We are truly in the golden age of cash flow. #-ad_banner-#Corporate profit margins have been so strong in recent years that companies have been pulling in large sums of cash every quarter. In the first few years after the economic crisis of 2008, companies sought to hoard their cash, but starting around 2010, growing share buybacks and rising dividends became the name of the game. Companies now dole out almost as much as they take in, leaving cash balances fairly static. That’s fine: Companies are well-cushioned against the next (and inevitable) economic downturn. And with cash flow continuing to pour in… Read More

We are truly in the golden age of cash flow. #-ad_banner-#Corporate profit margins have been so strong in recent years that companies have been pulling in large sums of cash every quarter. In the first few years after the economic crisis of 2008, companies sought to hoard their cash, but starting around 2010, growing share buybacks and rising dividends became the name of the game. Companies now dole out almost as much as they take in, leaving cash balances fairly static. That’s fine: Companies are well-cushioned against the next (and inevitable) economic downturn. And with cash flow continuing to pour in as margins remain near peak levels, look for more dividend hikes and fresh buyback announcements. About the only thing that could derail the buyback-and-dividend freight train would be an increase in acquisitions — but most companies are continuing to eschew acquisitions and the risks they entail. In the context of solid dividends and buybacks, it’s fair to ask: Is it better to own a company that produces solid and predictable dividends, or one that plans on buying back stock? Let’s take a look at the pros and cons of each scenario, starting with dividends. Scenario 1: The Company Begins Issuing… Read More

Like clockwork, the investing adage “sell in May and go away” has re-emerged. Most investing clichés don’t hold water, but this one does. Strategists at S&P Capital IQ found an unusual set of calendar-based returns: “On a seasonal basis, the six-month stretch from May to October is historically a weak period for the S&P500 Index, dating back to 1990. On average, the broader market has risen just 1.3%, compared to a 7.0% gain from November to April.” #-ad_banner-#Why would such a trading pattern persist? Two reasons are usually cited.  First, active investors, professional traders and hedge fund managers start to take… Read More

Like clockwork, the investing adage “sell in May and go away” has re-emerged. Most investing clichés don’t hold water, but this one does. Strategists at S&P Capital IQ found an unusual set of calendar-based returns: “On a seasonal basis, the six-month stretch from May to October is historically a weak period for the S&P500 Index, dating back to 1990. On average, the broader market has risen just 1.3%, compared to a 7.0% gain from November to April.” #-ad_banner-#Why would such a trading pattern persist? Two reasons are usually cited.  First, active investors, professional traders and hedge fund managers start to take three-day weekends, and they devote less time looking for stocks to buy and more time looking for existing positions to cull.  Second, the European sales offices of U.S. firms start to detect a hesitance when it comes to purchasing decisions. Few European customers want to ink deals just as they are starting to prepare for their extended summer holidays. Though the market has been in a solid uptrend for the past five years, pockets of weakness have emerged in the spring and summer months. To inject a further note of caution, investors should proceed especially cautiously with tech… Read More

All major U.S. indices essentially finished unchanged last week, except for the small-cap Russell 2000, which lost 1.3%. All major indices are still negative for the year except for the broad market S&P 500, which is up less than 1%.  #-ad_banner-#Utilities were the strongest sector last week, up 1.9%. Technology was the weakest, down 0.8%. In the March 31 Market Outlook, I said that my own metric showed investor assets most aggressively moved into energy and consumer staples, and out of health care. Energy and consumer staples have been the first and third strongest sectors since then, up 4.2% and… Read More

All major U.S. indices essentially finished unchanged last week, except for the small-cap Russell 2000, which lost 1.3%. All major indices are still negative for the year except for the broad market S&P 500, which is up less than 1%.  #-ad_banner-#Utilities were the strongest sector last week, up 1.9%. Technology was the weakest, down 0.8%. In the March 31 Market Outlook, I said that my own metric showed investor assets most aggressively moved into energy and consumer staples, and out of health care. Energy and consumer staples have been the first and third strongest sectors since then, up 4.2% and 1.9% respectively, while health care has been among the weakest, down 1.4%.  Last week, my metric showed that investor assets have most aggressively moved into industrials and out of consumer discretionary. It’s Sink or Swim Time for Market-Leading Nasdaq 100 In last week’s report, I pointed out an important band of overhead resistance in the Nasdaq 100, from 3,575 to 3,626, and said that this was where the mid-April rebound in the index should fail if it was just a minor rebound within an uncompleted March decline. The chart below shows that the index traded… Read More

As I noted earlier this week, the U.S. economy appears to have exited the winter slowdown in robust fashion. Coupled with firmer employment trends and a more positive outlook for corporate spending, there is reason to believe that we may see the economy grow at pace last seen back in 2005, when growth exceeded 3%. We’ll need to finish this year on a strong note for that to happen, but it’s a clear possibility. U.S. GDP Growth #-ad_banner-#Still, robust economic growth won’t necessarily translate into strong gains for all kinds of stocks. As I noted… Read More

