Month: August 2013

By Profit Confidential

One of the most successful retail merchandisers on the stock market is The TJX Companies, Inc. (TJX), which operates T.J. Maxx, Marshalls, HomeGoods, Winners, HomeSense, T.K. Maxx, and Sierra Trading Post stores. The company has been a powerhouse wealth creator for shareholders as its price points for merchandise and clothing meets the needs of the marketplace perfectly.

In the company’s latest earnings report, for its second fiscal quarter of 2014 (ended August 3, 2013), total sales grew a solid eight percent to $6.4 billion. Comparable store sales for the quarter grew four percent compared to the same period last year. Earnings in the second quarter were $480 million, while earnings per diluted share grew 18% to $0.66 comparatively.

The company cited above-plan results in its latest quarter and management increased its full-year guidance for fiscal 2014.

Also noteworthy was the company’s share repurchases. During the second quarter, the company repurchased 6.4 million shares for $325 million. In the first half of fiscal 2014, the company spent $625 million buying 12.9 million shares. Total share repurchases this year are expected to be between $1.3 billion and $1.4 billion.

There is a lot going right with this enterprise. Its cash position continues to build and shareholders’ equity is rising significantly higher. Certainly, another increase in the company’s dividend is in the cards sometime in the bottom half of its current fiscal year.

Management expects third-quarter comparable store sales to grow between two and three percent. Diluted earnings per share (EPS), however, are expected to grow 11% to 16%, which is significant.

On the stock market, The TJX Companies has been a very good wealth creator and, in my view, it makes the case that it’s worth accumulating when the stock is down. The company’s long-term stock chart is featured below:

Chart courtesy of www.StockCharts.com

Operational success in retail merchandising is no small feat. Competition is fierce and margins are thin, so when a company like The TJX Companies is expecting double-digit EPS growth, that’s meaningful. With a current price-to-earnings (P/E) ratio of approximately 20, I don’t view the shares as being overpriced.

From Wall Street’s perspective, this stock is trading right at its median price target. Like I say, this is the kind of company you can think about on a major price retrenchment or correction.

The big thing this business has done is that it’s carved out a niche market in off-priced merchandise and clothing. Its stores are go-to brands for the American middle class, and that provides a lot of certainty in an industry that’s replete with failure.

This particular company offers what I like to refer to as the “package,” which for investors is a combination of good management, a deliberate business plan, prospects for top- and bottom-line growth, and a track record of success, both operationally and on the stock market. (See “The One Stock That Always Seems to Keep on Rising.”)

Naturally, good companies tend to be good stocks, which is why they are often at their highs. But this shouldn’t discourage investors looking for an attractive entry point. A company with a strong track record of wealth creation on the stock market is a very powerful indicator.

Article by profitconfidential.com

By Profit Confidential

Everyone, myself included, is anxiously waiting for the new “iPhone” by Apple Inc. (NASDAQ/AAPL), slated to be introduced to the market in September.

However, I don’t think I would be counting BlackBerry Limited (NASDAQ/BBRY) in this group, as the former high-flyer and king of smartphones could soon be a thing of the past. (Read “The Only Way Apple Will Survive the Cutthroat Mobile Market.”) The newest BlackBerry device wasn’t even in the top-five in U.S. sales according to comScore, Inc. (Source: “comScore Reports June 2013 U.S. Smartphone Subscriber Market Share,” comScore, Inc. web site, August 7, 2013, last accessed August 21, 2013.)

According to comScore’s report, the top company was Apple with a 39.9% share of the U.S. smartphone market as of the end of June; Samsung Electronics Co. Ltd. was second at a distant 23.7%, while the next three in line (HTC Corporation, Motorola Solutions, Inc., and LG Electronics Inc.) only accounted for a combined 22.3% of the U.S. market.

But while BlackBerry is now up for sale and waving the white flag, Microsoft Corporation (NASDAQ/MSFT) is only starting to enter the market, trying to regain its title as the top dog in technology.

In my view, Microsoft is intriguing because of the diversity and broadness of its business. The company trails far behind in the lucrative mobile market, but its “Windows 8” mobile platform appears to be closing in on BlackBerry at three percent in May versus 4.8% for BlackBerry. Google Inc.’s (NASDAQ/GOOG) “Android” operating system was tops in the smartphone platform market with 52.4% market share in May, versus 29.2% for Apple’s “iOS.”

