Friday, October 24, 2014

Markets advance for the best week since 2013

Dow shot up 127 closing near the highs, advancers over decliners 3-2 & NAZ added 30.  The MLP index rose 1+ to the 512s & the REIT index rose fractionally in the 512s.  Junk bond funds were mixed to higher & Treasuries went up.  Oil fell back  to 81 & gold inched higher.

AMJ (Alerian MLP Index tracking fund)

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CLZ14.NYM....Crude Oil Dec 14....80.94 Down ...1.15  (1.4%)

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Amazon's cloud division returned to growth after a hiccup earlier this year, as price cuts attracted new customers & spurred existing clients to spend more.  Q3 sales were $1.34B for a division it calls "North America, Other", up from $960M a year ago & $1.17 billion in Q2.  That’s the category that contains Amazon Web Services, or AWS, a strategically important cloud business that rents computing hardware & software products via the internet to customers worldwide.  The performance reverses a stumble in the previous period, when AMZN reported its first declining sales in the division outside of usual seasonal fluctuations.  The company is fighting increased competition from rivals which have slashed the prices of their cloud offerings this year.  The company also reduced AWS prices this year in response to rivals’ moves, which hurt revenue in the prior qtr.  Since then, AMZN has offered more services & upgraded more products.  CFO Thomas Szkutak said in that the company is pleased with the performance.  “We saw very good growth,” he added.  In 2013, AMZN reported sales of $3.72B in the category.  The company made $651.7M from advertising sales in North America last year, or 17.5% of the total revenue in that division.  Still, sales in the division are expanding at a slower rate on a year-over-year basis after peaking in 2011.  Revenue this time was up 39% from a year ago, but down from 57% growth last year.  AMZN also spent $1.38B on purchases of property & equipment, a portion of which goes to building AWS data centers, up from $1.04B a year ago.  With yesterday’s results, AMZN sales in the “North America, Other” category totaled $3.71B for the first 3 qtrs of the year, compared with $3.72B for all of 2013.  The stock plunged $26 (8%).  If you would like to learn more about AMZN, click on this link:

Amazon Cloud Division Returns to Growth Even as Company Misses Estimates (AMZN)

Procter & Gamble, a Dow stock & Dividend Aristocrat, plans to exit its Duracell battery business as part of CEO A.G. Lafley’s efforts to slim down the company.  PG will probably split the battery business into a stand-alone company & give shareholders the option of exchanging PG shares for stock in the new entity.  The company also posted fiscal Q1 profit that met estimates.  Lafley has been streamlining the company by cutting costs, selling its pet-food business & starting the process of jettisoning as many as 100 slow-selling brands.  EPS was 69¢, down from a year earlier.  Excluding some items, EPS was $1.07, matching the estimate.  PG maintained its forecast that organic sales, which exclude the effects of acquisitions, divestitures & foreign-currency exchange-rate fluctuations, would rise at a low- to mid-single-digit percentage rate this year.  However, the company said net sales, which don’t exclude those factors, would be little changed or rise by a low-single-digit percent, hurt by “significant negative” effects of currency fluctuations in fiscal Q2.  PG also reiterated its projection that profit excluding restructuring charges, impairments & other items would increase by a mid-single-digit percent, while saying net income would fall as much as 5% from a year earlier.  “The quarterly profile of earnings will be heavily influenced by the variation of foreign-exchange impacts from period-to-period,” the company said.  Q1 sales fell 0.2% to $20.8B, matching the projection.  Organic sales rose 6% in the company’s health-care business & 4% in the baby, feminine & family-care unit.  Sales by that measure were little changed in the grooming division, the fabric & home care unit as well as the beauty, hair & personal-care business.  Lafley has been working to cut $10B in costs thru 2016 & plow some of the savings back into developing new products.  CFO Jon Moeller said that the company expects to “significantly” exceed the goal.  The stock went up $1.93.  If you would like to learn more about PG, click on this link:

P&G to Jettison Duracell Business as CEO Streamlines Company

Procter & Gamble (PG)

