sovereign debt
Online Retailers Holding Up, but Are They Worth the Investment Risk?
By Mitchell Clark for Daily Gains Letter | Apr 24, 2013
Earnings season is in full swing, and it’s looking like the retail/merchandising sectors are doing relatively well. The data support the case that consumers are spending again; whether this is sustainable or not is another matter, but for the first quarter, it looks like consumers have opened up their wallets.
One company that really surprised to the upside was Overstock.com, Inc. (NASDAQ/OSTK). On the stock market, the company’s been in the doldrums for years, but its current numbers certainly show renewed momentum in its operations.
According to the company, its 2013 first-quarter sales grew 19% to $312 million, direct revenues grew modestly to $41.9 million, and fulfillment partner revenues shot up to $270 million from $221 million in the comparable quarter last year.
Earnings grew significantly to $7.7 million, up from $2.7 million year-over-year. Diluted earnings per share were $0.32, compared to $0.12 in the first quarter of 2012.
eBay Inc. (NASDAQ/EBAY) slightly disappointed the marketplace by reporting revenues that came in just a hair below consensus. The company’s earnings were still very solid, but it reduced its earnings outlook range for the second quarter of 2013, causing investors to sell the stock.
Amazon.com, Inc. (NASDAQ/AMZN) is the big kahuna in the online retail space. The company reports its first-quarter earnings tomorrow; the Street expects adjusted earnings of approximately $0.09 per share, with average revenues of $16.18 billion.
On the stock market, Amazon has had a tremendous run since March 2009. The company’s share price is up fivefold on the stock market since then and is very much due for a break.
The one thing that Amazon keeps doing, despite … Read More
Risk Alert: Business Cycles About to Collide
By Mitchell Clark for Daily Gains Letter | Apr 9, 2013
It’s time for all stock market investors to re-evaluate their portfolio risk.
If a new bull market happens to develop, it’s easy to jump on the bandwagon. But with so much uncertainty and risk out there—risk that is 100% beyond your control—equity investors need to be safe.
There is always room for speculation with play money, but when it comes to money being used to save for retirement or dividend income being used while in retirement, capital preservation is absolutely key.
Utility stocks immediately come to mind when I think about capital preservation and the stock market. This is a sector that is often used to generate income for those who are in retirement.
Surprisingly, some utility stocks have actually been very good wealth creators in terms of capital appreciation. Like always, which individual companies you own matters. This is why the returns from mutual funds can be so mediocre. Diversification works, but always has a cost.
Looking at utility stocks, trends are important—trends in population growth, migration, or in things like power usage from industrial customers. Just look up a utility stock index and the stock market charts of those companies. You can see which companies are the standout players, and why they are because of migration trends in demand.
Another stock market sector that offers some safety and the opportunity for capital gains and decent dividends is energy. But in the oil and gas business, size counts.
A company like Chevron Corporation (NYSE/CVX) has proven to be a reliable stock market performer and dividend payer. It is an ideal retirement stock. And even with the amazing growth taking … Read More
Global Sovereign Debt Skyrockets, Bubble to Burst
By Mitchell Clark for Daily Gains Letter | Apr 8, 2013
“Risk” is a four-letter word.
It’s the kind of thing you wish you spent a lot more time thinking about before a shock actually happens.
Right now, the Federal Reserve is re-inflating assets while sovereign debt skyrockets. It’s been doing so for a number of years now, and the stock market is moving.
Stock market action illustrates that it doesn’t pay to fight the Fed. But one of the biggest trends in the stock market’s performance over the last few years is the strength in blue chips that pay dividends. You don’t need a highflying technology stock in this kind of market.
With so much sovereign debt growth and uncertainty that continues unabated, I think all investors need is to take a fresh look at their portfolios and re-evaluate all holdings related to risk.
The sovereign debt crisis in Europe and the U.S. is ongoing. There is a failure on the part of policymakers in many countries to be more public and more aggressive in dealing with this issue.
