This Foreign Market a Hidden Treasure for Growth Investors
By George Leong for Daily Gains Letter | Sep 19, 2014
While the S&P 500 and Dow Jones Industrial Average race to new record-highs, there’s still a sense of caution and vulnerability on the side of investors towards the stock markets here in the U.S.
In fact, a study I read in Bloomberg estimated that around 47% of stocks listed on the NASDAQ stock market are currently in a technical bear stock market, down 20% or more from the highs. On the small-cap Russell 2000, the story is even worse with more than 40% in a bear stock market. And the study shows that the S&P 500 had a mere eight percent of stocks in a technical bear stock market.
There’s even talk of the S&P 500 reaching 2,300 by the year’s end, according to some of the optimistic bulls on Wall Street. I feel it’s pure fantasy that the index will rise by another 15% by year-end.
The reality is that the stock market is stalling. Without any fresh and inviting reasons to buy, I sense the stock market risk is quite high.
An alternative would be to invest in a foreign market, and while I like China, Israel is fast becoming the favorite for growth investors. Israel has produced some top companies in the past, especially in the technology and medical devices sectors.
Israeli stocks are the third most listed stocks on the U.S. stock markets. (China is second.) As a country, Israel may be small, but an excellent investment opportunity can usually be found there. Moreover, the risk for fraud is much lower than with U.S.-listed Chinese stocks. I can’t say that I have ever heard of fraudulent … Read More
China a Game-Changer for This U.S. Automaker
By George Leong for Daily Gains Letter | Aug 11, 2014
The superhighway that Tesla Motors, Inc. (NASDAQ/TSLA) is building across the United States appears to be taking shape with consumers and investors.
The maker of the quick-charge electric-battery vehicle has recovered since taking a hit on growth and valuation concerns. The stock is still not cheap, but based on what is developing and its longer-term prospects, a stock like Tesla may be worth a closer look as an investment opportunity.
Back in April, I suggested picking up some shares of Tesla as an investment opportunity at a price tag of $193.00. The stock closed at $253.00 last Wednesday, representing a hefty quick gain of 28%.
Chart courtesy of www.StockCharts.com
Now after reporting a decent quarter, Tesla has been receiving kudos from Wall Street. Brad Erickson at Pacific Crest issued an Outperform rating and assigned a price target of $316.00. This price is high, given the stock is already trading at 80-times (X) its 2015 earnings per share (EPS) and an extremely high price-to-earnings growth (PEG) ratio of 5.34. For Internet and social media stocks, the valuation likely wouldn’t be given a second look, but for an automaker, there clearly are some heads shaking.
While I continue to like Tesla as an investment opportunity, I would be more likely to accumulate shares on price weakness than to chase the stock price higher.
In my view, Tesla needs to produce more unit sales of its vehicles in order to reduce the fixed overhead charges per vehicle made, thereby pushing up the operating margins.
We are seeing Tesla vehicle sales steadily rise, but the numbers still pale in comparison to the major automakers, … Read More
“Discount Aisle” Retailer the Best Investment Opportunity?
By George Leong for Daily Gains Letter | Jun 6, 2014
The retail sector is hurting at this time from the discounters to the luxury brands, with just a few exceptions. Even the dollar stores are facing slower growth.
Yet with the sector down, it’s time to look at picking up some of the damaged retail stocks as an investment opportunity.
A retailer that I feel has declined to an attractive level as an investment opportunity is small-cap Texas-based Stage Stores, Inc. (NYSE/SSI). A seller of reasonably priced brand and private-label apparel, accessories, cosmetics, and footwear to women, men, and kids, Stage Stores is languishing just above its 52-week low, where I see an investment opportunity.
Stage Stores runs approximately 883 stores that are situated mainly in small and mid-sized towns in 40 states. The stores’ sizes vary, from as small as 5,000 square feet to as large as 54,000 square feet. Small towns comprising fewer than 50,000 people account for 65% of the company’s store locations; mid-sized towns with between 50,000 and 150,000 people account for 18%; and the remaining 17% are found in large cities.