And while Microsoft won’t likely catch up to Apple or Samsung, the company has other weapons in its product arsenal that could help drive its shares higher.

I really like the gaming and home entertainment businesses of Microsoft; that includes its online phoning and texting service “Skype” and its “Xbox” gaming consoles.

For Microsoft to regain its luster in the stock market, the company needs to execute and deliver good products and solutions to the mobile market. The old Microsoft is no longer relevant.

The chart of Microsoft below shows the superlative rise of the company from 1986 to 2000. Since the technology implosion in 2000, Microsoft has never been the same, languishing in a sideways channel though showing some upward moves in recent years.

 Chart courtesy of www.StockCharts.com

One thing is for sure: Microsoft’s current valuation of 10.51X its fiscal 2015 earnings is attractive and, in my view, assigns minimal growth to Microsoft. If the company can deliver new products in the mobile arena, then we could expect the company’s revenue growth to pick up from its bland 6.6% for fiscal 2015, and Microsoft would be able to trade at a higher multiple.

Article by profitconfidential.com

By Profit Confidential

One basic rule of economics states that when the demand increases for an item and supply for that same item declines, its price usually increases. Let’s apply this to the gold market today.

Demand for gold bullion is exuberant. In spite of the decline in the price of the precious metal, we are seeing the continual buying of gold, not only by consumers, but also by central banks—the most conservative of investors.

According to the Word Gold Council (WGC), in the second quarter, the two biggest gold-consuming countries, India and China, continued to show robust demand. In China, the demand for the precious metal in the second quarter was 276 tonnes—up 87% from the second quarter of 2012. (Source: World Gold Council, August 15, 2013.)

In India, in spite of the country’s government being bent on curbing demand for gold bullion, demand for the precious metal remains strong. Demand for gold bullion bars and gold coin investments in India increased by 116% in the second quarter and jewelry demand increased by 51% compared to the second quarter of 2012. (Source: Ibid.)

Also in the second quarter, central banks added 71 tonnes of gold bullion to their reserves, resulting in ten consecutive quarters that central banks have been net buyers of gold bullion.

Meanwhile, the supply side of the gold bullion equation has decreased—setting the stage for higher prices for the precious metal. In the second quarter of this year, total supply of gold bullion was down six percent from the same period a year ago. With gold prices having come down, gold miners could be cutting back on production, pushing the supply of the precious metal down further.

So where will the prices of both gold bullion and gold stocks go next?

My “take” on the situation with gold bullion and gold stocks has been the same since gold prices contracted this spring. After a 10-plus-year bull market in gold, in the April to June 2013 period, we simply experienced a price correction in an ongoing bull market in the precious metal. Corrections are healthy for any bull market; they work to drive away speculators, and they offer long-term investors another opportunity to get in at low prices.

I don’t think we will see a “march” right back to $1,900-an-ounce gold, but we will eventually break right through that level. We may even experience minor corrections on the way back up. But the bull market in gold bullion, as far as I’m concerned, is still intact. As for gold stocks, as I’ve been saying all year, they are severely undervalued.

What He Said:

“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips. I predict a major homebuilder will go bankrupt in 2008.” Michael Lombardi in Profit Confidential, January 10, 2008. Just as predicted, WCI Communities, the largest U.S. luxury homebuilder, filed for Chapter 11 protection on August 4, 2008.

Article by profitconfidential.com

By Profit Confidential

These days, I’m not shopping all that much unless there’s a massive discount at the stores. In fact, I only shop when the deals are significant.

In my view, this is the new reality in the retail sector. And it’s not only hurting the retail sector, but it is also supporting an increase in traffic at the major discount mall operators, such as Tanger Factory Outlet Centers, Inc. (NYSE/SKT) and king of discount malls Simon Property Group, Inc. (NYSE/SPG), which owns the well-known Premium Outlets centers.

If you haven’t been to the Premium Outlets malls, these are large malls where there are as many as 100 stores offering quality goods at cheap discount prices. All of the major retailers are there.

Yet the retail sector continues to show mixed results that clearly do not suggest consumer spending is rising at levels the economy wants to see, given the low interest rates.

