Seeking Alpha

Bob Centrella, CFA's  Instablog

Bob Centrella, CFA
Send Message
Managing Partner and President of Forza Investment Advisory, LLC, a Registered Investment Advisor based in NJ. - 20+ years as a Portfolio Manager/Analyst managing Growth stocks of all cap sizes as well as balanced portfolios - Experience managing multiple types of accounts including... More
My company:
Forza Investment Advisory, LLC
View Bob Centrella, CFA's Instablogs on:
  • ECB To The Rescue

    The past week was one filled with news and events both in the marketplace and out of it. One big news item that started the week was the NCAA sanctions on Penn State. I have a lot to say about the whole affair but I will leave those comments for emails and conversations among friends and supporters. On the positive side for the week, the Olympics kicked off in London with a bang. You know there is actually an Olympics effect in the economy that is not good because consumers are sitting in front of their TVs watching instead of being productive and spending. So, if you are stationed in front of the TV, order out for some food and buy something online. Help the economy!

    Central bankers

    Question: How do you calm fears in the financial markets and resolve to fix debt and growth problems without really doing anything?

    Answer: You indirectly promise to print money.

    ECB president, Mario Draghi took a page from the Fed's playbook and quelled fears in the markets and started a huge 2-day rally by coming out in support of the Euro by stating that he would do whatever it takes to save the Euro. He also added "Believe me, it will work". Most market pundits assume that this means printing money to resume large-scale purchases of Italian and Spanish bonds to lower their borrowing costs among other things.

    As we enter August it is worth noting that the month has become sort of a crisis month in years past. Remember last summer the market started its swoon when the US credit rating got downgraded. So, perhaps central bankers are trying to stave off the late summer struggles of the market by front-running the market with supportive comments now. The US fed's FOMC meeting is this Tuesday and Wednesday, while the ECB holds its meeting Thursday. We should listen closely to what comes out of those meetings.

    Earnings Front

    Earnings reports for companies so far have been a mixed bag but there is one certainty that is being relayed to the market, Q3 and Q4 will be tough. Facebook's first report was a major disappointment. Even Apple faltered with a rare miss of estimates, causing a selloff in shares and hurting the market tone early in the week. With about 300 companies reporting so far, 2/3 have actually beaten expectations and another 13% have matched according to S&P Capital IQ. Remember though that consensus numbers came down through the quarter. Although profits so far are up 5.4% overall, they have decelerated the last several quarters and Revenues have actually declined .6%. So again, companies are doing it thru cost-cutting and belt-tightening. Also note that of the 103 companies that have given forward guidance, negative projections hold a 2.5 to 1 advantage. As a matter of fact, The WSJ is reporting that Q3 earnings by S&P 500 companies are expected to shrink for the first time in 10 quarters. Declining profits will cause companies to rethink capital expenditure budgets and may lead to another round of layoffs. Not what the economy needs right now.

    Another major issue for companies is the strength of the US dollar which is cutting into US companies' profits after translation and hurting exports. The dollar rose 5% against the Euro in the 2nd quarter alone and companies can't cut costs or raise prices fast enough to offset this. On the positive side, companies that operate overseas can benefit as its dollar costs decline and they also receive greater buying power for supplies and potential acquisitions.

    At the risk of being too verbose, I will cut it off here today. Let me try to give a few potential positives among all the negatives in the marketplace. Perhaps putting a floor on the market some positives include

    - continuing lower interest rates (sharply lower in the past month),

    - aggressive global central bank stimulative monetary action,

    - lower energy and commodity prices,

    - and a stable to improving housing market in the US.

    Granted it is not a lot but it is something to build off. I won't recite the growing wall of worry as I'm sure you are all aware of the multitude of issues. But it seems that barring an unforeseen macro geo-political event, maybe the market can get through the rest of the summer by staying in its trading range of 1300 to 1400. Right now we are near the top of the range so be careful going long the market as August rolls in and everyone heads off to vacation.

    Bob Centrella, CFA, is President/Managing Partner of Forza Investment Advisory, LLC, a Registered Investment Advisor based in Westfield, NJ. More information on Bob and Forza Investment Advisory can be obtained from ForzaInvestment.com

    DISCLAIMER: The material represents the views of Bob Centrella, CFA and the information is believed to come from reliable sources. Although we have reviewed the material we can't guarantee the accuracy and completeness of all the information. Do not rely on this information alone to make investment decisions. The information contained in this blog is not intended to constitute financial advice, and is not a recommendation or solicitation to buy, sell or hold any security. This blog is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. We urge you to talk to a financial professional before making investment decisions for a discussion of risks involved.

