We continue to gather a ton of information from the conference calls and press releases from companies reporting their results this quarter. Although some of the data contradicts our thinking, the vast majority of it is confirming our thoughts on a wide range of topics. We are becoming much more bullish on the blue chips, biotech and insurance companies while growing more concerned with tech names and some travel related names.
Chart of the Day:
Japan's Nikkei fell over another 3% today so our attention is upon the benchmark and the 13,000 level. We have found support in the area before and if we retest that level again we would expect to see support kick in.
Source: Yahoo Finance
We have economic news due out today and it is as follows:
- Pending Home Sales (10:00 a.m. ET): -1.7%
Asian markets finished lower today:
- All Ordinaries -- up 0.08%
- Shanghai Composite -- down 1.72%
- Nikkei 225 -- down 3.32%
- NZSE 50 -- down 0.08%
- Seoul Composite -- down 0.57%
In Europe, markets are trading mixed this morning:
- CAC 40 -- up 0.36%
- DAX -- up 0.27%
- FTSE 100 -- down 0.14%
- OSE -- down 0.33%
As it pertains to Tesla (TSLA) and Johnson & Johnson (JNJ) both stocks continue to build momentum and move higher. Tesla appears poised to break through the $130/share level while Johnson and Johnson is methodically marching towards par ($100/share). We view stories like these as bullish for the overall market as it shows continued interest in winners and a healthy distribution of interest among various risk classes. Tesla is attracting risk capital while we maintain our belief that Johnson & Johnson is one of the blue chips that is attracting new client funds. This is not day trading pushing us higher here, but rather real capital. If one wants to see what day traders are doing in this market then please take a look at some of the microcap uranium miners and uranium focused names -- that is day trader activity.
If we were to pick out one of these names for readers we would go with Johnson & Johnson at this point based off of its history of solid capital gains paired with its steady dividend increases. It is one of those names which can be a pillar of your portfolio for years to come.
We have been discussing our bullishness on the insurers lately and late last week we received further confirmation that the industry is doing quite well with Principal Financial Group (PFG) reporting solid earnings with strong results across the board (the earnings call transcript is located here). The company beat their EPS consensus figure by nearly 10% and shares rose over 6% to close at $42.99/share after hitting a new 52-week high of $43.18/share. As great as the operating results were, we were happy to see the 13% increase to the company's quarterly dividend which will now be $0.26/share this quarter. That is further confirmation that as the earnings continue to improve for the industry that the companies are looking to return more to shareholders via dividends, something we have been expecting and discussing for the past year. Continue to watch the insurers.
This is a chart denoting strength, one which every investor should want to have in their portfolio. We think that there is more to come for PFG and although the chart over the next 12 months will probably be a bit flatter than this one, we still think it shall trade higher.
Source: Yahoo Finance
We had a few readers ask us about Amazon (AMZN) and our thoughts on the entire miss on EPS and continue to beat on revenues. This is a trend which has appeared numerous times over the years and as a recurring theme should not surprise anyone. Although the earnings misses are an issue, one has to remember exactly what the company has done over the years by venturing into areas with high profit margins and offering a comparable product at a cheaper price. They have destroyed profit margins in many industries while remaining as one of the last companies standing in the field and living off of the small margins they generate over a large business. Some of their latest ventures have stronger margins, but the fact of the matter is that the company is in constant growth mode and that requires them to focus on growing the top line rather than focusing on watching for cost savings on the bottom line like many other companies have had to revert to over the years. So long as Amazon can continue to sell themselves as a growth company to Wall Street then they shall continue to benefit from top line revenue growth more so than bottom line growth. Once that changes, so too shall Amazon's valuation and it will look very much like Apple's recent decline - sharp and sudden.
One must go back on a two year chart to find when the shares last traded at these levels. It is hard to be bullish of a company trading at 52-week lows right now as the market powers higher and trades near 52-week highs.
Source: Yahoo Finance
Expedia (EXPE) saw shares get crushed on Friday as they fell to $47.20/share after trading lower by over 27% on the session. Volume spiked to 28.3 million shares after the company reported abysmal earnings and saw Piper Jaffray lower its price target on the company from $66/share to $55/share while maintaining its 'Neutral' rating on the company. As we have seen more and more advertisements for those offering competing services here in the US we have wondered how this would impact the company and this quarter we found out. The bad news for Expedia is that their issues are not just centered around more competition in the US, but sluggish results from Europe as the continent continues to suffer from the aftershock of the debt crisis which has plagued growth among many industries over the past few years. We would stay away from the name right now and instead focus upon the airlines which seem to offer a more compelling story at this time.