Daily Gains Letter

Wal-Mart


Why This Company Will Fare Well as the Economy Stutters

By for Daily Gains Letter | Jul 28, 2014

My Investment Solution for Tight TimesIf you think Americans are firmly comfortable in the economy and jobs, think again. Yes, the stock market has returned strong gains and has been an investment opportunity over the past five years (since the end of the Great Recession in 2008), but much of it was artificially driven by the lax monetary policy put forth by the Federal Reserve. Now that the quantitative easing is dissipating and interest rates are set to edge higher sometime in mid-2015, I’m not all that comfortable.

The jobs numbers are improving, but they are still well below the 500,000 per month that some pundits deemed to be a sign of a healthy jobs market. We are generating about 200,000 jobs each month, which is well below what we want to see. In fact, we have only recovered the jobs lost during the recession—and we still need to build on that.

Given that there are still approximately 46 million Americans collecting food stamps, you’d understand why I still feel uneasy about the so-called economic growth in progress.

Consumers are still not spending at a rate many are hoping for. This is especially true in durable goods, which are not required for everyday living, so their buying can be bypassed.

As far as I’m concerned, the retail numbers still stink and don’t point to an investment opportunity in retail. Just take a look at the metrics at the big multinationals, such as Wal-Mart Stores Inc. (NYSE/WMT) and other retailers. While retail sales grow at a muted pace here, the growth is around 12% in China, where there is an investment opportunity in retailers.

Dick’s Sporting … Read More


Why I Like This Food Company the Best Right Now

By for Daily Gains Letter | Jul 17, 2014

An Attractive Investment Opportunity You Won't Want to OverlookThe market for natural foods is getting tighter as major supermarket and big-box chains, such as Wal-Mart Stores Inc. (NYSE/WMT), The Kroger Co. (NYSE/KR), and Costco Wholesale Corporation (NASDAQ/COST) invade the territory that had been dominated for years by market leader Whole Foods Market, Inc. (NASDAQ/WFM).

While you cannot ignore the moves by Wal-Mart and Costco, let me be clear: shoppers who generally buy their goods at Whole Foods or some of the smaller chains will not necessarily shift their shopping preference and suddenly go to Wal-Mart. What will happen is that pricing will likely become more competitive with the added rivals entering into the mix.

On the small-cap end, you may want to take a look at a company like The Fresh Market, Inc. (NASDAQ/TFM, $31.74, Market Cap: $1.54 billion), which is looking attractive after declining to a 52-week low of $28.60 on May 22. The stock could decline further, but I like the risk-to-reward investment opportunity in the stock market.

The Fresh Market isn’t new; it’s been around since 1982. The specialty food grocery chain operates a network of approximately 157 stores in 26 states as of May 22, 2014. There are also plans to open another 23 to 24 new stores.

As I said, the stock is an investment opportunity following the recent selling, down 41.65% over the past 52 weeks versus a 17.95% advance by the S&P 500.

The company is growing its sales. Estimates are calling for sales to expand 15.2% year-over-year to $1.7 billion in FY15, followed by 14.8% to $2.0 billion in FY16, according to Thomson Financial. Earnings are predicted to come in … Read More


What the World Cup and the Stock Market Have in Common This Year

By for Daily Gains Letter | Jul 14, 2014

How to Make Some Premium Income This SummerLast Wednesday, I had fun watching the World Cup game between Argentina and the Netherlands. As strange as it may sound, I actually found that the tension and apprehension throughout the match reminded me of the stock market.

Despite the Dow Jones Industrial Average recently trading above 17,000 and the S&P 500 at another record-high, I still sense the stock market is vulnerable to selling. I think this will be especially true if the second-quarter earnings season pans out as expected, devoid of any major growth in earnings or revenues.

Alcoa Inc. (NYSE/AA) offered up a nice report, but I’m not sure how much it counts, as the company really is not a major bellwether as to the health of the global economy.

The reality is that consumer spending drives the economy and the stock market. I would rather look at what’s happening at bellwether global retailer Wal-Mart Stores Inc. (NYSE/WMT) than Alcoa. The “Death Star” of the retail sector is struggling for growth around the world—and that cannot be good news. Even discount stores, which tend to be more immune to slowing, are showing signs of weakness.

In other words, while the stock market has edged higher, I still wouldn’t get too comfortable at this time. I think we could see another minor stock market correction should earnings tank. Of course, this would provide us with an investment opportunity to buy shares on weakness in the stock market.

