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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Earnings Update ,Weather & 1929  8 comments
    Feb 14, 2014 8:06 PM | about stocks: C, BAC, CVX, JPM, GS, TGT, BBBY

    An earnings update ----

    4th Q '13 earnings and revenues much stronger than expected. q4 '13 is turning out to be the strongest quarter for earnings growth since the 3rd Q '11.

    Here is the 64,000 question: how much of those earnings are in the market, and how much isn't ? -- I don't know and that's what makes predicting the short term moves in the market so difficult, if not impossible.. But don't dismiss that first paragraph.

    The chart below give us an idea of the earnings growth along side the current PE valuation..

    (click to enlarge)

    In my view the S & P is not "overvalued" as the earnings "trend" to all time records stays on track.

    Dividend growth remains robust as companies continue to raise their payouts as we are currently on course for all time highs in dividend payouts for the S & P.

    A development that occurred this week that many overlooked as I stated here on SA: The republicans bring an apparent end to any debt ceiling issues for now , & that takes a big unknown away from the market ..

    http://nyti.ms/NzBtAk

    Are they finally acting like adults? I think the market has taken this latest action as a "positive"

    IF all goes "right" and we do get that 10% earnings growth in 2014 and modest P.E multiple expansion from 15(x) to 18(x) forward EPS, then we just might see a 20% return on the SP 500 this year.

    Yes, that is one of my "best case" scenarios that I penned in my"first look at '14" commentary ,last December.. Indicating that the highs in the market are yet to be seen. And as I write this I'm still not sure how we get there.. Set up a trading range from here or go to my worst case scenario for a 10- 15% 'flush" before we go higher.. I am also re-thinking my downside target , moving it up a bit to the 1625-1650 level from my earlier thoughts of 1560-1570.

    Technicians were watching the upside test of the 50 day moving average for the SP 500 at 1,805 - 1,806. I mentioned that in last week's update with this comment . " Now what stands in the way for bulls in the short term is the 50 day MA which is at 1806..."

    Well we overtook that 50 day MA as quickly as we knifed thru it on the downside last week.. The S & P now sits less than 1% from it's all time highs. The next move for the bulls will be to challenge those highs and the calls for a failure and a "double top" pattern are already being sounded as the average approaches S & P 1848.

    I'll have an in depth look at that next week, as I believe the jury has yet to render its verdict on the next move .. Rest assured - there will be plenty of "resistance" at that level. I mentioned 2014 would be more volatile , so far that has been the case and I see continued volatility as we go forward..

    So regardless of whatever "set-up" and short term direction one believes the market will take, I remain steadfast in looking at individual names that have been sold off or have found themselves to be victims of sector rotation (i.e. Financials) and I'm finding there are still a lot of good values in the stock market today.

    I suggest that it's best to commit any new funds to shares you really like OR be patient and wait for the market to tell us the direction of the next move.. On the "sell " side , trim positions that you have outsized gains, and sell calls to add income and a bit of protection on those stretched positions..

    (NYSE:CVX) (NYSE:TGT) (NASDAQ:BBBY) all mentioned recently, represent good value and are at entry points that one can start to accumulate..

    (NYSE:GS) a victim of the rotation I mentioned out of "financials" has come down from 180 to its 200 day MA @ 161, it was oversold ----a great time to add or nibble here.. I commented on that here:

    seekingalpha.com/instablog/11150861-land...-29715341

    We are early in this "taper, rate cycle" environment that will be positive for Financials , they have had a nice run , many have "paused" here and can be bought on weakness.. (NYSE:C) (NYSE:JPM) (NYSE:BAC)

    (NASDAQ:AAPL) was thrown away @ 500 , now its @ 540 ....And I believe there is a better than 50-50 chance that we will get a dividend increase this year..

    (NYSE:RIG) (NYSE:ESV) in the oil service sector -- nothing wrong here with taking 5% div yields that are solid..

    Its simple , P.E.'s and cash-flow ratio's relative to growth earnings growth rates and such, indicates there are still a lot of good values out in the stock market today. Anything expensive about (NYSE:PG) (NYSE:WMT) (NYSE:F) (NYSE:BA)(NYSE:VZ) ? And old tech names are not expensive at all. (NASDAQ:MSFT) (NASDAQ:INTC) (NASDAQ:CSCO).. and all yield north of 3% ....

    New tech is overvalued, but it always is - split the difference in your portfolio, and find a balance between old and new technology.

    I am still overweight Financials and Technology..

    From Brian Gilmartin a respected fund manager that I follow when it comes to earnings advice.. His quote on 2/9 :

    "Technically, if you look at a chart of the SP 500, a new secular bull market began in late April, 2013, when the SP 500 finally surpassed the March, 2000 and October, 2007 highs of 1,555 and 1,577 for good."

    I disagree on the timing ( I think it started earlier) but I wont argue the fact that we are in a new secular bull market and have said so all during 2013..

    While the Great Rotation shifted into reverse most recently, Credit Suisse notes that there is still PLENTY of available capital looking at Equities…

    Since 2008, there has been around $100B of net outflows from global equity funds, compared with $1.1tn of inflows into global bond funds. Institutional investors' equity weightings are still clearly low. The corporate sector has firepower to buy $2.3trn (via releveraging), while private equity funds have around $1.1trn of unallocated funds.