I view Stage Stores as a contrarian investment opportunity, given the stock is down 21.4% over the last 52 weeks versus a 16.26% advance by the S&P 500. The stock price should rally if the company can deliver better, consistent results.
Stage Stores reported higher sequential fiscal sales growth from FY05 to FY08 and FY11 to FY13. Sales growth is estimated to continue into FY14 and FY15.
The company does make money, with profits in nine of the last 10 fiscal years. The growth is estimated to continue into FY14 and FY15.
The stock … Read More
Cashing In on America’s Obesity Epidemic
By George Leong for Daily Gains Letter | Jun 2, 2014
I would be the first to admit that on occasion, I have a craving for donuts, fries, and junk food. Luckily, it’s not that often, and I manage to stick to a fitness program.
Yet overindulgence and rising obesity levels have become a crisis not only in America, but in many countries around the world. It seems as though as people get wealthier, they also become fatter.
I recently read that about a third of the world is now considered overweight, based on a study by Christopher Murray of the Institute for Health Metrics and Evaluation at the University of Washington. (Source: Cheng, M., “30 percent of world is now fat, no country immune,” Yahoo! Finance, May 29, 2014.) The research suggests that Americans are the fattest people in the world, accounting for a whopping 13% of the total. This shouldn’t be a surprise, given the amount of fast food people tend to eat.
Now, while the rising obesity levels are clearly an issue for the healthcare sector down the road, there are companies that are in the business of helping people shed the pounds—this is a sector you can play as an investment opportunity at this time.
A small-cap stock that is worth a look as an investment opportunity in this area is Medifast, Inc. (NYSE/MED), which has a share price of $31.14 and a market cap of $409 million. Medifast is a producer and seller of weight and disease management products, along with consumable health and diet products. The company’s product line is sold under the Medifast brand and includes meal replacements and vitamins for those trying to … Read More
Why Consumers Have Been Increasing Spending in This Sector Since 1994
By John Whitefoot for Daily Gains Letter | Mar 21, 2014
The U.S. economy is weak. Everyone knows it. We just don’t know where to lay the blame. Businesses on the S&P 500 have been using the weather as an economic scapegoat. And not a small number, either.
Between January 1 and March 12, 2014, 195 companies on the S&P 500 used the term “weather” at least once in their conference calls. This represents an 81% increase over the 108 companies that mentioned the weather in their conference calls in the same period last year. (Source: “How many S&P 500 companies have commented on the weather?” FactSet, March 14, 2014.)
And if you want to not-so-subtly warn investors things aren’t looking too good, just blame the weather. The estimated earnings growth rate for the S&P 500 this week is an anemic 0.3%. That’s down slightly from a growth rate for the S&P 500 stocks of 0.4% last week, but it’s like night and day when compared to the December 31, 2013 Q1 earnings growth rate forecast of 4.4%.
Not a big surprise when you consider 84% of all companies on the S&P 500 that have issued earnings-per-share (EPS) guidance have revised it lower. That’s well above the five-year average of 64%. And, for comparison’s sake, during the first quarter of 2013, 78% of companies on the S&P 500 did so.
Weather aside, it’s quite possible S&P 500 companies aren’t doing that well because the U.S. economy just isn’t gaining traction. Unemployment remains high, wages are stagnant, consumer confidence levels are down, personal debt levels are up, and housing and auto sales have been disappointing.
Even though February retail sales were up … Read More
Top Two ETFs for When Interest Rates Increase, Investor Sentiment Plummets
By Sasha Cekerevac for Daily Gains Letter | Feb 21, 2014
This past weekend, a friend of mine made a statement that there must be a large amount of economic growth coming shortly because of the booming stock market, driven by investor sentiment.
As I told him, the two are not necessarily tied together.
Over the past few months, we have heard about how economic growth is about to accelerate here in America, and this has helped drive investor sentiment in the stock market higher. However, I think there are many questions that need to be answered before we can assume economic growth will reach escape velocity, and investor sentiment is heavily contaminated with a large addiction to monetary policy.
