter, Inc. (NYSE/TWTR); they are witnessing a huge sell-off and are now in bear market territory. The biotechnology sector is getting slammed—investors are hitting the bid and running for the exit.
With all this happening, one question comes to mind: what happens next? Growth stocks can act as a leading indicator of what’s next for the markets. Are key stock indices setting up for a huge market sell-off ahead?
Sadly, as this happens, we are hearing a significant increase in the noise. The bulls say this pullback should be used to get into the sold-off companies again. The bears argue that key stock indices are going to shed more gains. Beware; your portfolio might get hurt.
When it comes to investing for the long run, it is critical that investors try to minimize the noise and look at the long term.
With this said, over the past few years, the key stock indices have increased significantly. 2013 was another stellar year. Key stock indices like the S&P 500 increased more than 30%. Companies that are getting sold off—for example, Amazon.com—increased roughly 50%. The NASDAQ biotechnology sector that’s plunging lower now had increased by more than 85% in 2013.
Going forward, it doesn’t look like the year 2014 will be anything like 2013. I expect the key stock indices to move sideways—trading in a range. These ranges may break to … Read More
When I’m looking at the screens each day, I notice there’s some selling capitulation occurring that makes me think back to 2000, when the technology stocks imploded.
Now, while I doubt we are seeing a repeat of 14 years ago, you have to wonder about the mad dash to the exits for many of the high-momentum technology stocks along with small-cap stocks. The small-caps are under threat, with the Russell 2000 down nearly eight percent in 2014 so far and close to five percent in April alone. Watch as the index is just above its 200-day moving average (MA).
Chart courtesy of www.StockCharts.com
As I said last week, the fact that the NASDAQ and Russell 2000 have failed to recover their respective 50-day MAs is a red flag, based on my technical analysis. Moreover, the presence of a possible bearish head-and-shoulders formation on the NASDAQ chart is concerning for technology stocks.
The lack of any leadership from technology stocks now, which was so prevalent in 2013, has also hurt the broader stock market.
On the charts, only the S&P 500 is positive in 2014, with a slight advance. All of the key stock indices were negative in April—a month that has historically been positive.
To make matters worse, we are heading into traditionally the worst six-month period for the stock market, from May to October, so it’s not going to get easier anytime soon.
The fact that numerous technology stocks have produced some strong earnings results is encouraging, but the lack of strong follow-through buying is a concern and suggests some exhaustion towards technology stocks.
We also have the uncertainty … Read More
The stock market staged a minor rally last week, but don’t get too excited yet; the buying support was largely triggered by a technically oversold market, rather than solid fundamentals or a fresh catalyst.
What I can say is that investors need to be careful with the high-beta stocks that are extremely volatile at this time and vulnerable to downside selling.
Just because momentum surfaces, it doesn’t mean the risk is dissipating. It’s simply an oversold bounce that could continue or falter again.
The fact that the Dow Jones Industrial Average and S&P 500 recovered their 50-day moving averages (MAs) last Tuesday is positive, but it doesn’t mean the worst is over.
I see the NASDAQ and Russell 2000 were still down more than seven percent as of last Wednesday and below their respective 50-day MAs. In fact, the Russell 2000 is within reach of testing support at its 200-day MA. This time around, we could see a bigger stock market correction, based on my technical analysis.
Until we see some sustained calm return, there could be continued selling pressure in the stock market, especially with the smaller high-beta stocks and large-cap momentum plays.
The most critical point to understand is that you need to preserve your capital base. The reality is that avoiding a loss is just as good as making profits. Imagine letting a losing trade run and before you realize it, the position is down 20%, 30%, or more.
This is especially true with the small-cap stocks. Making up ground following a major downside move is not easy. For instance, say you have a $10.00 stock and … Read More
According to data released by the U.S. Bureau of Labor Statistics (BLS) last Friday, the unemployment rate stood at 6.7% in March, which is similar to the unemployment rate in February. A total of 192,000 jobs were added, of which food and drinking places added more than 30,000 and “temporary” help services in the professional and business industry added more than 29,000 jobs. The labor market fell slightly short of expectations as analysts had forecasted the unemployment rate to be 6.6% for March. (Source: “The Employment Situation — March 2014,” Bureau of Labor Statistics web site, April 4, 2014.)