Retail sales in July were better than expected, but in my view, they still don’t support a massive spending push in the retail sector, which means potential problems brewing for America’s gross domestic product (GDP).

We are beginning to see weakness amid the department stores in the retail sector. There was even a disturbing report from bellwether retail giant Wal-Mart Stores, Inc. (NYSE/WMT), which reported dismal growth in the U.S. and around the world. When this happens, you know all is not right in the retail sector, as Wal-Mart is a good barometer of consumer spending activity.

So it wasn’t a surprise to see department store Macy’s, Inc. (NYSE/M) fall short in its fiscal second quarter after three straight quarters in which the company beat Wall Street earnings estimates.

Similarly, Nordstrom, Inc. (NYSE/JWN) beat the Street but offered a sour outlook for its fiscal 2014 (ending in January). The key same store sales are estimated to expand by two to three percent, compared to the previous estimate of three- to five-percent growth. Is this perhaps a sign the economy is slowing?

The weakness continued with Saks Incorporated (NYSE/SKS), after the troubled retailer reported a massive loss and a soft 1.5% rise in same store sales versus the 4.5% estimate. Saks will soon become a Canadian company after being acquired by Hudsons Bay Company (TSX/HBC) for $2.4 billion. The thinking is that Hudson’s Bay, which sold its Zellers Inc. properties in Canada to Target Corporation (NYSE/TGT), may look at launching stand-alone or in-house Saks stores in Canada.

The soft guidance provided by the numerous chains in the retail sector is a red flag that clearly tells us GDP growth in America could continue to be soft going forward.

Read about my favorite fast food stocks in “McDonald’s Proving Position as ‘Best of Breed’ in the Fast Food Sector.”

Article by profitconfidential.com

By Profit Confidential

I really don’t expect the stock market to come apart unless there’s some sort of shock. Why? Because many blue chips are trading right around their historical valuations at this time. And with equities in consolidation mode until the next meeting of the Federal Reserve in September, there is not a lot of new action to take.

I have to admit that the stock market is holding up extremely well in the face of declining earnings expectations. Given the anemic rate of growth in the U.S. economy, the next recession is a real possibility within the next 18 months. The catalyst for a technical recession could be rising interest rates that, as we know, have been artificially low for a long time now.

But there are other pressures in the marketplace, too. The spot price of oil is surprisingly strong, given the economic outlook. Some precious metals have also been ticking higher recently. But while there is price inflation in the general economy, it doesn’t show in the headline numbers and it isn’t translating into new spending by corporations. (Many companies experienced revenue growth in the second quarter solely due to increased prices for their products, not increased volume.)

Corporations and individuals continue to be highly conservative with their spending. This is a positive development as corporate and individual balance sheets improve, but it doesn’t help a consumption-based economy.

I continue to believe that this year’s stock market winners will remain that way. Institutional investors want reliability in earnings results, and they want the dividends that blue chips provide. There is not a lot of reliable growth out there, so when a company like Johnson & Johnson (JNJ) generates eight-percent top-line growth in one quarter, the stock market loads up.

You can tell by the most recent numbers that corporations have pretty much exhausted their abilities to grow their bottom lines on cost control alone. Meaningful revenue growth is a must if earnings are to grow at a rate greater than inflation going forward.

So all in all, the stock market is a big hold, but there are clouds on the horizon. Dividend income remains a top priority as far as I’m concerned; it’s probably the greatest certainty that a stock market investor has in the current environment.

Interest rates are too low and the marketplace is chomping at the bit to see the entire yield curve move upward. And while it’s correct to have the Federal Reserve out of the bond market, a return to a more normal interest rate environment may turn out to be the catalyst for even slower growth. (See “Why You Should Listen to This Micro-Cap Company.”)

The cycle will play itself out, and there’s no reason to be in a rush to consider new positions in this stock market. I wouldn’t be adding to existing blue chips; rather, I’d be keeping any new monies in cash for the time being. I really don’t expect anything significant from the stock market until the next Fed meeting.

Article by profitconfidential.com

By Profit Confidential

A country experiences an economic slowdown when its industrial production lags, its jobs market shows a dismal performance, corporate profits deteriorate, and the general standard of living declines.

Sad to say, this is exactly what the U.S. economy is experiencing right now.