Some of the data has improved; however, many other reports only lead to murkier water.
For example, we all know that economic growth requires the consumer to be active, since consumption is approximately 3/4 of the U.S. economy. But for the holiday season, many retail companies issued disappointing results, even though there were signs that consumer spending was beginning to pick up. This is an interesting data point: during the fourth quarter of 2013, consumer debt increased by $241 billion from the third quarter, the biggest jump in debt since 2007. (Source: “Quarterly report on household debt and credit,” Federal Reserve Bank of New York web site, last accessed February 19, 2014.)
Should investor sentiment view this increase in consumer debt as a positive or negative for economic growth?
A large amount of the debt increase came from the automobile industry, but what really worries me that could impact future economic growth is the combination of higher debt with weaker retail … Read More
How to Profit from the S&P 500—Even if Earnings Disappoint
By John Whitefoot for Daily Gains Letter | Feb 20, 2014
I was reading an article that suggested investors are underestimating the extent that U.S. corporate profits could grow in 2014. And that the only reason the U.S. economy reported disappointing retail sales and weak jobs numbers and manufacturing data was because of the harsh winter weather. (Source: Shmuel, J., “Are EPS estimates currently too low?” Financial Post, February 18, 2014.)
Fortunately, so the story goes, the economy is so red-hot that once the snow thaws, investors will be rewarded with solid quarter-over-quarter corporate earnings growth. This suggests the weather has not just blinded investors to the fact that the economy has recovered (which it hasn’t), but that we are also so short-sighted that we can’t see the great gains waiting for us just around the corner—because if there’s one thing investors lack, it’s a desire to make money on the stock market…
I think investors are losing faith in Wall Street’s earnings potential because the corporations that go into making up the S&P 500 continue to warn us that their earnings are not going to be as great as they had hoped. And it’s not as if this is a new phenomenon.
Throughout 2013, as the S&P 500 marched steadily higher, an increasingly larger number of companies revised their earnings guidance lower each quarter. During the first quarter of 2013, 78% of S&P 500 companies that provided preannouncements issued negative earnings guidance; the second quarter came in at 81%; a record 83% of S&P 500 companies issued negative earnings guidance in the third quarter; and another record 88% did so in the fourth quarter.
For a country that is supposedly … Read More
Why January Auto Sales Point to Bleak Future for U.S. Economy
By John Whitefoot for Daily Gains Letter | Feb 5, 2014
Despite assurances from analysts, economists, and central bankers, the U.S. economy isn’t faring so well—and the markets are finally beginning to see what we’ve been warning about in these pages all last year.
For sustainable growth, the U.S. economy needs to be reporting consistently strong fiscals. But it isn’t. For starters, the key stock indices, a reflection of the U.S. economy, have extended their sharp January losses. The S&P 500 is down 5.6% year-to-date, the Dow Jones Industrial Average has lost more than seven percent of its value so far this year, the NYSE is down roughly six percent, and the NASDAQ is in the red by four percent.
Every quarter since the beginning of 2013, an increasingly larger number of S&P 500-listed companies have revised their quarterly earnings lower. During the first quarter of 2013, the number stood at 78%. This time around, 81% of S&P 500 companies have revised their first-quarter earnings lower.
Why the big losses? That depends on whom you talk to. The Bank of America, without even a hint of a smirk, blames the much colder-than-expected weather for the weak U.S. economy, meaning the U.S. economy and global markets are performing poorly because of a snow storm…
I suggest the U.S. economy is doing poorly and the U.S. markets are tanking for entirely different reasons. For starters, the U.S. economy needs steady jobs and earnings growth. Instead, the U.S. economy is facing high unemployment and stagnant wages. For the week ended January 25, jobless claims jumped more than forecast to a seasonally adjusted 348,000.
And a record number of Americans rely on food stamps. Interestingly, … Read More
Why Gold Looks Good to Me in 2014
By Sasha Cekerevac for Daily Gains Letter | Jan 29, 2014
Just the other day, I was talking to a friend of mine who seemed extremely cheerful. I asked why, and he said that his investments have performed well over the past few months and he saw no reasons to worry.