    Jul 30 12:39 PM | Link | Comment!
  • A Look At Some Bellweather Earnings; Spain And Greece At It Again

    The first week of earnings season brought a mixed bag but on the whole the numbers released by some of the most watched companies were in-line or better than expected. I thought that I'd do something different this week and give you a flavor of what some of the biggest companies said this past week.

    Last week in the stock market as has often been the case lately, Europe stepped in to help ruin the Dow's party at the end of the week. More specifically, Spain played the role of official party-pooper, with the country's benchmark 10-year bond yields rising above 7%, a level that's unsustainable. The country's Valencia region announced that it will ask the Spanish government for help refinancing its debt, and Spain lowered its 2013 full-year GDP estimate, saying it expects GDP to contract in 2013 by 0.5%. As a result the market sold-off on Friday and it appears that today is going to show a big decline of up to 200 points on the Dow with Greece also joining the party with its PM warning that a great depression is a possibility.

    So here we go again. The same bad news being said in another way. As Al Pacino said in the Godfather "Just when I thought I was out, they pulled me back in!" Just when it seemed Investors were trying to put aside the Euro worries for a while to get back to fundamentals a dose of reality hits and we are sucked back into the European macro headlines. We had a run in the market so now it's time to give back. Several traders I have talked to have told me that when the S&P gets above 1360-1370 they sell the market. When it gets back to 1280-1300 they buy the market. Currently the S&P is at 1362 so if that holds we could be in for a little decline. Let's watch.

    Below are the results for 4 bellweather stocks, Coke, Intel, American Express and General Electric. Note that I am not recommending buying or selling these companies but since these are multinationals I think they give a good read-thru on what's going on worldwide.

    Coca Cola (KO $76.87) Coke started the week off on a good note by reporting earnings and revenue ahead of consensus due to better volume growth in certain international markets. Regarding trends in the US, Coke noted that consumption trends began weakening later in May citing the economy as a reason. The pricing environment was stable to good allowing the company to grow without price discounts. Headwinds looking forward include FX due to a stronger dollar and challenging worldwide macro conditions. KO mentioned that the situation in Europe is affecting consumer demand as volume declined 4% and they also cited a deceleration of growth in China. Overall Coke's exposure to markets around the world is a good barometer of consumer spending. It has a diverse geographic footprint and overall it is seeing some markets do well while others are not. Although the company is thought to be resistant to weakening economic growth it is not immune. However, with pricing stable and volume still growing in key markets, KO is in good position to weather the storm.

    Intel (INTC $25.58) is the world's largest semiconductor chip company. The company reported good results for the 2nd quarter but guided estimates down going forward due to the macro environment. I also note that its inventory level increased to 90 days which is bow 15 days above its historical average. With inventory higher and demand slackening there could be an inventory correction is demand doesn't pickup. As a read-thru for other companies, you should keep an eye on inventory levels to be sure companies aren't stuffing the channels to get product out the door. On a positive note for others in the industry, INTC expects to capital expenditures to increase 16% as the company is building 2 new fabs. The company noted strength in the Americas and China with weakness in Europe. Intel believes the macro slowdown is modest and expects second half shipments to exceed 1H due to numerous ongoing trends and the upcoming Windows 8 launch in October.

    American Express (AXP $55.81) AXP stock fell 3.7% on the week even after reporting upside to earnings as investors were concerned that customer credit card spending increased 7% a slowdown from recent quarters. Charge-offs and delinquencies remained low a positive sign amid macro uncertainty. International billed business grew only 3% mostly due to sluggish Europe and a stronger US dollar. Overall basic card spending was up 5% and card loans up 4%, a slowdown from prior quarters. So in terms of a read-thru on a macro level, consumer and business spending is growing but at a slower level. International spending slowed more significantly as expected and the stronger dollar is a translation headwind. Another potential upcoming positive for AXP and other multinational companies, comps begin to get easier in Europe at the end of the summer as companies lap a year of weakness. AXP also exhibited good expense control as it often does to manage its earnings. Key risks include further regulation, litigation risk, a slowdown in the global economy, and credit deterioration.