Industrial production in the U.S. economy is anemic. For the month of July, industrial production in the U.S. economy remained unchanged; in June, it saw a menial increase of 0.2%; in May, it was flat; and in April, industrial production declined 0.4%. (Source: Federal Reserve, August 15, 2013.)

Last month, the production of consumer goods in the U.S. economy declined by 0.5%.

Moving onto the jobs market in the U.S. economy, while politicians certainly do a good job at making it sound like the employment picture is improving, the majority of jobs created since the Great Recession have been in low-wage-paying sectors.

Corporate profits, as has been very well documented in these pages, are dismal. Companies in the U.S. economy have found ways to boost their earnings through artificial means, like stock buyback programs, and are cutting costs by reducing their labor force. Sure, these maneuvers make earnings temporarily look better; but when you look at their sales, companies in the U.S. economy are not selling more.

As for the standard of living in the U.S. economy, consumers are struggling. Just look at the numbers: In the first quarter of 2013, there were 309,920 consumer bankruptcies in the U.S. economy. In the second quarter, the number increased to 380,020. This is an increase of 23% within just one quarter. (Source: Federal Reserve Bank of New York, August 2013.)

The fact is the U.S. economy is going in the wrong direction. And that’s very troublesome, because our central bank has run out of arsenal to fight the coming economic slowdown—and interest rates are starting to rise.

Dear reader, if you really want to know the state of the U.S. economy, don’t look to the key stock indices; look at the facts as presented in the statistics our own government releases on a regular basis.

Key stock indices mislead investors; that’s what bull and bear traps are all about. Learn from history—the “Tech Boom” of the late 1990s and the credit crisis of the mid-2000s are only two examples of how things can go terribly wrong so very quickly. And that’s why I expect this next recession to blindside politicians and the mainstream media.

Article by profitconfidential.com

Being contained by 1.5751 (Jun 17 high) resistance, GBPUSD pulls back from 1.5717, suggesting that consolidation of the uptrend from 1.5102 is underway. Deeper decline would likely be seen in a couple of days, and the target would be at the lower line of the price channel on 4-hour chart. As long as the channel support holds, the uptrend could be expected to resume, and another rise towards 1.6000 is still possible. On the downside, a clear break below the channel support will suggest that the uptrend from 1.5102 had completed at 1.5717 already, then the following downward movement could bring price to 1.5400 zone.

Provided by ForexCycle.com

By MoneyMorning.com.au

‘Haruhiko Kuroda has held out the prospect of further monetary easing from the Bank of Japan, should the government’s plans to raise taxes weigh on prices and activity in the world’s third-largest economy.‘ – Financial Times

In life there are some things that surprise us.

Then there are other things that don’t surprise us at all.

The statement that the Bank of Japan is open to further monetary easing is one of the things that doesn’t surprise us at all.

In fact, the only thing that surprises us is that ‘doing a BoJ’ hasn’t entered the lexicon as a meaning for money printing. Who knows, maybe it will one day.

But there is one thing that may surprise you. We say that because it surprised us. And on hearing the news, it could surprise former US vice president Al Gore too…

We’re sure you know that apart from being an ex US vice president, Al Gore’s other job is an environmental campaigner and fundraiser.

In 2010, Al Gore was looking for an office building in New York City. It was to house his firm, Generation Investment Management. The VP settled on the new Bank of America Tower in the Bryant Park area of Manhattan.

At the ceremonial opening of the building in 2010, VP Gore said:

‘Any serious effort to solve the climate crisis must start with recapturing the enormous amounts of energy wasted due to inefficiency. Roughly 30 percent of the carbon dioxide emissions here in the United States come from heating, cooling, and lighting buildings. I’m honored that my firm, Generation Investment Management, is based here and I applaud the leadership of the Mayor and all of those who helped make this possible.‘

The Bank of America Tower was the standard for green buildings. But three years later, VP Gore may not be so enthusiastic about the Bank of America Tower…especially if he read a recent article in the New Republic…

Beware the ‘Toxic Tower’

Just three weeks ago, the New Republic reported:

‘Gore’s applause, however, was premature. According to data released by New York City last fall, the Bank of America Tower produces more greenhouse gases and uses more energy per square foot than any comparably sized office building in Manhattan. It uses more than twice as much energy per square foot as the 80-year-old Empire State Building.‘

Oh dear.