This is a common problem with investor sentiment; people tend to become complacent and only look to the recent past as an indication of what tomorrow will bring.
This is quite dangerous. Investor sentiment is often wrong and can be used as a contrary indicator, buying when others are dumping their stocks and taking profits when others are blissfully unaware of the changing landscape around them.
Americans need to be careful of becoming too complacent in their bullish investor sentiment, because the U.S. is not isolated from the rest of the world.
When the real estate bust and financial crash occurred here in America several years ago, the effects spread to many nations around the world, including the emerging markets.
With the Federal Reserve pushing the gas pedal on money printing here in the U.S., it has created a shock absorber to some extent, temporarily keeping global pressures at bay, especially in relation to the emerging markets.
However, investors do need to be aware that there is much uncertainty around the world. Investor sentiment for global institutions has been aware of these potential issues and is now running for the exits.
Last week this began in Asia, as economic growth appears to be slowing and reports of a financial crisis in China are beginning to grow. With the Chinese shadow-banking sector showing signs of cracking, this is creating negative investor … Read More
What to Really Look for in This Overvalued Market
By John Whitefoot for Daily Gains Letter | Jan 27, 2014
When it comes to investing, I think it’s important to have a balanced investment portfolio made up of value and growth stocks. I also think it’s important to be balanced in the way you look at or research stocks through both fundamental analysis and technical analysis. Being too extreme or having too much allegiance to one investing methodology means excluding a rich pool of information.
I have an acquaintance who’s an investor. He swears by day-trading, even though he’s lousy at it. Here, I’d like to employ Dr. Phil’s mind-numbing, near-sighted phrase, “How’s that workin’ for ya?” but to be fair, I don’t really know too many successful day-traders anymore.
Anyway, my friend, whom I call “the investing dandy,” is a pure technical analysis trader, meaning he doesn’t even care what stock he’s trading and most times, he doesn’t even know what the company does.
Technical analysis attempts to forecast future price movements based on past price and volume movements. The idea is to find patterns within the past movements, and use those chart patterns and past price performance to predict what will happen to the stock in the future.
Fundamental analysis, on the other hand, looks at a company’s financial statement in an effort to predict a trend. Unlike technical analysis, which considers the past direction of a chart to predict a stock’s future movements, fundamental analysis focuses on the forward-looking picture.
My friend contends that because the markets have been performing so well over the last few years in spite of lukewarm earnings, there’s no reason to consider a fundamental analysis.
Therein lies his folly. While he’s right … Read More
These Value Stocks Could Outperform the Market in 2014
By John Whitefoot for Daily Gains Letter | Jan 23, 2014
Yesterday, I wrote about how a raft of weak first-quarter results could trip up the S&P 500 and put a dent in its unblemished bull run. My theory: the S&P 500’s stellar performance in 2013 was a result of financial engineering (share buybacks and cost-cutting) and the Federal Reserve’s monetary policy, not strong revenue and earnings growth.
As a result, the S&P 500 and other key stock indices are overbought and overpriced, meaning stocks will have a tough time justifying their lofty valuations if first-quarter results fail to wow investors. And odds are good that they will disappoint. A record 94% of S&P 500 reporting companies revised their fourth-quarter guidance lower.
That is, unless investors fail to realize earnings projections were lowered and reward stocks for beating barely there expectations—it’s not impossible. For evidence, I point to the action in the S&P 500 in 2013.
With stocks on the S&P 500 being overpriced, it’s getting more and more difficult to find equities that will actually perform well based on legitimate metrics, like revenues, earnings, and cash. For the most part, it seems investors punish those stocks that don’t perform as well as expected by simply not lifting their share prices higher. As a result, it’s become increasingly difficult to build a balanced portfolio with both growth and value stocks—especially when you consider the fact that analysts expect the S&P 500 to grow just six percent in 2014. Analysts might be more optimistic about the S&P 500 long-term, but that’s of little solace for investors hoping to actually make money this year.
