Sunday, October 20, 2013

An overvalued Market? Not according to These Earnings

                 An end to a 16 day government shutdown at last! Now that there is no pointless politics to disrupt the market investors can focus on what’s truly important, earnings.

                J.P Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, IBM, Google, General Electric and Las Vegas Sands, all of these companies announced earnings this week, some of them stellar, some of them disappointing. Yet one thing was made clear this week, despite the market looking overheated and in need of a correction, earnings seem to back up the current evaluation given to most companies. This points to one end, markets will continue to rise for the foreseeable future (that’s if the politicians don’t send the economy off a cliff).   

                Personally my portfolio saw its largest weekly gain this week since I have begun trading; my total profit this week was up almost 50%. This spectacular gain might have something to do with an end to the Government shutdown and a rising of the debt ceiling, allowing the country to borrow money again, at least until early next year. Yet nearly half my gains were realized on Friday, when Google, General Electric, Morgan Stanley and Las Vegas Sands all announced earnings that beat estimates.

-          Google- (GOOG)-

Google without a doubt was the single biggest gainer in my portfolio this week, surging 13.8% on Friday to top $1,011. The stock was trading at just $888 the previous day, now this was before Google announced earnings of 11.92 billion (excluding sales from partner sites) and a profit of $10.74 a share. This blew past average estimates that were predicting revenue of $11.64 billion and a profit of $10.36 a share. Total profit this quarter increased 36% from last year to $2.97 billion. Showing these kinds of start up like earnings is remarkable for a company with a market valuation of over $336 billion. But how long could this continue?

I bought stock in Google when it was trading at $863 a share, I bought not so much on fundamentals but because I saw a pattern in the Stock price that saw it fluctuate between $865 and $915 a share. I bought the stock on August 20th, and throughout late August shares fell slightly, alongside everything else, and I bought more, convinced that the stock price would bounce back to top 900. How right I was, within 2 months stock not only topped $900 a share it topped $1,000. I sold the stock at $1,001.40 a share in midday on Friday, I believe I might have sold a little too early, but I doubt the stock will keep this kind level for very long, within a few days or weeks, the hype on the stock is going to go down and there will be a natural sell off. But with this said I doubt the stock price would fall below $950. My advice for Google would be to hold off on buying until the inevitable sell off occurs, this way it could save you unnecessary losses in your portfolio and virtually guarantee a nice profit within a short period of time.

-          General Electric (GE)

General Electric is one of several Dow components that posted 3rd Quarter earnings this week, and although the earnings were not as impressive as those of Google the market found them substantially adequate to move the stock up 3.53% on Friday. General Electric posted earnings of $3.7 billion, or $0.36 per share, down 3% from the third quarter of 2012. Yet earnings per share beat average estimates of $0.35 and global business improved heavily.

I bought General Electric a while ago, at $23.18 a share, and at the bell on Friday it was trading at $25.55, the gains are nothing to explosive yet I believe General Electric is the perfect “retirement” stock. The company shares are gaining in value at a rate that is par and par with the broad U.S market, GE stock is up 15.98% this year, while the DOW is up some 13.45%. Also General Electric is heavily invested into Solar Energy, recently partnering up with one of the largest Solar Energy companies, First Solar Inc. It is obvious that alternative and solar energy are the future, and that eventually alternative energy is going to be the next big economic bubble, when this happens you can count the General Electric will be part of it. Another plus for this stock is that it pays a very respectable dividend, 2.97%. So my analysis for this company is that it would make a great stock to put your retirement funds in, since the company has stable predictable earnings, the stock price is rising along with the U.S economy, the company is invested in new technology allowing investors access to the Solar Energy industry without the risk of investing into volatile solar energy companies and the company pays a good dividend.




-          Morgan Stanley (MS)

Most major banks announced earnings this week and frankly they were not to impressive, J.P Morgan Chase posted a loss of over 300 million dollars, although this  was due to heavy legal fines rather than business fundamentals, Wells Fargo posted earnings per share of $.99 that beat estimates but showed decreased revenue and also showed that the banks mortgage lending decreased significantly, Citi bank posted similar results in there mortgage lending business and Goldman Sachs although also beating earnings per share estimates and boosting its dividend saw its revenue decline 20% year over year. Now all these disappointing earnings reports from banks made me nervous for Morgan Stanley’s earnings announcement, yet I was not disappointed. Morgan Stanley posted a 50% increase in revenue or $7.93 billion compared with last years $5.28 billion, Morgan Stanley also reported a profit of $888 million or $.44 a share compared to last year’s loss of $1 billion and a loss of $.55 a share. Morgan Stanley also blew away earnings estimates that expected Morgan Stanley to produce a profit of only $.40 a share.