The Fed announced it would start to scale back its monetary stimulus last December, after jobs numbers started to show signs of a recovering economy. The unemployment rate initially dropped, only to settle at levels that have remained unchanged for the greater part of the winter season. Simultaneously, initial jobless claims increased by 5.16% during the week ended March 28, 2014, raising eyebrows toward the ability of the Fed’s policies to carry the string of economic recovery further. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 7, 2014.)
While most economic challenges faced by the Fed for the last four months have been blamed on cold weather, a rigid unemployment rate and increasing jobless claims point towards a weaker-than-expected recovery. Amidst this, the Fed chair, Janet Yellen, while speaking at a press conference on March 19, confirmed that the Fed plans to go ahead with the tapering program in its bid to elevate interest rates up from their near-zero levels. (Source: Risen, T., “Janet Yellen Continues Tapering … Read More
The stock market appears to be getting somewhat top-heavy. Scanning through my screens, I am quite amazed to find that the majority of S&P 500 stocks are well above their respective 200-day moving averages, which makes opportunities much more difficult to come by for the average investor who might look at their portfolio once a week or month.
But the buying in the stock market has still largely been with the technology, growth, and small-cap stocks, due to the higher potential to make quick money versus investing in blue chips or industrial companies.
In 2013, we saw staggering upside moves in some of the momentum stocks, such as Google Inc. (NASDAQ/GOOG), priceline.com Incorporated (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Chipotle Mexican Grill, Inc. (NYSE/CMG). These are the top players in their respective areas.
But that was then. Now, we are seeing a renewed interest in some of the safer names in the stock market, which is why the Dow Jones and S&P 500 outperformed in March.
My view is that while there will still be money to be made in some of the more speculative and momentum plays in the stock market, we could also see a pause for investors to digest the gains made.
Cyclical stocks, or those companies that swing with the economy, are still worth a look, but should the economic renewal stall and jobs creation dry up, it might be time to look elsewhere. Here I’m talking about those sectors such as auto, furniture, retail, travel, and restaurants.
Everyone is spending when all is good and people are making money on the stock market, but spending will … Read More
Federal Reserve Chair Janet Yellen confirmed what we’ve been espousing in these pages for the last couple of years—that the so-called recovery feels an awful lot like a recession for most Americans.
Addressing a crowd in Chicago, the head of the Federal Reserve said the U.S. jobs market is still underperforming and will continue to need the help of an artificially low interest rate environment “for some time.”
Investors were, as you can imagine, afraid the Federal Reserve was going to raise short-term rates. A rate hike would elevate borrowing costs and pull the rug out from under stock prices.
But instead, the Federal Reserve said it was committed to keeping interest rates low in an effort to stimulate borrowing, spending, and economic growth. The artificially low interest rate environment is a welcome sign for Wall Street—which essentially ended the first quarter of the year where it began.
By committing to keeping interest rates low, the Federal Reserve is ensuring a steady flow of money into the stock market…which cannot help but raise the already-bloated indices higher. The S&P 500 continues to trade near record-highs, as does the Dow Jones Industrial Average. Even the NASDAQ’s all-time high is, all things considered, within striking distance.
With the current bull market now in its fifth year—all is well in the U.S.A.! That is, if you’re one of the fortunate few to even realize we’re in a bull market. There are far too many weak underlying indicators to suggest we’re on a stable—let alone sustainable—economic footing.
For instance, the U.S. unemployment rate has improved from 10% in 2009 to 6.7% today. On the … Read More
Over the weekend, I met with a friend of mine. He’s been a stock market investor for some time now, and over the last few years—especially since 2012 and 2013—he has done phenomenally well when it comes to his portfolio performance.
While talking to him about markets, he said something very interesting. His exact words were, “If you are investing in the stock market using fundamental or technical analysis these days, you are most likely going to lose money—or your returns will be dismal. The basic principles of investing hardly apply these days.”
“Hold on; what?” I said.
He explained: “Between 2009 and 2011, you could have found some opportunities in the stock market, and there was still value available. After the summer of 2012, it all changed. The stock market is now dictated by financial engineering.”
He went on to say, “Don’t just take what I say; see for yourself as well. Look at the stock performance of the companies that are buying back their shares. Look at the companies that are increasing their dividends. You will see their stock value has risen significantly despite very minute changes in their fundamentals in the last couple of years. If their chart was forming a bearish pattern and you traded accordingly, you probably incurred a loss.”
He is right!
Since the summer of 2012, the stock market has risen significantly. If you look at key stock indices like the S&P 500, its return since June 2012 to the end of 2013 was almost 36%. This means that if you invested $1,000 in the stock market on June 1, 2012 and closed … Read More