Investors on the lookout for value stocks may need … Read More
Top Four Stocks for Income During Period of Low Interest Rates, Bond Yields
By George Leong for Daily Gains Letter | Jan 23, 2014
An interesting conversation on investments surfaced recently at a dinner party with some friends. The topic was whether it was better to buy large-cap dividend-paying stocks, such as General Electric Company (NYSE/GE) and The Procter & Gamble Company (NYSE/PG), or look at smaller dividend-paying companies.
Of course, I spontaneously said it depended on a host of factors, including the risk appetite of the investor and the economy.
When the economy is growing, and especially as it emerges from a recession like we saw it 2008, it would be advantageous to stock up with smaller dividend-paying companies. The reason is because small companies tend to fare better when adjusting out of a slow period than larger companies, which take much more time to strategize and put a plan into effect.
Another way of looking at it is that it’s easier to steer a smaller boat versus a larger ship in calm waters, but when it gets rough out there, I would rather stay on a bigger ship. The same analogy applies to the question of small-cap versus big-cap stocks.
Now, as far as dividends are concerned, the most important thing is the underlying strength of the company and its previous and forward ability to pay dividends. You want to buy dividend-paying companies that have a valid and sustainable business—no fad stocks here.
Another major monetary benefit of small dividend-paying stocks is the much superior upside price appreciation potential that’s often associated with small-cap stocks. So while companies like General Electric and Procter & Gamble will consistently do well over decades, in the short run, adding some small dividend-paying stocks can help … Read More
Corporate Earnings Up 46% YOY for This Global Auto Stock
By Sasha Cekerevac for Daily Gains Letter | Dec 20, 2013
What does it take to develop a successful, long-term investment strategy?
This is the correct question to ask, rather than asking simply which stock(s) to buy. To be successful over the long term, you need to have a comprehensive investment strategy that takes into account your goals and risk parameters.
Having said all of that, at the end of the day, I’m looking for a company that has both an attractive valuation and the ability to increase corporate earnings at a rate above market expectations.
One way to develop an investment strategy is to look at the factors driving corporate earnings for a specific industry and individual company.
A great example is the automotive sector and Honda Motor Co., Ltd. (NYSE/HMC). Based in Japan, Honda actually has several different segments that they sell into, with automotives being their most commonly known products sold worldwide.
Chart courtesy of www.StockCharts.com
Why do I think corporate earnings will continue rising at Honda, and what factors am I considering when looking at this stock as part of an investment strategy?
Looking at the automotive industry here in America, sales are obviously soaring now compared to what we’ve seen over the past few years. Is there any real sign that this will change anytime soon? I don’t believe so, and I think cheap financing will continue for some time.
Globally, car sales will continue to increase as many nations around the world are keeping interest rates low, creating cheap financing.
Another reason I believe Honda will continue to rise is the policies stemming from the Bank of Japan and the government of Japan. For those … Read More
Top Four Overlooked Stocks for Income-Seeking Investors
By John Whitefoot for Daily Gains Letter | Nov 15, 2013
The 2014 Winter Olympics in Sochi, Russia may be just around the corner, but when it comes to breaking records—for better or worse—Wall Street remains the gold-medal champion.
Thanks to the Federal Reserve, interest rates are at record lows, and will stay there for the foreseeable future. The U.S. national debt is at a record $17.1 trillion, while at the other end of the scale, the S&P 500 and Dow Jones Industrial Average recently posted record highs.
This is in spite of economic indicators that suggest the markets should be moving in the opposite direction: high unemployment, high debt, weak consumer confidence, a record 47.6 million Americans—one-sixth of the population—receiving food stamps, etc.
Under this umbrella, the markets have been going higher, in spite of an increasingly large number of companies warning investors they are not going to meet projections—and, in fact, have been revising earnings-per-share (EPS) guidance lower all year.
