|Dow||+78.99 to 16,985.61|
|S&P 500||+9.12 to 1,972.83|
|Nasdaq||+27.57 to 4,419.03|
|10-YR Yield||-0.018 to 2.547%|
|Gold||+$12.50 to $1,329|
|Crude Oil||-$1.25 to $102.15|
Alcoa (Weiss Ratings: AA, C) traditionally kicks off the quarterly earnings season on Wall Street. And boy did it ever deliver in the second quarter.
The giant aluminum producer reported $138 million, or 12 cents a share, in profit, a big swing from the net loss of $119 million, or 11 cents a share, in the year-earlier period. If you strip out certain items, you get a result of 18 cents a share, well above the 12 cents that analysts were expecting.
Not only that, but the company also talked about strong demand coming from several industries, including aerospace and autos. The firm boosted its estimate for commercial transportation demand in North America, and waxed optimistically about the multi-year boom in airplane orders and backlog.
Result: The stock surged to its highest level since mid-2011. It has now doubled in the past year.
The key question for investors going forward is whether Alcoa is an outlier or a bellwether. Or in other words, can the rest of Corporate America live up to Alcoa’s lofty standards? And will those earnings justify and continue to support the S&P 500’s advance so far in 2014?
Thomson Reuters conducts ongoing analyst surveys, and their figures show they expect S&P 500 earnings to rise 6.2 percent in the second quarter overall. That would be an increase from 5.6 percent last quarter — good news.
“I’m zeroing in on select sectors that are experiencing their own ‘private’ bull markets.”
But it’s also down from the 9.7 percent growth analysts were looking for at the start of the year — bad news. Expectations are the highest for technology and energy sectors, and the worst for financials and utilities.
So what about the future earnings outlook? Well, the ratio of negative-to-positive earnings guidance from Corporate America was recently running around 2.9, according to Morgan Stanley. That means almost three companies are warning about earnings misses for every one that’s promising better days ahead. While that’s down from a peak of around 8 in mid-2013 (good news), it’s still a bit higher than the long-term average of 2.6 (bad news).
Personally, I’ve tried to stay less focused on the macro and more focused on the micro when it comes to earnings and identifying winning stocks. By that, I mean I’m zeroing in on select sectors that are experiencing their own “private” bull markets. Then I’m recommending the best of the best stocks in those sectors, as determined by the Weiss Ratings and my own research.
|Alcoa’s second-quarter results marked the company’s return to the black.|
That approach has worked well for my Safe Money Report, as I explained a couple weeks ago. I have no plans to deviate from that path unless my warning signs and indicators tell me that stocks are in for rough sledding overall. And right now, they’re much more negative on BONDS than they are on STOCKS (as well as very positive on gold)!
So what do you think? Is Alcoa a sign of things to come, an indication the economy is on the mend? Or just a washed-up aluminum company that doesn’t matter for the rest of the S&P 500?
What sectors do you think will perform the best in the second quarter, and which ones are you largely avoiding? Any standout names you think could really hit it out of the part, or fall flat on their face? I encourage you to share that kind of valuable information with your fellow investors in the comment section.
|OUR READERS SPEAK|
Rising health insurance costs, and the causes and consequences of them, are a huge issue for all of America — and for all of you! The responses to yesterday’s column ran the gamut, so I want to cover as many of them as I can.
Both Reader Greg D. and Reader Miks said their costs went up sharply. Greg said the policy he carries for himself and his two children jumped 20 percent to $1,372 a month, while Miks said the deductible surged to $3,500 a person from $500 — a “hidden” price increase — even as the premium rose just 0.5 percent.
Reader Richard said his experience with Anthem Blue Cross in Virginia was similar. But he’s been seeing steady increases for the last few years — from $169 a month when he started his major medical coverage in January 2008 to $497 currently. The verdict: “I’m going broke paying for it and don’t know how much longer I can continue.”
That also raises an interesting question: How much of the recent increase is purely a side effect of Obamacare and how much is just a result of rampant, out-of-control health-care inflation?
Reader Caine figures Obamacare is not the main problem. The accompanying comments:
“I’ve been a subscriber for years, and agree with most of what you write. But I think you’re off base here on the topic of rising healthcare expenses.
“As a small business owner (40 employees), I’ve endured double-digit health insurance cost increases (12-23 percent increase, depending on the year) for declining coverage benefits for seven of the last eight years. This year, our insurance costs went up much LESS, about 4 percent for the same benefits.
“Look, I’m no Obama fan. But it’s an easy and cheap political shot to attack Obamacare because we saw an increase in insurance premiums. But honestly, this is the lowest increase in premiums I’ve seen.”
Reader Jim largely agreed, saying the health-care industry has been a mess for some time now. His viewpoint:
“I have to laugh when I read about all the huge healthcare rate increases and then immediately following up with a mention of Obamacare. It’s as if things were so great in days gone by when the trajectory for health care costs was as bad if not worse.
“Another factor which is no doubt skewing the figures is many people who simply put off much needed medical care are now finally getting the relief they need without bankrupting themselves. This should taper off in time, if the selfish majority doesn’t dismantle Obamacare.”
If there’s an upside to all of this, it’s that investors can make money from the profits that hospital operators, health insurers, medical device products makers, and others are raking in. As Reader Ted notes: “I am invested in Vanguard’s Health Care Fund (VGHCX) and Obamacare is assuring a very nice return for me and thousands of others in this fund.”
Keep those comments on Obamacare and health care-related investments coming here.
|OTHER DEVELOPMENTS OF THE DAY|
The tit-for-tat attacks continue in Israel and the Gaza Strip. Hamas is firing rockets deeper into Israel, including the Tel Aviv area, and Israel is responding with helicopter, airplane, and ship attacks on rocket-launching sites, weapons storage facilities, and other targets.
Energy markets aren’t responding in any noticeable way, as they sometimes have in the past during Middle East flare-ups. But at least a part of yesterday’s decline in stocks and rise in volatility is probably attributable to the longer-range missile attacks.
Was it just yesterday I wrote about how Germany’s Commerzbank and Deutsche Bank (Weiss Ratings: DB, C-) were facing hundreds of millions of dollars in fines for banking violations? Yep!
Now it’s Citigroup’s (Weiss Ratings: C, B+) turn in the docks, according to the Wall Street Journal. The bank will reportedly have to cough up $7 billion to settle charges that it packaged and sold billions and billions of dollars worth of lousy mortgage securities during the housing bubble.
Yet another company in the drug sector is looking to move overseas to stiff Uncle Sam of tax revenue! Salix Pharmaceuticals (Weiss Ratings: SLXP, C) is planning to buy assets from Cosmo Pharmaceuticals SpA of Italy for $2.7 billion. Then it will adopt the Irish address of a Cosmo subsidiary in a complex deal designed to cut its tax bill. Lots of that going on these days!
Can’t help but smile at the epic domination demonstrated by Germany’s World Cup squad yesterday. I was hoping for and expecting a win, but never could’ve imagined the 7-1 drubbing they gave Brazil. Here’s hoping Germany can go all the way in Sunday’s final!
Reminder: You can let me know what you think by putting your comments here.
Until next time,