Transportation Stocks are Outperforming the DOW

Timing can improve your investment results and Charles Dow knew that better than anyone else 100 years ago. Some say that timing is everything, but it isn`t. Timing is interpretation. To watch the swings of the stock market are more important than ever for protecting your hard-earned investments.

Some investors are negative and some are positive. Positive investors say that the economy is good, but how do we know that? The strong rally lately is being led higher by economically sensitive groups like transports. I like to watch the Dow Jones Transportation Average Index (DJTA), which is closely watched to confirm the state of the U.S economy.

Chart

As you can see from the chart above, the transports take what the industrials make, and that simply confirm the trend of the Dow Jones Industrial Average (DJIA). DJIA will follow DJTA. In other words; if the DJTA is declining while the DOW is climbing, it may signal economic weakness ahead.

What you see in the transportation industry affects almost all other industries covered in the DJI. Wal-Mart and Home Depot (on the DJI) rely on transportation shipments to stock their stores. Also Coca-Cola, IBM and Caterpillar use transportation. Transportation providers can bid for higher contract prices, making their own outlook more positive and causing the DJT to rally. At the same time, the anticipated outlook of the transportation industry`s customers is reflected in its stock prices and the performance of the DJI follows DJT.

It may be a divergence in the two indices and if you see that signal, you know that the demand for transport is falling, which means the nationwide demand for goods is declining too. A bad sign. It didn`t look good at the beginning of September this year, but it turned up again 15 days later.

Airlines and railroads outperform the broader market and continue to expand revenue. In the last five days, the transportation stocks are up 6,24%, while S&P 500 is up only the half. Transportation stocks will continue to move higher as the energy price remain low. Dow Jones Transportation Average is up +15,18% YTD.

The best performer on the list so far in 2014 is Delta Air lines (DAL), which is up +41,57% YTD, followd by Alaska Air Group (ALK), up 37,14%. Avis Budget Group (CAR) is up +31,10% YTD, while FedEx Corp (FDX) is up only +13,40% YTD.

The economy continue to improve and a good indicator is, among others, the strong third-quarter earnings from Caterpillar yesterday. Caterpillar reported better than expected results in the third quarter and lifted its profits outlook for the year to $6,50 a share, up 5,5%.

Some popular ETF funds is iShares Dow Jones Transportation Average Fund (IYT), which represents the most popular way to track the transport sector. The fund manager have invested in a small basket of 21 securities, and this fund is heavily exposed to the railroad industry.

SPDR S&P Transportation ETF (XTN) is another one, with 39 securities in the basket. This fund is heavily exposed to trucking and airlines. The fund has been a good performer since they started the rally in November 2012.

Guggenheim Shipping ETF (SEA) is the worst performing ETF on the list. The fund tracks 27 shipping company stocks with high degree of risk.

If you want to check where the economy and the DJI stands, make sure to check the DJT as well. If the DJI is up while the DJT is down, you know that something is wrong, but right now, DJT is up about 16% YTD, while DJI is up about 1% YTD.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

 

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Referendum for gold in Switzerland

The market never stand still. It moves up and down from day-to-day. November 30, 2014 is a day that can move the gold market forever. The Swiss people will vote on a referendum that`ll refresh the country`s centuries-long affinity for gold and restrain paper money.

Gold

According to Switzerland`s first opinion poll, some people in the country said they will increase and hold on to their gold reserves. Switzerland`s biggest daily newspaper, 20 Minuten, released this week the results of its online survey.

45% said they would support the initiative, but it also showed a high number of undecided voters. Some analysts say it is a clear victory for the «yes» side.

Swiss Central bank sold about half of its gold reserves in 2000 – 2003. Like the Bank of England, they sold the gold at the bottom price of $200 an ounce. Until then, Switzerland used to have the highest gold reserves per-capita in the world.

Switzerland holds about 1,040 tons of gold in reserve, and that`s 7,7% of the central bank`s assets. If the people in Switzerland vote yes, it will have a widespread effect.