In the third quarter, a record 83% of S&P 500 companies revised their EPS guidance lower. How about the fourth quarter? So far, 83.5% of reporting companies on the S&P 500 have issued negative EPS guidance. In October, analysts lowered earnings estimates by 1.5%, below the one-, five-, and 10-year averages for the first month of a quarter.
Again, in spite of the record number of S&P 500 companies revising their EPS guidance lower and weak October analyst expectations, the S&P 500 continues to notch up fabulous gains—roughly 25% year-to-date and 4.5% in October alone.
Interestingly, this marks the seventh time in the last nine quarters that earnings estimates fell while the value of the underlying index increased during … Read More
Why I’m Still Skeptical on Key Stock Indices
By Moe Zulfiqar for Daily Gains Letter | Nov 14, 2013
The companies on key stock indices are showing very troubling trends, which can cause them to slide lower and generate losses in investors’ portfolios. Don’t just look at the number on the surface.
As of November 8, 446 companies on the S&P 500 have reported their corporate earnings and 73% of them were able to show earnings above estimates. The corporate earnings growth rate was 3.4%. (Source: “Earnings Insight,” FactSet web site, November 8, 2013.)
These numbers certainly sound surprising on the surface, but just looking a little deeper into the details shows that they’re the only good thing about them. As mentioned earlier, 73% of them beat the corporate earnings estimates; sadly, only 52% of them were able to beat their estimated revenue.
This means that the companies aren’t selling as much; rather, their corporate earnings are coming from somewhere else. One place it could be is from cost-cutting; an example of this could be General Electric Company (NYSE/GE), one of the conglomerates on the key stock indices.
The company’s revenue fell 1.5% in the third quarter to $35.73 billion. The company also said that it has cut costs by $1.0 billion; the original goal was to make these cuts in one year, but it was able to do it in nine months. The CEO of the company expects more cuts coming until the end of the year. (Source: Linebaugh, K., “General Electric Slashes Costs,” The Wall Street Journal, October 18, 2013.)
Currently, the key stock indices are soaring higher each day, and they continue to break new records. Just look at the chart below of the S&P 500, … Read More
Wall Street Cheers 13.6% Unemployment Rate; S&P 500 Soars!
By John Whitefoot for Daily Gains Letter | Oct 24, 2013
Bad news on Main Street is good news for Wall Street. Illogical heads prevailed on Tuesday after the U.S. government announced that the unemployment rate dipped to an ever-so-modest 7.2% in September, from 7.3% in August. The U.S. added just 148,000 new jobs in September—far short of the forecasted gain of 180,000 jobs for the month. (Source: “The Employment Situation – September 2013,” Bureau of Labor Statistics web site, October 22, 2013.)
The number of long-term unemployed (those without a job for at least 27 weeks) remains stubbornly high at 4.1 million, and the underemployment rate is at an eye-watering 13.6%, up a sliver from 13.4% in August.
Weak jobs numbers means the Federal Reserve will continue its $85.0-billion-per-month quantitative easing policy into 2014. Those who do not read these pages were apparently surprised last month when the Federal Reserve did what it said it was going to do—namely, keep its stimulus package intact until the economy improves to a 6.5% unemployment rate and a 2.5% inflation rate.
It clearly hasn’t, isn’t, and won’t for the foreseeable future.
Those bad jobs numbers sent the S&P 500 into record intra-day territory. In the week since Congress ended the U.S. government shutdown, raised the debt ceiling, and reported stubbornly high unemployment, the S&P 500 climbed more than three percent. Year-to-date, the S&P 500 is up more than 22%.
That increase is in sharp contrast to anything approaching reality on Wall Street. During the first quarter of 2013, 78% of S&P 500 companies issued negative earnings-per-share (EPS) guidance, 81% during the second quarter, and a record 83% for the third quarter. (Source: “Earnings … Read More
Stellar Jobs Growth in Restaurant Industry Making These Fast Food Stocks Irresistible
By John Whitefoot for Daily Gains Letter | Aug 26, 2013
Quick-service (aka fast food) restaurants may want to herd customers in and out as swiftly as possible, but when it comes to their numbers, it’s worth slowing down a little.