That is a surprise. One of the world’s supposedly greenest and most environmentally friendly buildings turns out to be a ‘Toxic Tower’.

Interestingly, VP Gore’s investment firm still resides at the Bank of America Tower. We wonder if the ‘Veep’ is still honoured to be based there.

But anyway, what does all this have to do with financial markets and investing?

Well, it just so happens we came across this story while researching for the latest issue of Australian Small-Cap Investigator (published yesterday).

However, our angle wasn’t environmental. More interesting to us is the ‘Big Data’ side of things. By ‘Big Data‘ we mean the storage and transfer of almost every business and personal interaction you have.

Just about the only thing not stored or transferred electronically is a face-to-face conversation. Although, with the advent of Google Glass, even regular conversations will be captured for posterity in a database somewhere.

And it’s this ‘Big Data’ that’s partially to blame for the ‘Toxic Tower’…

The Environmental Problem of ‘Big Data’

It’s not surprising the Bank of America Tower is so energy inefficient. You only have to think about the stock news footage you see of a bank’s trading desk. Five or six computer monitors for each trader. Add to that the monitors and TV screens dotted around the trading floor.

Many of these trading desks run 24 hours a day from Sunday evening New York time (when Asian markets open) through to Friday late afternoon New York time (when the American markets close).

Look, we’re not having a pop at the building owners or even those who use it. To us it’s certain that the demand for power from computer storage and transfer systems will increase rather than decrease.

You only have to look at the huge Google ‘server farms’ that take up thousands of square metres in the middle of nowhere. And for what reason do these ‘server farms’ exist? To store the thousands of emails (such as this one) in your Gmail inbox.

Or to store those cute holiday snaps, or the Tweet you posted yesterday telling everyone what you had for breakfast or which TV star you hate/love.

Every time you save or send something on or from your computer you’re taking up space. And that means using more electricity and more resources. When you think about it, this is a relatively recent trend as more and more of people’s daily lives moves online.

Does that mean ‘Big Data’ is an environmental problem? We guess it does mean that. But don’t panic; entrepreneurs and capitalists – given the opportunity – will soon find a solution to this issue.

Meanwhile, the trend towards more and more online data is great news for companies involved in data storage and transfer.

That’s why we see this as more of an opportunity than a problem. Companies that can exploit this trend (which is yet to reach its full potential) by providing new or improved solutions are set to benefit from this in the years ahead. We believe the stock we outlined in the latest issue of Australian Small-Cap Investigator is one of those companies.

It’s a huge opportunity, and it’s only set to get bigger.

Cheers,
Kris+

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From the Port Phillip Publishing Library

Special Report: Make the Chinese Pay For Your Retirement
 

Daily Reckoning: Following the Money

Money Morning:  If You Think Australian Housing Dodged a Bullet, Think Again…

Pursuit of Happiness: Taxpayers, You’ve Only Got Two Choices When You Vote…

Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks

By MoneyMorning.com.au

There are some real benefits to being abroad. One of those I discovered today. I was on Google Finance tracking some of the revolutionary stocks we’ve tipped in Revolutionary Tech Investor.

For the life of me I couldn’t figure out why the stock prices were moving about every other minute.

It took me a while to realise that I wasn’t operating on Melbourne time anymore. The time gap between London and New York is only five hours. I’m used to 14 hours in Melbourne.

One of the other benefits of travelling is you get the time stop and think. You take notice of things that you probably wouldn’t otherwise.

On the typical day-to-day grind most people will simply go about their business in a lemming-like mode. But when you take the time to smell the roses you see how far the world has progressed.

This particularly struck a chord when I was sitting in departure gate A22 at Dubai airport on Wednesday last week. It was a striking 38 degrees outside and not a cloud in the sky. This gave me a clear view of the Airbus A380 I was about to board.

Travel Technology at its Finest

The A380 is a sheer miracle of modern technology. There is no doubt it is one of the modern day marvels we take for granted.

Think about the numbers for a second. 565 people plus 30kg of luggage each. Then there’s the food and drinks needed to feed everyone over a 6 hour and 52 minute flight. And of course add in the jet fuel needed to power the thing. Oh, and I almost forgot the sheer size and weight of the plane itself.