The stock market is at risk. All market participants, including investment banks, individual investors, and institutions, need to be more vocal in talking about debt and its consequences for individuals and countries.
News of massive new monetary stimulus from Japan, a copycat strategy in a sense, is just totally irresponsible. Japan’s gross government debt as a percentage of gross domestic product (GDP) is now over 230%, according to the International Monetary Fund (IMF). Greece’s performance has actually improved, now sitting somewhere around 170%. And the IMF estimates the U.S. economy’s total sovereign debt as a percentage of GDP at approximately 107% … 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
Avoid the Eurozone Mess: How to Profit Domestically
By Mitchell Clark for Daily Gains Letter | Mar 28, 2013
Most investors will consider utility stocks in saving for retirement, or when looking for regular stock market income while in retirement. This is a group that has a better track record on the stock market than you might think. Old economy stocks can still generate solid investment returns, even if they are well-established utilities.
The Dow Jones Utility Average has a good long-term track record of wealth creation, but it has not been without volatility. Clearly this is a group that is less volatile than many other stock market sectors and these stocks experience waves of enthusiasm from institutional investors.
Utility stocks are not for everyone. A lot of investors feel that they would be better off in faster-growing, brand-name companies that have long-term track records of paying dividends. But in terms of dividend yield, utility stocks are definitely a group that is worth looking into.
One of the standout utility stocks is The Southern Company (NYSE/SO). The stock has been a powerhouse wealth creator, with much less volatility than the rest of the group. The company’s long-term stock chart is featured below:
Stock chart courtesy of www.StockCharts.com
In my estimation, Southern is one of the few utility stocks that combine excellent dividend payments with solid potential for further capital gains on the stock market. Considering Southern today, you might say that it is fully priced with a current price-to-earnings (P/E) ratio of approximately 17. But the dividend yield is 4.3%, which is very substantial in today’s environment. And you know that this business is still going to be there and that people are still going to be moving to … Read More
Where to Find Certainty in the Stock Market with Cyprus on the Edge
By Mitchell Clark for Daily Gains Letter | Mar 27, 2013
There are a lot of great stocks out there with proven track records for making money. These are retirement stocks—brand-name stocks that pay dividends to create wealth. With dividend reinvestment, you can effectively compound this wealth in an easy, costless manner.
One blue chip company that I’d like to highlight is Johnson & Johnson (NYSE/JNJ), which has an outstanding track record of increasing its dividends to shareholders and achieving capital gains on the stock market.
I couldn’t get data for before 1972, but Johnson & Johnson has increased its annual dividends every year since then. Since 1972, the company’s stock has split three-for-one on two occasions, and two-for-one on four occasions. The company’s last share split was on June 12, 2001, and the stock is definitely due for another split.
On the stock market, Johnson & Johnson recently spiked 10 points higher. And that’s just since the beginning of January. The company’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
Track record-wise, the stock is up well over 10-fold within the last 20 years, and that’s just capital gains; that doesn’t include dividends paid.
Everyone knows Johnson & Johnson’s consumer products; the company’s baby shampoo is for sale virtually everywhere. But Johnson & Johnson is much more than that. It’s dozens of popular healthcare brands, skin creams, and medicines. The company’s pharmaceutical research in oncology, contraceptives, immunology, and vaccines is extensive. Finally, Johnson & Johnson manufactures implants, diabetes care products, and joint replacement products. It’s a company with hugely favorable exposure to demographic changes and an aging population.
Of course, this is why Johnson & Johnson is rarely … Read More
The Inflation Apocalypse: Here Comes the Next Super Cycle
By Mitchell Clark for Daily Gains Letter | Mar 22, 2013
Two big trends are about to collide: global warming and global re-inflation. And the result is going to create a lot of shocks and opportunity. I’ve heard people refer to the recent tsunamis, rising temperatures, floods, and droughts as the “weather apocalypse.” Whatever you call it, the re-inflation in prices combined with global warming is going to create a new super cycle in agriculture and agribusiness.