I bought shares in Morgan Stanley several months back at 25.17 a share, on Friday, after a 2.63% gain the stock closed at 29.69. And after these earnings I believe Morgan Stanley is going to have an amazing run, I continue to hold my stock in Morgan Stanley and see myself holding it for the foreseeable future.

-          Las Vegas Sands- (LVS)

I have been anticipating the earnings report of major casino companies for some time, and this week Las Vegas Sands, the largest Casino operator in the world, announced its 3rd quarter earnings. And surely just like for Morgan Stanley, and Google, the Sands corps earnings, did not disappoint. Revenue increased 31.7% to $3.57 billion from 2012, earnings per share increased some 78.3% to $.82 a share, as a cherry on top of the cake, Las Vegas Sands corp also boosted the dividend to $.50 per quarter, an increase of 42.9%.

Now I have owned stock in Las Vegas Sands for just over a month now and within that time the stock price has risen over 10% to $72.52 a share. My logic for buying into casino’s was this, after the 2008 recession shares in Casino companies fell to all-time lows and since then have recovered remarkably alongside the U.S economy (LVS stock up 1,042% over last 5 years).I believe since the U.S economy is still on the mend and that inevitably revenues for casino companies will continue to rise as many people start having enough free cash to take a trip to Vegas it’s the best time to invest into Casino’s. So far my logic seems to be working, the two most profitable stocks in my portfolio are MGM resorts international and Las Vegas Sands (MGM announces earnings on October 31st) So my advice for investing into Casino’s is to invest into companies with exposure to both a recovering Las Vegas, and the highly lucrative, fast growing Macau market. The only two Casino companies I see that have the necessary exposure to both markets to take full advantage at the recovering economic landscape is MGM and Las Vegas Sands. I would buy and hold the stock in these companies for the time being.

-          Spirit Airlines (SAVE)  

I know Spirit Airlines did not announce earnings this week yet I felt like I must include this company in this week’s blog entry. This month shares of Spirit are up almost 25%, including a 15% surge last Friday. Now airline stock have been very hot this year, with the industry recovering from a wave of bankruptcies in the 1990’s, and with the current consolidation of the Airline industry into 5 major companies (soon to be 4 after American and U.S airways merge) it appears the airline industry has become profitable again.

I bought into Spirit Airlines in mid-August when the whole Airline industry saw it shares fall after the justice department blocked the American-U.S Airway merger. I reasoned that even if the American-U.S Airways merger was blocked Spirit would not be affected, so I bought. And in the last month the stock has recovered and is rapidly becoming the fastest growing stock in my portfolio.

 My recommendation when buying into Airlines is to avoid investing into United Airlines, although currently the largest Airline in the U.S, United would be the type of airline that would rapidly lose ground to smaller, nimbler and cheaper competitors like Spirit Airlines and JetBlue.  

I like Delta airlines (I do own shares in it) because unlike most other airlines, Delta has a decent if not great profit margin and unlike United Delta is trying to set itself up like a low budget carrier similar to Southwest. Also through purchasing a 49% stake in Virgin Atlantic, Delta has broken into the highly profitable New York to London route which has until now had been controlled mainly by American and British Airways.  

American Airlines stock has made an outstanding recovery since it fell nearly 50% in August, and I had actually owned stock in it earlier this year when I bought at $2.00 a share and sold at b$3.50 (now I realize I sold way to early since the stock went to high of above $6) I actually like American Airlines since this quarter it did show an outstanding profit and I think the company could come out of bankruptcy on its own and thrive even if it does not merge with U.S Airways.

As for U.S Airways, I did make a nice, 30% profit on the stock earlier this year I would not want to invest in it seeing that like United the airline will fall victim to small low budget carriers. This is the same reason I would not want to invest into an American Airlines that has merged with U.S Airways.

So to conclude this week’s blog entry I would like to say that earnings were more or less good across the board and that I foresee the U.S market continuing to grow, at least until early next year when the debt ceiling hits its limit again. Until then I see a potentially profitable investment in Casino’s, low budget Airlines (such as Spirit) and Morgan Stanley.   


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I will be posting an article every Friday and looking back at the political and economic events of that week, both personally impacting events and suggestions about my opinions on the future of the market. (I apologize for the late posting this week, I have been very busy)