All up the take off weight of the A380 is 560 tonnes.

But that’s not the really amazing thing about the A380. The mind-blowing part is how the thing gets off the ground. Laws of Physics aside it’s due to the huge engines that sit under the 79.8m long wings.

Courtesy of technology developed by Rolls Royce, the power the engines put out (per engine) is roughly the equivalent of 127 Bugatti Veyron’s at full throttle.

Even with all that power, the sheer fact that you can sit in an environment quieter than a car at about 10 km above the earth travelling at about 1,000kph is utter madness.

But then I started thinking about the next 10 to 15 years. I asked myself, in the future will I take the time to marvel at the hypersonic plane I’m boarding? I hope so.

The thing with long haul flights (when you’re 6’3”) is that it’s not fun to be in a cramped space for 23 hours. And with all the song and dance about the A380 and the Boeing Dreamliner, my attention turned to the fact of speed vs. comfort.

 I concluded that unless everyone gets to fly business class for the price of an economy ticket, I want my planes to get there faster than they currently do.

The Future of Aviation

Hypersonic flight will be the key transportation technology that will truly link the globe like never before. It will be to global transportation what the car was to personal transportation.

The SABRE engine in development by Reaction engines and the European Space Agency (ESA) is the answer we’re looking for. It will have 9.45 times more power than one of the A380′s engines. That means a potential speed in excess of Mach 5 at a height of a tick over 25km.

If you haven’t, take the time to read Elon Musk’s proposed Hyperloop Alpha Design. You’ll then appreciate even the genius of Musk believes hypersonic flight will be the true answer to long distance transportation.

And I agree with him. Even factoring in takeoff and landing at normal aircraft speed, a plane with the SABRE engines would do Sydney to London in less than 4 hours. Now in that amount of time I’ll barely have time to watch two movies, let alone allow my lower torso to cramp uncontrollably as the person in front reclines their chair.

In short, as I pondered the future of long distance transportation and I alleviated cramps in my quads, I concluded that between the work of Reaction Engines, the ESA, Elon Musk and companies like Airbus, the future of travel will be mind-blowing.

We’ve already achieved so much from the beginnings of powered flight to putting a flying city in the air. And as technology continues to improve and we are able to use new materials and processes to build things, the future is going to be very exciting, and tall people will experience considerably less cramping when travelling overseas.

Sam Volkering+
Technology Analyst

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From the Archives…

How Many Warren Buffett’s in a Bar of Gold?
16-08-2013 –  Kris Sayce

Two Points to Consider from the Commonwealth Bank…
15-08-2013 –  Kris Sayce

Take Control of Your Superannuation, but Know the Limits
14-08-2013 – Vern Gowdie

Why I’m Glad I Missed a Dividend Stock That Doubled…
13-08-2013 – Kris Sayce

No Profit in the Federal Reserve Divination
12-08-2013 – Dan Denning

Article by Investazor.com

As Willian C. Dudley indicated in his last speech, the FOMC members decided that the time to discuss the tapering of the QE3 program has come. Even if there are still doubts concerning this decision, FOMC members decided that risks of an economic downturn have diminished since the Fed started to run this bold program. Yesterday, Moody’s Investors Service started the positive data string with revising its outlook to stable from negative, decision that has been postponed for 5 years before being implemented.

The decision of the rating agency doesn’t necessarily reflect a real improvement of the economy. Actually, it reflect an impulse given to an economy that recovers at a slower pace that before (the labour market started to recover, but not as expected). Economists keep being positive and expect an improvement in the second half of this year, but is difficult to ignore real facts that make these expectations difficult to be accomplish. Thus, high prices on oil, slow growth in exports and increased mortgage rates represents factors that will most probably lead to a poor growth of the economy. Concerning the outlook for the inflation, the  oppininons are devided. The highly accommodative monetary policy supproters (that now had remained less) believe that the inflation is far from reaching the target, while other oppinions are reflecting big expectations about a suitable inflation in short time. Follow the reports on the U.S.’s economy for the next short term in order to understand if the QE3 will be reduced by the end of this year or by the middle of 2014 but, in all cases, this program will be over soon.

The post FOMC About To Change Its Perspectives appeared first on investazor.com.