Now there’s some optimism following the Federal Reserve’s dovish remarks from its June meeting, as there’s a sense that interest rates will not ratchet higher until after mid-2015, depending on the … Read More


How to Profit from RadioShack’s Coming Demise

By for Daily Gains Letter | Jun 13, 2014

Demise Will Affect the Electronics SectorRetail is tough, especially the bricks-and-mortar end (i.e. physical stores). Blockbuster and Circuit City are examples of two major companies that plummeted into the abyss after failing to recognize the strong moves long ago towards online shopping with the growing popularity and accessibility of the Internet, based on my stock analysis.

Now, it looks like we are seeing clues that yet another major retailer may soon follow suit. My stock analysis indicates that electronic retailer RadioShack Corporation (NYSE/RSH) could be the next big retailer to collapse.

I can personally tell you that RadioShack is well past its prime. There’s an outlet near me, and I can honestly say that I have only been there a few times in the 14 years I have lived in the area. Shoppers looking for TVs, gaming consoles, mobile devices, and the like usually venture out to the Best Buy Co., Inc. (NYSE/BBY) that is located within a mile of this RadioShack.

However, Best Buy is still not totally safe, based on my stock analysis. Under the leadership of Hubert Joly, the electronic retailer has improved, but the company continues to face massive competition from both other physical stores and online sales especially.

I’m not sure I would be running to buy Best Buy at this time, and the stock market appears to be in agreement with my stock analysis, as the company is about 28% off its high.

My stock analysis suggests that Best Buy is not dead, as the stores are still popular as a place to physically shop; however, the issue I see is that electronic retailing has become extremely competitive based … Read More


This Health Food Giant’s Issues Growing Profitable for Investors

By for Daily Gains Letter | May 9, 2014

investment strategiesFor 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


Four Companies Rewarding Patient Investors

By for Daily Gains Letter | Mar 13, 2014

Patient InvestorsThere’s more to renewable energy than just wind and sun. And thank goodness for that, because our interest and investment in traditional renewable energy sources like solar panels and wind farms seems to be on the decline.

The amount spent on deals to finance clean energy and efficiency projects tanked 12% in 2013 to $254 billion—a quicker pace than the 9.1% drop in 2012 from a record level of $318 billion in 2011. (Source: Goossens, E., “Clean Energy Support Falls Again to $254 Billion in 2013,” Bloomberg, January 15, 2014.)

The drop in investment and interest in traditional renewable energy sources is a setback when you consider annual investments in renewable energy sources need to double to $500 billion by the end of the decade—and then double again to $1.0 trillion by 2030. That represents a huge clean energy investment gap.

Decreased interest in some renewable energy sources also comes on the heels of the discovery of abundant sources of non-renewable energy, like shale oil. And since we don’t really like change all that much and prefer the path of least resistance, our dependence on non-renewable energy sources like oil is not going to diminish anytime soon. That said, the scales will eventually tip in favor of renewable energy sources.

With that in mind, when it comes to your investments, some analysts recommend allocating five percent of your retirement portfolio to clean energy.

After years of silence and disappointing investors, optimism on the heels of a number of large contracts are helping companies that make fuel cells reward really, really patient investors.

Plug Power Inc. (NASDAQ/PLUG) got the fuel cell … Read More


This Sector Sure to Benefit as Online Retail Sales Grow

By for Daily Gains Letter | Mar 10, 2014

consumer spendingThe feeling is mutual: consumers are failing retailers, and retailers are disappointing consumers.

First, let’s look at consumers; apparently, we’re not spending as much as we need to.

During the first month of the year, new orders for manufactured durable goods slipped by one percent, or $2.2 billion, to $225.0 billion—the third decrease in the last four months. Core durable goods (excluding transportation), on the other hand, rose 1.1%. That’s not a huge leap when you consider core durable goods slipped a further-than-expected -1.9% in December.

Retail numbers aren’t any better. U.S. retail sector sales for January fell by the most since June 2012. January retail sector and food services sales for January fell 0.4% month-over-month to $427.8 billion. In December, retail sector sales slipped 0.1% month-over-month to $429.5 billion. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” United States Census Bureau web site, February 13, 2014.)

Of the 13 sectors the U.S. Census Bureau looks at, nine reported month-over-month declines. The biggest retail sector drops were in motor vehicle & parts dealers (-2.1%); sporting goods, hobby, book, and music stores (-1.5%); department stores (-1.5%); and clothing & clothing accessories stores (-0.9%). Necessities like food and gas experienced month-over-month gains.

As a nation, we expect consumer spending to generate roughly 70% of our gross domestic product (GDP) growth. These retail sector numbers do not point to sustained economic growth. Though you can hardly blame us, initial claims for jobless benefits rose more than forecast and wages remain pretty flat.