For example, on any given day, the restaurant industry generates around $1.8 billion in sales. In July 2013, industry sales came in at $45.83 billion, a 17.7% increase over the $38.93 billion recorded in July 2010. When it comes to pulling your weight, few do it like fast food employees: in 2011, sales per full-time-equivalent (non-supervisory) employee were a jaw-dropping $83,947. For investors, restaurant stocks can make a lot of money. (Sources: “America Shops: U.S. Retail and Food Service Sales,” The Wall Street Journal, August 13, 2013; “2013 Restaurant Industry Pocket Factbook,” Restaurant.org, 2013.)
It takes a lot of people to generate these daily sales for restaurant stocks; in fact, it takes more than 13 million people, or nearly 10% of the U.S. workforce. Over the next decade, the restaurant industry is expected to add a further 1.3 million jobs, reaching 14.4 million by 2023.
Perhaps not surprisingly, restaurant industry jobs growth has, for the past 13 consecutive years (2000 to 2013) and counting, outpaced the overall U.S. economy. On the whole, restaurants and restaurant stocks are a good barometer of the health of the economy. If restaurant stocks are reporting solid growth, it means Americans have more disposable income.
While a handful of restaurant stocks like McDonalds Corporation (NYSE/MCD), Burger King Worldwide Inc. (NYSE/BKW), and The Wendy’s Company (NASDAQ/WEN) may grab most of the attention, there are a large number of other restaurant stocks out there, some well known … Read More
This One Company Is Bucking the Downward Trend in Toys and Games
By John Whitefoot for Daily Gains Letter | Jul 19, 2013
Sometimes, smaller companies are better equipped to take advantage of an economy in flux, in part because they can develop strategies and adapt more quickly than larger firms.
That’s what’s happening in the U.S. toys and games industry, as one small company has been showing solid growth while the big boys are faltering.
Traditionally, the toys and games industry is an important contributor to the U.S. economy. In 2012, it is estimated that the U.S. toys and games industry employed 31,000 people and generated around $20.0 billion per year in retail sales. With a 26.3% share of the annual global market, the U.S. is the top retail market for toys. (Sources: “Annual Sales Data,” Toy Association web site, last accessed July 17, 2013; “Toy Markets in the World Annual 2010,” Toy Association web site, October 17, 2011, last accessed July 18, 2013.)
Unfortunately, the weak economy, lower earnings, and changing attitudes are having an impact on some of America’s biggest toy manufacturers. On Wednesday, Mattel, Inc. (NASDAQ/MAT), the world’s largest toymaker, announced its second-quarter corporate earnings.
The company reported that earnings fell 24%, as kids continue to turn their back on its iconic product, “Barbie.” (Source: “Mattel Reports Second Quarter 2013 Financial Results — Declares Third Quarter Dividend and Increases Share Repurchase Program,” Mattel, Inc. web site, July 17, 2013.) Second-quarter worldwide sales of Barbies fell 12% year-over-year, which represents the fourth straight month of declines for Mattel’s flagship product.
By late Wednesday afternoon, investors responded to Mattel’s weak earnings results by sending its share price down more than seven percent.
Investors spooked by Mattel’s earnings also sent Hasbro, Inc.’s … Read More
Why Chipotle Mexican Grill Represents the Economy’s Overall Predicament
By Mitchell Clark for Daily Gains Letter | Apr 23, 2013
Restaurants are one stock market sector that’s worth paying attention to.
If people feel more confident and have more disposable cash, they spend money in restaurants.
Earnings in the group have been all over the map, but this is representative not of weakness in terms of consumer spending within the group, but of the success and weakness of individual chains.
Chipotle Mexican Grill, Inc. (NYSE/CMG) surprised Wall Street by reporting excellent first-quarter earnings results. The company jumped 11.5% on the stock market after the news.
The company’s 2013 first-quarter revenues grew 13.4% to $726.8 million on 48 new restaurant openings. Earnings grew a substantial 22% to $76.6 million and earnings per share grew 24% to $2.45. Comparable store sales grew only one percent.