For Switzerland it would be to hold the gold and not sell any more in the future, repatriate all their gold from overseas and require that at least 20% is physical gold bullion.

Many people still belive that gold is the foundation of a strong currency. Switzerland will be the first country this century to restrict the central bank`s ability to print money and expand government, but the gold market will be the first to feel the tremors. Analysts at UBS predict that Swiss need to buy about 1,500 metric tons of gold the next three years. It will cost the central bank between $67 and $83 billion. Last year, China purchased 1,176 metric tons of gold, according to China Gold Association. It`s not small amounts!

Barclays said that the supporters of the referendum face a difficult opposition. The Swiss National Bank and the Swiss government have been urging people to vote against the referendum, because it would impede the bank`s monetary policy.

Many people aren`t happy that the central bank has expanded its balance sheet to weaken its currency and stimulate growth, and many belive that debasing the currency is not a sound economic policy, but there is no evidence that a weak currency leads to long-term economic growth.

You can increase your export and benefit from that with a weaker currency, but does that outweigh the weaker purchasing power on imports? November 30, 2014. Mark that day in your calendar.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Yelp revenue up +62%

Yelp are reporting earnings later today, and this one will be interesting to watch. The competition in the ad business is stiff as local ad segments has become more attractive to competitors like Google, TripAdviser and Facebook to name a few.

Yelp logo

They have all increased their focus on local advertising in recent years, but despite that, Yelp reported positive EPS for the first time since its IPO. It`s estimated to see EPS to come in at $0,05 vs Wall Street`s $0,03.

That`s much better than last year, which was lower at -$0,04. Revenue is estimated to be $99,4M vs Wall Street`s slighly lower estimate of $98,9M, and that would be a whopping 62% increase YoY. Not bad for a 5B market cap company.

Yelp had about 68 million mobile unique visitors in the second quarter, and that`s up 51%. The growth factor is in their expansion in Japan, Mexico, Hong Kong, Portugal, Argentina and Chile, which will boost their ad revenue. 40% of all new reviews and more than 50% of Yelp`s total ad impression came from mobile devices. It`s expected to see the trend to continue.

Yelp is challenged by Google`s algorithmic change this summer, but despite that, Yelp`s traffic increased. The international traffic grew 80% YoY last quarter to 31 million unique monthly visitors. Another challenge is Angie`s list. Google is likely to offer them a buyout offer, but Amazon or Home depot is also on the retailers list for a possible acquisition in the future.

Angie`s list`s shares plunged today, reported a bigger than expected quarterly loss and they reported a fewer paid members. They lose market share and subscribers because they charges their customers fees to access reviews and ratings, which is free on Yelp. They have had to slash membership fees over the past few years, and has failed to turn into profit since their IPO in 2011. Angie`s list in founded in 1996, which is one of the tech companies that survived the dot-com bubble in 2000.

Yelp is scheduled to release its earnings results after the bell today.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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International Business Machines (IBM) Take Advantage of the Drop

IBM dropped significantly today when it reported its earnings, which were significantly less than the consensus analyst estimate. This major earnings failure comes at the same time as investors are beginning to question IBM’s sustainability and power; whether or not Big Blue really has the same ability to grow as it did before.

In actuality, IBM is not nearly the company it was before. The company is currently going through a huge transition from a hardware company to a software company, focusing on high growth areas such as the cloud. The company has already shed off many of their hardware businesses by selling them off, and today has even reported that they will pay GlobalFoundries $1.5 billion to take their semiconductor chip units, a part of the business that has been unprofitable for years.

The main argument against IBM is that their revenues have been falling for years now, and will likely continue into the future. That, however, is misguided, since the most fundamental reason that IBM’s revenues have been falling is because they have been going through this business transition, and need time to re-stabilize their business.

At trailing and forward P/E ratios of just 10, IBM is exceptionally undervalued. This is a company that has major market share in a rapidly growing part of the tech industry: the cloud.The growth prospects and what IBM could do with their new business position are enormous, yet the market is valuing its growth potential like it’s nothing.