    General Electric (GE $19.87) As a multi-industry conglomerate GE touches many parts of the worldwide economy with business in Industrial, Energy, Finance, Aviation and Health Care as well as other sectors. Overall industrial revenues grew 10% while margins improved modestly. There are so many moving parts at GE that I will not go thru each business line but some key takeaways are as follows. Energy pricing improved, industrial margins were stable and backlog is at a record $204 billion. Although GE is affected by macro sluggishness and FX, many of its businesses are late/long cycle so short-term fluctuations have a smaller affect on those businesses. Another positive sign is that GE's Real Estate segment posted solid net income as it continues to distance itself from the credit crisis. There were some negatives in the quarter as well including a 1% industrial order decline (vs a tough 33% increase last year) as Oil & Gas equipment sales were flat and Aero sales suffered in Western Europe. Healthcare decelerated to flat revenues and US orders while Euro orders fell 13%. China orders grew 26% and overall China sales climbed 24%. GE Capital turned in a solid quarter and it resumed dividend payments to the parent with a $3 billion payment. So overall, with its diverse portfolio of businesses GE seems to be well positioned to weather the macro storms but we should keep an eye on the company to get a great read on the industrial economy.

    In summary, each of the multinational companies mentioned had their plusses and minuses. The recurring theme for many multinational companies will be FX headwinds, macro concerns, pricing and margins. Pockets of strength will be needed to offset a weak Europe and a slowing US and China.

    Economy

    Existing Home Sales Fell 5.4% in June to an Annual Rate of 4.37 Million Units. Existing home sales fell in June but still remain up 4.5% from a year ago.

    Housing Starts Increased 6.9% in June, Up 23.6% Versus a Year Ago and the highest level since October 2008. Single-family starts increased 4.7% and are up 21.7% from a year ago; multi-family starts increased 12.8% in June and are up 28.5% from a year ago.

    In other news new claims for unemployment insurance increased 24,000 last week to 386,000. The increase comes after a sharp decline the prior week and both large moves are related to shifts in the timing of retooling at auto plants

    Industrial production rose .4% in June. Manufacturing, which excludes mining and utilities, rose a very strong 0.7%. Industrial production is up 4.6% from a year ago, growing more than twice as fast as real GDP.

    NOTE: The above is an excerpted summary of the Forza Weekly Newsbrief. To subscribe for free to the newsletter go to www.forzainvestment.com

    Bob Centrella, CFA, is President/Managing Partner of Forza Investment Advisory, LLC, a Registered Investment Advisor based in Westfield, NJ. More information on Bob and Forza Investment Advisory can be obtained from ForzaInvestment.com

    DISCLAIMER: The material represents the views of Bob Centrella, CFA and the information is believed to come from reliable sources. Although we have reviewed the material we can't guarantee the accuracy and completeness of all the information. Do not rely on this information alone to make investment decisions. The information contained in this blog is not intended to constitute financial advice, and is not a recommendation or solicitation to buy, sell or hold any security. This blog is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. We urge you to talk to a financial professional before making investment decisions for a discussion of risks involved.

    Disclosure: I am long KO, AXP, GE.

    Jul 23 2:01 PM | Link | Comment!
  • Forza Weekly Review - "The Earnings Are Coming, The Earnings Are Coming"

    Following is a reprint summary of the Forza Weekly Investment Newsletter. To subscribe for free, go to www.forzainvestment.com

    Last Friday's rally rescued investors from a 6-day equity losing skid. This week the "Earnings are coming, the Earnings are coming" as corporate earnings take center stage. Some better than expected news about the China economy where its 2nd quarter GDP "slowed" to 7.6% from 8.1% in Q1 put to rest near-term fears that a hard-landing is coming. The whole market took off on Friday ending 6 days of selling as the market got a bit oversold and fatigued on negative headlines.

    We also had a few companies report earnings last week, including JP Morgan which announced that its hedging loss was more like $6 billion rather than $2 billion. The huge loss was actually a relief to investors and contributed to the rally. A rumor started early in the week that it could be as large as $9 billion sending the stock lower. (I wonder if Jamie Dimon started that rumor so the $6 billion number would actually look good!). As it turns out, the stock did rally 6% on Friday with the news and the rest of its earnings report. The rest of earnings season really gets in gear starting this week with a number of large companies reporting including IBM, Intel, Microsoft, American Express and GE. I believe that investors are expecting mostly weak numbers, especially for companies doing business in Europe and China. Particular attention should be paid to what is said about the current tone of business and the future outlook for the rest of 2012.

    Looking to the potential for stock gains, if companies can pull a rabbit out of the hat and show even a little upside, that could help keep the market from its typical July doldrums and give us a relief rally. There is a lot of negativity so positive news could have an outsized effect. On the flip side, as it stands now the S&P 500 is about where it was a year ago before it got whacked. Any worse than expected news or just bad news as expected could cause the market to head downward again. If I were to handicap the outcome, I would probably be in the 60% to 40% camp that earnings will be weaker than expected. I hope I am wrong as this market has been remarkably resilient despite the volatility as time and again it keeps coming back from the brink. With rates so low, investors really are almost forced to look to stocks for some return. However, I believe that all the uncertainty (election, fiscal cliff, debt ceiling, China, Europe, blah, blah, blah...) will make it hard for a rally to sustain itself.