As I noted earlier this week, the U.S. economy appears to have exited the winter slowdown in robust fashion. Coupled with firmer employment trends and a more positive outlook for corporate spending, there is reason to believe that we may see the economy grow at pace last seen back in 2005, when growth exceeded 3%. We’ll need to finish this year on a strong note for that to happen, but it’s a clear possibility. U.S. GDP Growth #-ad_banner-#Still, robust economic growth won’t necessarily translate into strong gains for all kinds of stocks. As I noted a few days ago, value stocks, many of which have leverage to a firmer economy, are more in favor these days, and high-priced growth stocks are stumbling.  In fact, some pockets of the market will actually suffer in a stronger economy. Here’s what you need to know.  Rising Rates Nearly six months ago, I noted that the interest rate yield curve will give a clear picture of a firming economy. To be sure, the 10-year Treasury isn’t yet reflecting an economic pickup, with the yield currently around 2.75%. Yet it’s important to understand that economic growth in the… Read More

All major U.S. indices finished more than 2% higher last week, essentially recouping their losses from a week earlier. Last week’s rebound from the underlying support levels that I discussed in the April 14 Market Outlook was led by the S&P 500, which rose 2.7%. Despite this rebound, however, all other major indices are still in negative territory for the year. #-ad_banner-#From a sector standpoint, energy led last week, up 4.9% and fueled by an aggressive influx of investor assets, according to my own metric. I first discussed unusually aggressive investor asset flows moving into energy in the March 31… Read More

All major U.S. indices finished more than 2% higher last week, essentially recouping their losses from a week earlier. Last week’s rebound from the underlying support levels that I discussed in the April 14 Market Outlook was led by the S&P 500, which rose 2.7%. Despite this rebound, however, all other major indices are still in negative territory for the year. #-ad_banner-#From a sector standpoint, energy led last week, up 4.9% and fueled by an aggressive influx of investor assets, according to my own metric. I first discussed unusually aggressive investor asset flows moving into energy in the March 31 Market Outlook, and the sector has since outperformed the S&P 500 by about 5%. Is the U.S. Stock Market Pullback Over? In last week’s report, I pointed out that the recent decline in the Dow Jones Industrial Average had positioned it right on top of major support at 16,014, and said, “I would expect at least some near-term dip buying to emerge as investors have been rewarded many times over the past year for buying sharp declines into support levels like this one.” The Dow actually traded as low as 16,028 on April 14, before spiking 432… Read More

As the market surged ever higher over the past five years, short sellers were knocked off their game.  #-ad_banner-#Every time they targeted a seemingly overvalued high-flier such as Tesla (Nasdaq: TSLA) or Netflix (Nasdaq: Nasdaq: NFLX), they were forced to cover their positions as these stocks scaled new heights. Such repeated bruisings left the short sellers gun-shy, and in recent months, they simply steered clear of the most richly valued stocks. As I noted in late March, “short sellers are going after the major tech firms that represent much better value.”  That turned out to be unwise. Value-oriented tech stocks,… Read More

As the market surged ever higher over the past five years, short sellers were knocked off their game.  #-ad_banner-#Every time they targeted a seemingly overvalued high-flier such as Tesla (Nasdaq: TSLA) or Netflix (Nasdaq: Nasdaq: NFLX), they were forced to cover their positions as these stocks scaled new heights. Such repeated bruisings left the short sellers gun-shy, and in recent months, they simply steered clear of the most richly valued stocks. As I noted in late March, “short sellers are going after the major tech firms that represent much better value.”  That turned out to be unwise. Value-oriented tech stocks, such as Intel (Nasdaq: INTC) and Cisco Systems (Nasdaq: CSCO) saw big short interest spikes in recent months, but actually held up fairly well in the recent tech stock rout. The high-flying dot-com stocks that the shorts should have been targeting turned out to deliver the most downside in recent sessions. Still, it pays to track the actions of short sellers. They may not be doing so well with their macro calls lately (such as value-versus-growth tech) but their company-specific targets are worth monitoring. I like to see which stocks have more than 40% of their stock held by short… Read More

When the financial news website MarketWatch.com went public in January 1999, it registered one of the largest one-day gains ever. #-ad_banner-#Within a few quarters, TheStreet.com (Nasdaq: TST) came public, as did Edgar Online, while a host of already-public rivals (including my then-employer, Individual Investor) also raised large news sums of money in the secondary market.  And it all ended quite badly. All of these firms, flush with cash, cranked out massive amounts of content, spent millions marketing their brands, and built up expensive executive teams. And this happened as they all crested on the… Read More