On the stock market, Cracker Barrel Old Country Store, Inc. (NASDAQ/CBRL) has been on a tear.
The company’s revenues for the fiscal second quarter of 2013, ended February 1, grew 4.4% to $702.7 million. Comparable store sales increased 3.3%, while earnings grew an impressive 37% to $35.2 million. Cracker Barrel recently increased its quarterly dividend by 25%.
Darden Restaurants, Inc. (NYSE/DRI), which includes Red Lobster and Olive Garden, has been a laggard within the group.
Red Robin Gourmet Burgers, Inc. (NASDAQ/RRGB) has been doing extremely well on the stock market. The position is not up to its all-time stock market high set in 2005, but it’s working its way back.
And Burger King Worldwide, Inc. (NYSE/BKW), which expects a small decline in its comparable store sales for the first quarter of 2013, recently forecast adjusted earnings growth of about 25%.
On balance, the restaurant group is looking … Read More
Why Farmers Are Key to the Commodity Price Cycle
By Mitchell Clark for Daily Gains Letter | Apr 5, 2013
Farmers really are the best customers.
Monsanto Company (NYSE/MON) has become more than a 10-bagger since listing on the stock market. Its performance over the last year has been good, and the company just beat the Street with its quarterly earnings results.
I suspect that many farmers have a kind of love/hate relationship with Monsanto. The company’s “Roundup Ready” products work, but it’s the way the company has litigated some farmers that has probably turned off a number of customers.
The company’s earnings results were good. Revenues in its latest quarter grew 15% to $5.5 billion. Global corn sales were particularly strong. Earnings came in at $1.5 billion, up 22% from comparable earnings of $1.2 billion.
Monsanto’s 10-year stock market performance has been outstanding, and I think investors can attribute a lot of weight to this—especially those who might be considering investments related to agriculture. Monsanto’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Wall Street has been consistently increasing Monsanto’s fiscal 2013 and fiscal 2014 earnings estimates.
Imagine this business if you have the loyalty of a farmer. The vast majority of farmers are in business for the very long term. They’re not going away tomorrow.
Barriers to entry are high because of seed development and the years it takes to develop proprietary technologies.
Monsanto is in a very good position right now, as the commodity price cycle favors agriculture. The prospect for continued strength in both revenues and earnings growth this year is very good, as the U.S. corn crop should reach an all-time record high.
Monsanto’s stock market performance has been pretty darn solid, especially considering … Read More
Wal-Mart Stock Breaks 12-Year Consolidation; Why the Retail Sector Is Looking Up
By Mitchell Clark for Daily Gains Letter | Mar 21, 2013
There is a resilience to this stock market, and regardless of the reason, it’s a play by institutional investors that first-quarter earnings season will be decent, as well as further earnings growth later this year.
While it’s tough to think about with the stock market at its highs, this market could go a lot higher yet, based on continuing stimulus from the Federal Reserve and a slight improvement in business conditions.
One of the best things available from the massive cash balances that large corporations have accumulated is increasing dividends. The stock market saw a lot of new dividend announcements last year, partially because of tax changes but also because companies can afford it.
This is a trend that is going to continue this year, and it’s good news for blue chip investors who are saving for retirement.
There are a lot of attractive blue chips that are growing their earnings and are not expensively priced in this stock market. Wal-Mart Stores, Inc. (NYSE/WMT) is five points below its recent high; it has a current dividend yield of 2.6% and a price-to-earnings (P/E) ratio of about 14.5. Wal-Mart’s longer-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
Wal-Mart has been trading sideways for years, and its recent stock market breakout is meaningful. Again, Wal-Mart is not expensively priced, and Wall Street continues to nudge the company’s 2013 earnings estimates higher.
This upcoming earnings season is make or break for the stock market. Most corporations were coy with their forecasts last quarter, but they do this on purpose so as to show outperformance. But even with these conservative forecasts, most … Read More