Now, let’s look at retailers. For an industry that needs consumers to buy its products or services, they … Read More


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

By for Daily Gains Letter | Mar 10, 2014

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

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

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

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

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

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

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


This One Factor Could Make or Break Your Portfolio

By for Daily Gains Letter | Mar 3, 2014

U.S. economyIncome inequality plays an important role in whether or not an economy experiences economic growth. If a small number of people earn the majority of the wages in a country, that sets the country up for a disastrous situation. What this essentially does is create a significant disparity. You can expect to see certain businesses do really well while others struggle severely, which is the result of those who are earning fewer wages spending less and those who are earning a significant portion spending more.

Sadly, this is what we see in the U.S. economy. Income inequality is increasing. It suggests economic growth is a farfetched idea.

According to a study by the Paris School of Economics, in the U.S. economy, the richest 0.1% earns nine percent of the national income. The bottom 90% of Americans—the majority of the population—only earn 50% of the national income. (Source: Arends, B., “Inequality worse now than on ‘Downton Abbey,’” MarketWatch, February 27, 2014.)

Former Federal Reserve chairman Allan Greenspan said, “I consider income inequality the most dangerous part of what’s going on in the United States.” (Source: Well, D., “Greenspan: Income Inequality ‘Most Dangerous’ Trend in US,” Moneynews, February 25, 2014.)

Income inequality in the U.S. economy is very evident, no matter where you look.

As I mentioned earlier, when there is income inequality in a country, you can expect certain businesses to do poorly. For example, consider Wal-Mart Stores, Inc. (NYSE/WMT)—one of the biggest retailers in the U.S. economy known for its low prices. Due to the U.S. government pulling back on its food stamp programs, the company is worried. The executive … Read More


Why Analysts Can’t Just Blame the Weather for Poor Housing Numbers

By for Daily Gains Letter | Feb 21, 2014

Poor Housing NumbersNo matter where you turn, bad earnings or economic indicators are being blamed on the cold weather. Weak January car sales figures were blamed on the weather; disappointing January housing data was blamed on the weather; Wal-Mart Stores, Inc. (NYSE/WMT) revised its earnings guidance lower because of the weather; and even Panera Bread Company (NASDAQ/PNRA) says the cold weather negatively impacted its results.

Because no one saw the cold winter weather coming, Americans have been left hungry, cold, and without vehicles or shelter. Though somehow, people too cold to get bread, groceries, or other staples still managed to stock their shelves with soup. Campbell Soup Company (NYSE/CPB) bucked the winter-blaming trend and said its quarterly profits surged 71% year-over-year to $325 million, or $1.03 a share.

But that’s not what I’m getting at…

The most recent industry to use the weather-related get-out-of-jail-free excuse is the housing market. I mentioned recently that the National Association of Home Builders (NAHB) said its monthly housing market sentiment index experienced its largest drop in history, from 56 in January to 46 in February. A score above 50 indicates positive sentiment; below that, it’s negative. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)

In line with negative homebuilder sentiment, perhaps it’s not a huge surprise to discover that construction of new homes sank in January. U.S. housing market starts tanked 16% in January to a seasonally adjusted rate of 880,000—the lowest reading since September and the largest month-over-month drop in three years. Further breaking down the housing market starts, single-family housing construction … Read More


What Retailers Are Saying That Makes Me Believe Economic Growth Is Slowing

By for Daily Gains Letter | Feb 20, 2014

Economic Growth Is SlowingConditions in the U.S. economy are deteriorating fairly quickly. The economic data suggests it’s slowing down. We already saw the U.S. economy decelerate in 2013 compared to 2012; now, investors are asking if this is going to be the case in 2014 as well.

All sorts of businesses in the U.S. economy are worried. This is not a good sign when you are hoping for robust growth.

Homebuilders in the U.S. economy have become very skeptical. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) witnessed a massive drop in February. The index, which looks at the confidence of homebuilders in the U.S. economy, plunged from 56 in the previous month to 46. Any reading below 50 on the HMI means homebuilders expect market conditions to be poor. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)

Unfortunately, homebuilders aren’t the only ones who are worried and suggesting the U.S. economy isn’t going in the desired direction.

Retailers with major operations in the U.S. economy are feeling the same. Wal-Mart Stores, Inc. (NYSE/WMT)—one of the largest retailers—lowered its profit guidance for the fiscal fourth quarter, ended on January 31, 2014. The CEO of the company, Charles Holley, said, “We now anticipate that our underlying EPS [earnings per share] for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70.” He added, “For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to … Read More


How to Profit from the Dow’s “Dogs”

By for Daily Gains Letter | Feb 10, 2014

Small-cap stocksSmall-cap stocks are faring the worst this year and are down nearly 10% from their record-high in late 2013; many would deem this to be an official stock market correction.