    My advice during earnings season is to keep your shopping list handy. There will definitely be some great companies that may miss earnings and will go on sale. Assuming the problem is a short-term one for that company (or companies) it is often a good time to consider initiating a position. Also, it is a good time to add to strong companies that produce solid earnings and give an upbeat outlook. Upbeat outlooks may be scarce but "stable" could be a good replacement in this environment.

    Economy

    Producer prices rose 0.1% in June, coming in much higher than the consensus expected decline of 0.4%. The increase in the PPI was the first in four months. Energy prices are down at a 23.5% annual rate over the last three months. "Core" prices, which exclude food and energy, and which the Federal Reserve claims are more important than the overall number, were up 0.2% for the fourth straight month in June. Core prices are now up 2.6% from last year, which is much faster than the overall PPI. In the past six months, the core PPI is up at a 2.8% annual rate while overall prices are down at a 1.2% rate.

    New claims for unemployment insurance fell 26,000 last week to 350,000, the lowest since March 2008. Continuing claims fell 14,000 to 3.30 million. This is likely a season adjustment.

    The trade deficit in goods and services came in at $48.7 billion in May, almost exactly as the consensus expected. In the last year, exports are up 4.2% while imports are up 3.8%.

    Interestingly, increasing energy production in the US is having large effects on trade with other countries. Real (inflation adjusted) oil exports have tripled since 2005, while real oil imports are down about 20%. As a result, the real trade deficit in oil has been cut almost in half in the past several years and is the smallest since at least the early 1990s.

    Bonds

    10-yr UST yield dropped to 1.49% from 1.55%a week ago. Record low yields in Treasury auction. The 10-yr was almost 3% a year ago.

    30-yr UST to 2.576% from 2.663%. 30-yr yield was over 4% a year ago.

    ML High Yield 100 closed at 6.29% from 6.33%. Yield was 7% a few weeks ago. Investors chasing yield.

    Commodities & Currencies

    Gold/oz $1591.6 from $1578.40. Gold rallied .84%. Still not acting like a hedge.

    Crude Oil to $87.10 from $84.45. Oil rallied by 3.14%.

    $ per Euro 1.2248. Euro fell below 1.22 only to rally on Friday. I'm still banking on 1.20

    Stocks

    The DJIA jumped 203 points on Friday as investors were buoyed by US banking earnings and economic news from China. That again erased earlier week losses and lifted the average to a slight weekly gain. The S&P 500 closed .16% higher at 1357 while the NASDAQ dropped .98% to 2908. Small and mid-cap stocks declined slightly as investors showed preference for large caps.

    European stocks rallied with the Euro Stoxx 600 gaining .7% to 256.26% shrugging off Moody's decision to downgrade Italian debt. Belgium, France and Germany registered gains while Spain and Italy fell. For the year Spain is off 22%, Italy is down 9% and Germany is up 11%.

    Asia/Pac stocks sold off during the week dropping 2.64%. Hong Kong fell 3.58%, Taiwan was off 3.59% while China dropped 1.69%

    DJ Americas stocks were flat for the week with the index down .08%. Brazil fell 1.92% while Mexico rose 1.67%.

    ***FORZA Investment Advisory is the IRA Rollover Specialist. We'll help you take charge of your Investments by rolling your 401K into an IRA.

    Bob Centrella, CFA,is President/Managing Partner of Forza Investment Advisory, LLC, a Registered Investment Advisor based in Westfield, NJ. More information on Bob and Forza Investment Advisory can be obtained from www.ForzaInvestment.com

    DISCLAIMER:

    The material represents the views of Bob Centrella, CFA and the information is believed to come from reliable sources. Although we have reviewed the material we can't guarantee the accuracy and completeness of all the information. Do not rely on this information alone to make investment decisions. The information contained in this blog is not intended to constitute financial advice, and is not a recommendation or solicitation to buy, sell or hold any security. This blog is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. We urge you to talk to a financial professional before making investment decisions for a discussion of risks involved. See our website at forzainvestment.com to call us for a consult at 908-344-9790.

     

    Jul 16 12:37 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

  • $tmo another great buy oppty occurring
    Oct 22, 2014
  • $LKQ. Can't find any news on slide. Anybody hear anything?
    Jun 16, 2014
More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.