Also, IBM is a dividend aristocrat, meaning that the company has increased their dividends for more than 25 years in a row, adding up to a very nice flow of cash. The company is also a serial re-purchaser of their own stock. Spending billions of dollars in buybacks every year, the company is still speeding up their share repurchases, especially since they think shares are so undervalued now.

The company is also very good at setting goals and achieving them, never straying from the path to success. Management lays out what they call “road maps” every few years, which involve setting an EPS price target for the future years. They easily attained their last road map target a few years back, and are currently on a good track to surpass their 2014 target of $16 per share.

It’s also worth a mention that respected investor Warren Buffett also holds IBM as one of his core “Big Four” holdings. These Big Four stocks are four companies (WFC, KO, AXP, and IBM) that he has held through thick and thin, good and bad. These are companies that he expects to hold forever, and expects them to be extremely lucrative over that time period as well. He recently purchased IBM, but the other three were bought in the 1960s and 1980s, and have now netted him gains in the thousands of percentages and vastly outperformed the market. Also, IBM is a technology company, an industry that Buffett has long declared too hard to understand and changeable. The fact that IBM is one of the only tech companies in his entire portfolio shows that he has probably already done much research on the company and therefore trusts it above all others.

In conclusion, IBM is a great company that is trading at incredibly low valuations in the short term. These valuations should stabilize to an acceptable level in the future, which should most likely also reflect some premiums because of Warren Buffett’s support of the company and it’s shareholder-friendly history. The current bearishness in the company is only an effect of revenues that have dropped in the short-term due to an inevitable company transition into the software business. This issue of revenues will come to pass when the company gets back on track with their business and finishes their transition into the software business. Investors should look to IBM for sustainability, growth, and undervaluation.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Fear Index plunged

Wow, what a rally in Japan, up 579 points to 15,111, which is up +3,98%. Gold and Silver is also up, but they are moving like turtles. Up 0,57% and 0,72%. Crude oil (brent) is down -0,28%, trading at 85,92. It will continue to be big opportunities for day traders now, as the market will still move up and down.

Vix 20.10.2014

(Picture: Fear Index)

The appetite for volatility is bad for the Fed, and it didn`t take long for them to respond to last week`s market turbulence. A representative for the Fed said last week that the Fed could slow its retreat from a highly accommodating monetary policy, and this is something investors like to hear.

There were some rumors last week that the Fed could embark on QE4 to support asset prices. Not only investors are nervous at times like this. Also Fed are. So, what can we expect the coming days and weeks in the market?

We need to look at charts and data. The S&P 500`s 200 MA price is 1,906, and the stock market was trading below that technical level. That level was a floor during the selloff since November 2012, and the average price of the S&P 500 is a good indicator to be bullish on.

This is not the first time that have happened, and we have seen this many times. The mentality now is «buy the dip», as there is pretty good U.S fundamentals out there, which is making investors interested in buying again.

The fear index plunged -12,74% on friday, and the gap in the curve in the Vix futures, gave investors optimism. If we compare the cost of the options that protect against losses in shares in November versus those timed to expire in 90 days, you can predict the future. On friday, selling dropped down 3% on October 15, while near term options skyrocket 25% above those timed to January, and this is the most in three years.

We are close to the end of the sell-off in the equity market, as the bottom has been seen and this is historically a time for bottom fishing. It has happened six times when Vix has surged above its own futures like we saw the last week. The inverted curves is historically a sign that investors think the spike is coming to an end.

I`m exited about Apple Inc later today after the closing bell. Are they able to beat the Wall Street? It`s estimated that Apple Inc will report revenue of $39,8 billion ($37,5 last year) and earnings of $1,31 per share ($1,18 last year).

iPhone sales is what people will look for, and it`s estimated to see that Apple may have sold about 38 million iPhones. A strong dollar can help them a lot to beat the revenue estimate, but what about Apple Pay? Is it gonna be launched today?

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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