Given that small-cap stocks surged upward by more than 33% in 2013, it shouldn’t be a surprise to see this group get the brunt of the selling this year.

Higher-beta stocks, such as small-cap stocks or growth stocks, tend to outperform when the stock market is moving higher, but they are more vulnerable to downside weakness. This is the risk you assume when investing in small-cap stocks.

The reality is that the associated risk of buying stocks is intensified with small-cap stocks, which is why you also need to make sure you have some proven large-cap stocks in your portfolio to help alleviate some of your overall portfolio risk.

I’m not saying that you should avoid small-cap stocks in their entirety, but I do think you should look at adding some large-cap or blue chip stocks if you are devoid in this area.

The advantage of larger companies is that we know these businesses have a proven long-term track record and will likely be around decades from now, whereas small-cap stocks are more vulnerable and may not recover during an economic and market relapse.

A large company can easily absorb several quarters or even years of underperformance but small-cap stocks would have a much more difficult time doing this because they have fewer financial resources.

A classic example of a large company struggling but managing to pull out was McDonalds Corporation (NYSE/MCD). The company faced issues in the 1970s and … Read More


Not Much for Retailers to Be Thankful for This Past Thanksgiving

By for Daily Gains Letter | Dec 3, 2013

Thankful for This Past ThanksgivingDespite the retail sector’s every attempt to generate sales this Thanksgiving, from sharp discounts to being open earlier than ever, their efforts fell flat. It’s further evidence that the U.S. economic recovery is not as entrenched as many think it is, and once again shows the economic disconnect between Wall Street and Main Street.

In spite of high unemployment, stagnant wages, consumer confidence at a seven-month low, and a smaller number of people forecast to hit the shops over the Thanksgiving weekend, the National Retail Federation still predicted sales to grow 3.9% from last year. (Source: Banjo, S., “Holiday Sales Sag Despite Blitz of Deals,” Yahoo.com, December 2, 2013.)

Over the Black Friday weekend in 2012, U.S. shoppers spent roughly $60.0 billion in the retail sector, but this year, it was a different story altogether. While the final numbers have yet to be tallied, early indicators show that total U.S. retail sector spending over the Thanksgiving weekend fell to $57.4 billion. It’s also the first time that retail sector spending over the Thanksgiving weekend has dipped in at least four years.

Even during the worst of the recession and the beginning of the so-called economic recovery, U.S. shoppers were willing to spend, buoyed by optimism. Five years into the so-called economic recovery, and shoppers are tightening their belts, weighed down by pessimism.

But it didn’t start out that way; in fact, most U.S. retail sector stocks were initially quite enthusiastic about their prospects. Wal-Mart Stores, Inc. (NYSE/WMT) had originally planned to open its doors at 8:00 p.m. Thursday night, but instead opened its doors at 6:00 p.m. Target Corporation (NYSE/TGT) … Read More


Wal-Mart Asking Employees to Donate Food to Fellow Employees in Need?

By for Daily Gains Letter | Nov 21, 2013

Wal-Mart Asking Employees to Donate FoodThe recent rise on the key stock indices might just be masking a fundamentally flawed economic recovery. Since the beginning of the year, the S&P 500 has gained 25%, the Dow Jones Industrial Average is up 21%, and the NASDAQ is 27% higher. At the same time, unemployment remains high, wages are stagnant, and our day-to-day life costs more.

With the S&P 500 on pace for the best yearly gain in a decade, well-heeled shareholders are rejoicing—at the other end of the scale, many employees aren’t.

You know it’s a touchy economic climate when Wal-Mart Stores, Inc. (NYSE/WMT), the world’s biggest retailer, which reported third-quarter profits of $3.7 billion, is asking employees to donate food to fellow associates in need, so they can enjoy Thanksgiving this year.

A weak economy and stiff competition is taking a toll on Wal-Mart. While Wal-Mart reported third-quarter earnings that beat Wall Street estimates by a mere penny, revenues of $114.9 billion were shy of the $116.8-billion mark Wall Street was hoping for. Not surprisingly, perhaps, Wal-Mart said holiday sales would be flat. (Source: “Walmart reports Q3 EPS of $1.14, updates full year guidance; Aggressive holiday plans to drive sales,” Wal-Mart Stores, Inc. web site, last accessed November 14, 2013.)

In light of Wal-Mart’s recent employee Thanksgiving food drive, it’s interesting to note that third-quarter sales from Neighborhood Market, Wal-Mart’s chain of grocery stores, rose a solid 3.4%.

Where other grocery store chains have reported underwhelming third-quarter results, Wal-Mart’s grocery chain actually bucked the trend. Fourth-quarter results may be muted. Thanks to a U.S. economy that continues to look fragile, grocery store stocks are competing … Read More