The business cycle is changing in financial markets. Currencies are being devalued. The bull market in bonds is over. Central banks are repatriating their gold. There’s massive monetary stimulus, and now there are rising prices, which should help boost earnings initially. The stock market could go a lot higher this year.
The re-inflation cycle has staying power, even through the next U.S. recession. An inflationary business cycle, product scarcity, increasing demand, and the weather represent a fundamental, long-term uptrend for agriculture—the final leg of the commodity price cycle.
The stock market’s recent breakout was very powerful. Wall Street is now ahead of first-quarter earnings season. Before the next big crash, I think the stock market will have one final push higher—a lot higher than current levels.
I absolutely agree with Jim Rogers’ view about agriculture. But hey, even Jim has something to sell you. The re-inflation definitely has consequences, but global monetary stimulus is on a tear. And as an investor, it doesn’t pay to fight it.
The stock market is holding firm ahead of first-quarter earnings season. Its performance is very similar to the strength experienced during the first four months of last year. “Sell in May, and go away?” I think it’s … Read More
The Only Thing You Can Bank on Near-Term
By Mitchell Clark for Daily Gains Letter | Mar 11, 2013
The stock market is absolutely where it should be, given current earnings—and it’s across the board; from large-cap to small-cap, valuations are fair. But the real telltale sign will be first-quarter earnings season. The stock market wants to see growth, and it actually doesn’t need much of it in terms of the bottom line. This market wants to see revenue growth or stocks will go into correction.
Corporations, especially large ones, have done an exceedingly good job of maintaining their earnings through the last recession and the modest economic recovery. They’ve done this through diligently controlling costs, doing little in the way of new hiring, ensuring productivity gains per existing worker, and using technology. The health of U.S. corporations is very good; for individuals, it’s a whole other story.
Corporations have also been very conservative with their earnings outlooks, making it easier to outperform or beat the Street. With the large cash hoards that corporations have been built up by not investing in this economy, companies are keeping investors happy with increased dividends, even with the prospect of no earnings growth.
This stock market is due for a correction; but it’s still unclear whether there will be decent buying opportunities when this correction occurs. If this upcoming earnings season disappoints, then new buyers will be better off holding out for future weakness.
The S&P 500 has to show more breakout strength in order for the rest of the stock market to follow. We need technology stocks to further accelerate, along with the industrials. But in reality, what the stock market is doing now is really more of an expansion in … Read More
This Stock Market Can Go Higher
By Mitchell Clark for Daily Gains Letter | Mar 4, 2013
Corporate earnings are still pouring in, largely from smaller companies that take longer to put their financial results together. The numbers continue to be generally good, and if there is a trend, it’s that earnings are beating consensus, but revenues are coming in just slightly short. For the most part, companies are confirming existing earnings guidance for 2013.
In terms of portfolio strategy, I’m still very hesitant about buying this stock market. We’re at five-year highs and general economic conditions are still pretty slow. But there’s one thing I’m not and that’s bearish. The stock market is appropriately valued, considering current earnings and forecasts for a great number of blue chips are for high single-digit growth in revenues and earnings for 2013. Combined with dividends, this should produce another decent year.
While stock market investment risk is high, a lot of risks in global capital markets are actually priced into the stock market, bonds, and currencies. The sovereign debt crisis and economic weakness in the eurozone is still very pronounced, but the market knows this. U.S. fiscal problems and the inability of policymakers to deal with them decisively are priced into this market. Investors are looking beyond the previous trading catalysts and are now focusing (finally) on what corporations are saying about their businesses. Revenues and earnings are now the big catalyst.
The key, leading index for the stock market remains to be the Dow Jones Transportation Average. Its breakout late last year led the broader market to a new upward trend, and many component stocks within the index are doing great. And corporate earnings from this group came in … Read More