    On the other side of the coin, I am of the opinion that there will be more negativity displayed in the coming economic reports as we have seen recently due to the "weather" factor. As these reports are wheeled out , the usual typical knee jerk reactions to them will keep volatility alive and well.. In the end the reports can certainly raise doubts from the negative naybobs about the recovery and thus put a damper on things.. And if this continued "weather" continues unabated into March , it can have a significant impact on 1st quarter GDP.. IF that occurs you can rest assured that the doomers will now cry the "recession " word loud & clear ..

    According to recent weather reports, this past January was the coldest in the U.S. since 1988. February is set to also be colder than usual. Consumer spending appears more sensitive to the weather in Q1 than Q4. The correlation between Q1 U.S. GDP growth and average Q1 temperature was 48% over the past decade. The continued snow /ice storms won't help the already higher heating bills, and of course when the average consumer has all they can do to just get out and get to work, they aren't inclined to get out and spend... The detractors to my case will say its an "excuse" , I suggest its "reality" and by May of this year we will look back at this as "noise"

    Of course the week wouldn't be complete without mentioning the absurd notions that are making the "rounds" on websites and blogs here on SA.. The 1929 "crash" comparison. I have been besieged with e-mails from folks that are expressing their concerns as their anxiety levels have spiked.

    Rather than pay attention to the typical Doomer and their "its time to run for the hills " cries , perhaps a more intelligent look at this, found in the following links, is warranted...

    pbs.twimg.com/media/BgSym6SCcAATFBR.png:large

    www.businessinsider.com/andrew-wilkinson...-11

    ryandetrick.tumblr.com/post/76334473911/...-corner

    www.bloomberg.com/news/2014-02-12/some-l....html

    Regardless of the "why", most of the people who continually post this chart are looking for attention, page views, subscriptions or your money into their Precious Metals Fund. And it's working. It almost always works - because it's "fear-based" selling at its best.

    Amazing that these naysayers claim to be "realists" but really they're misanthropes who are unhappy and pray daily to see everyone else dragged down with them. They haven't been right yet.

    Funny how its the same bunch , sitting in a bunker somewhere, surrounded by their gold coin brochures as they keep writing blog posts to each other, debating the exact date of "The End."

    That crowd hasn't "understood" or "believed" in anything but their "doom" story and now their latest "folly" is testimony to that fact.

    The reason for my strong feelings on this type of nonsense, first and foremost, it frightens investors into making poor decisions - big decisions that will have a major impact on their mental health and financial condition well into the future.

    In my view, there is no need to entertain those that have had it wrong....

    Best of Luck to all

    Disclosure: I am long C, BAC, CVX, JPM, GS, TGT, BBBY.

    Additional disclosure: I am long numerous equity positions --- all can be seen here on this blog

    Themes: Earnings , 1929 Stocks: C, BAC, CVX, JPM, GS, TGT, BBBY
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Comments (8)
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  • Tack
    , contributor
    Comments (12964) | Send Message
     
    And, to add to the fundamental support for the upside is the fact that Europe keeps issuing better and better reports. And, the markets have already endured in a positive fashion an almost complete meltdown in numerous important emerging markets, like Brazil, for example, so no surprises loom there. And, now even Brazil is showing signs of a positive reversal.

     

    It's very tough to make the case for gloom, presently.
    14 Feb, 08:59 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4704) | Send Message
     
    Author’s reply » T,
    Thanks for the comment ,

     

    i'm sure the 'doomers' can find something to complain about .. - what else is new ! -- LOL
    15 Feb, 09:12 AM Reply Like
  • Augie91
    , contributor
    Comments (243) | Send Message
     
    Words of Wisdom. These are exciting times indeed. Nice to see some opportunities as you have mentioned. Many thanks!
    14 Feb, 09:46 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4704) | Send Message
     
    Author’s reply » Augie,,

     

    thanks -- I hope your portfolio is doing well ,,
    15 Feb, 09:12 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4704) | Send Message
     
    Author’s reply » Here's an update on earnings :

     

    Per Thomson Reuters, the “forward 4-quarter” EPS estimate for the SP 500 slipped $0.25 this past week to $119.33 versus last week’s $119.58.

     

    The p.e ratio on the forward estimate rose to 15.4(x) and the PEG ratio rose a smidge last week to 2.49(x).

     

    The earnings yield on the SP 500 is 6.49% as of Friday, 2/14/14.

     

    With about 400 of the SP 500 having reported q4 ’13 financial results, the +9.5% year-over-year growth rate for the index is the best growth rate since late 2011.
    15 Feb, 12:11 PM Reply Like
  • CWinn1970
    , contributor
    Comments (337) | Send Message
     
    FG...very interesting chart.

     

    I'm definitely not in the doom and gloom camp! I believe we will see even a stronger year than 2013 not just in the market but in the overall economy. Thanks for keeping it real by providing the data to back it up. I've learned a lot from your writings.
    15 Feb, 05:00 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4704) | Send Message
     
    Author’s reply » Cwinn,
    i realize you arent among the doomsters :)

     

    glad to see you stopped by and also happy to see that u are dropping in to say hello to LOMAH's blog . never know when the 'walking dead' will have us surrounded , so its nice to have an extra hand there to fend them off :)

     

    Best of Luck !!
    15 Feb, 05:08 PM Reply Like
  • maykiljil
    , contributor
    Comments (324) | Send Message
     
    Good article . I like it. Thank you .
    18 Feb, 06:55 AM Reply Like
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