When the financial news website MarketWatch.com went public in January 1999, it registered one of the largest one-day gains ever. #-ad_banner-#Within a few quarters, TheStreet.com (Nasdaq: TST) came public, as did Edgar Online, while a host of already-public rivals (including my then-employer, Individual Investor) also raised large news sums of money in the secondary market.  And it all ended quite badly. All of these firms, flush with cash, cranked out massive amounts of content, spent millions marketing their brands, and built up expensive executive teams. And this happened as they all crested on the wave of the dot-com boom, when they were collectively worth several billion dollars.  These days, TheStreet.com is the lone surviving public company, and its market value is less than $40 million when cash is excluded. The obvious lesson in this and other dot-com debacles is that valuations got out of hand. Yet the less obvious but more important lesson is that a flood of IPO money can lead to all kinds of distortions in an industry. And it’s happening again. The IPO market has been so strong in recent quarters that the fourth, fifth or even sixth-best operator in a… Read More

This is a good time to run a large, publicly traded company.  Regardless of business conditions, most share prices remain well above the lows seen back in the Great Recession of 2008, and not far from all-time highs. In fact, nearly 98% of the 500 stocks in the S&P 500 are trading within 30% of their 52-week highs. #-ad_banner-#Yet a handful of companies would like to forget the past year. Their shares have plunged sharply, and they are now deeply out of favor with investors. But remember Warren Buffett’s investing maxim “The best time to buy… Read More

This is a good time to run a large, publicly traded company.  Regardless of business conditions, most share prices remain well above the lows seen back in the Great Recession of 2008, and not far from all-time highs. In fact, nearly 98% of the 500 stocks in the S&P 500 are trading within 30% of their 52-week highs. #-ad_banner-#Yet a handful of companies would like to forget the past year. Their shares have plunged sharply, and they are now deeply out of favor with investors. But remember Warren Buffett’s investing maxim “The best time to buy stocks is when they are hated.” That’s because these companies have a much greater capacity to win new converts — if they can improve operations — at least when compared with companies that are already firing on all cylinders and much-loved by investors. These eight companies all reside in the S&P 500 and have fallen more than 30% from their 52-week highs. The key issue for these broken stocks is “fixability.” Do they have the levers in place to improve operations? Or are broader industry conditions set to improve? If the answer is no to those questions, then these stocks… Read More

The S&P 500, blue-chip Dow industrials and small-cap Russell 2000 were all fractionally higher for the week, but the tech-laden Nasdaq 100 — which tends to lead the market both higher and lower — was down almost 1% and led Friday’s sell-off following the March jobs report. All of these major indices are negative for 2014 except for the S&P 500, which is up just 1%.  My own metric shows that investor assets most aggressively moved into industrials and health care last week, and out of financials and utilities. In last week’s Market Outlook, I mentioned that investor assets most… Read More

The S&P 500, blue-chip Dow industrials and small-cap Russell 2000 were all fractionally higher for the week, but the tech-laden Nasdaq 100 — which tends to lead the market both higher and lower — was down almost 1% and led Friday’s sell-off following the March jobs report. All of these major indices are negative for 2014 except for the S&P 500, which is up just 1%.  My own metric shows that investor assets most aggressively moved into industrials and health care last week, and out of financials and utilities. In last week’s Market Outlook, I mentioned that investor assets most aggressively moved into the energy sector, which actually was the second consecutive week that energy attracted the most new assets. The Energy Select Sector SPDR (NYSE: XLE) has outperformed the SPDR S&P 500 (NYSE: SPY) by 4% since March 20, as our asset flow metric tends to slightly lead relative performance. As long as assets allocated to the energy sector continue to expand, this sector outperformance is likely to continue. Bearish Key Reversal Day Adds To Ongoing Dow Theory Warning Signal =Since the March 10 issue, I have been pointing out that the March 7 new 2014 closing high… Read More

Being the “little guy” in the markets is never easy, it seems. #-ad_banner-#The recent airing of a “60 Minutes” special concerning high-frequency trading (HFT) and Michael Lewis’ new book, “Flash Boys: A Wall Street Revolt,” went into detail on how retail investors are being duped by this new wave of algorithmic gurus and computer experts. Lewis’ book has sparked controversy across the investing community, with the “Liar’s Poker” author claiming the stock market is “rigged.” Some high-frequency firms argue the heat is unwarranted, saying they provide liquidity and keep fees down. Just how bad investors are being affected… Read More

Being the “little guy” in the markets is never easy, it seems. #-ad_banner-#The recent airing of a “60 Minutes” special concerning high-frequency trading (HFT) and Michael Lewis’ new book, “Flash Boys: A Wall Street Revolt,” went into detail on how retail investors are being duped by this new wave of algorithmic gurus and computer experts. Lewis’ book has sparked controversy across the investing community, with the “Liar’s Poker” author claiming the stock market is “rigged.” Some high-frequency firms argue the heat is unwarranted, saying they provide liquidity and keep fees down. Just how bad investors are being affected and just how much money is being made from HFT practices have been debated since the program aired. Ignoring the noise and concentrating on the actual problems present in the market’s current structure, increased complexity and poor regulation are two real drivers that have had a tangible malevolent impact. While attempts have been made in the past to level the trading playing field, the end result has often been segmentation, reduction in liquidity — and fatter pockets for those who created the “solution.” That is, until now. A large component of the “60 Minutes” special outlined the debut of a… Read More