Ford profit fell as it absorbed higher recall costs & lost production of its highly profitable F-150 pickup while converting a factory to build a new aluminum-bodied version.  Ford, which said last month it won’t achieve its 2014 profit goals, reported EPS of 21¢, down from 31¢ a year earlier.  Excluding one-time costs, EPS was 24¢, beating the 19¢ estimate.  A year earlier, Ford earned  45¢.  The automaker had to put some F-150 production on hiatus to prepare for the complicated switch to manufacturing with aluminum instead of steel.  While sales rose in China, pretax results were weaker in every automotive unit, except the Middle East & Africa, & recall costs reduced income from North America.  “The third quarter was challenging, but we remain absolutely focused on implementing our plan,” CEO Mark Fields said.  “That includes continued strength from North America, although down from recent years as we launch three times the number of products as last year.”  Costs to bring new models to market caused Ford to consume $700M in cash in Q3, its first negative cash-flow period since Q1-2010, CFO Bob Shanks said.  It also incurred $630M in recall costs & a $166M negative effect from a strong dollar.  Ford announced a month ago that pretax profits this year will fall to $6B, short of its goal of $7-$8B.  Fields also lowered expectations on profits for next year, as high costs to roll out the aluminum-bodied F-150 squeeze margins.  Ford said that efforts to introduce the F-150 this year are “on track.”  Ford had pretax operating income of $1.41B in North America in Q3, down from $2.3B a year earlier.  Its US market share declined to 15.1% from 16% a year earlier.  The stock fell 62¢.  If you would like to learn more about Ford, click on this link:

Ford Profit Slides Less Than Analysts Estimated on Chinese Sales Growth

Ford (F)

Dow had a good week, rising 420.  Earnings were generally favorable although the strong dollar has been hurting the big multi-nationals.  Dow is down  250 in Oct & could recoup that loss next week of the bulls are serious are taking control of the markets again.

Dow Jones Industrials

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Markets attempt to edge higher on favorable earnings

Dow rose 39, advancers & decliners were equal, & NAZ gained 12.  The MLP index dropped 1 to 510 & the REIT index fell a fraction in the 311s.  Junk bond funds were mixed to higher & Treasuries advanced.  Oil fell back towards 80 while gold inched higher.

AMJ (Alerian MLP Index tracking fund)

CLZ14.NYM....Crude Oil Dec 14...81.11 Down ....0.98  (1.2%)

GCV14.CMX...Gold Oct 14......1,232.40 Up ...3.90 (0.3%)

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Purchases of new homes in the US were little changed in Sep after the prior month was revised down, showing an uneven recovery that will limit how much residential real estate contributes to growth.  Sales rose 0.2% to a 467K annualized pace from a 466K rate in Aug that was 7.5% weaker than previously estimated, according to the Commerce Dept.  The forecast called for the pace to decelerate to 470K.  Home sales are struggling to accelerate further as restrictive lending rules & wage gains that barely keep pace with inflation prevent lower-income buyers from stepping into the market.  The recent drop in mortgage rates will probably help prop up residential real estate heading into 2015.  Last month’s sales rate was still the strongest since Jul 2008.  As the Aug markdown attests, the preliminary figures can be subject to large revisions.   The Commerce Dept report said the Sep reading will show between 15.5% drop to a 15.9%.  Declining borrowing costs will help make big-ticket purchases such as homes more affordable.  The average rate on a 30-year, fixed mortgage fell to 3.92% last week, the lowest since Jun 2013, according to Freddie Mac data.  The rate has dropped by 0.27 percentage point over the past 3 weeks as concern over slowing global growth pushed investors into the safety of Treasury securities, causing yields to drop on the benchmarks used to calculate home-lending costs.  New-home sales, which account for about 7% of the residential market, are tabulated when contracts are signed, making them a timelier barometer than existing homes.  At the same time, the existing-home sales figures showed that participation among first-time buyers is still languishing.  Those consumers made up 29% of the market for a 3rd month in Sep, below the historical average around 40%.

Sales of New U.S. Homes Little Changed After August Revised Down

Microsoft, a Dow stock, quarterly sales topped estimates on cloud-computing growth & recovering PC sales, as CEO Satya Nadella shows progress in his effort to revive the company.  Revenue at the ailing Nokia handset business, which it acquired earlier this year, also topped projections, while sales of Azure cloud software & Web-based versions of Office programs more than doubled.  Total revenue in fiscal Q1 rose 25% to $23.2B, compared with the estimate for $22B.  The results bolster Nadella’s view that the software maker needs to focus on Web-based services & mobile devices.  Another bright spot was Surface, the tablet computer that was introduced 2 years ago, only to struggle to gain market share.  Revenue from the devices rose to $908M as the Surface Pro 3 outsells the previous version by a 2-to-1 margin.  Including charges related to the job cuts, the company reported Q1 EPS of 54¢.  Excluding restructuring charges, EPS was 65¢, topping the projection for 55¢.  The unit that includes the Nokia business posted sales of $2.61B, beating the $2.1B estimate.  The number was also ahead of the MSFT internal forecast, according to CFO Amy Hood.  “We have work to do on phones but we are seeing Lumia share growth in key markets,” Hood said.  “That being said, we know this is a long road.”  For the current qtr, Hood forecast phone hardware revenue of as much as $2.2B.  MSFT is benefiting from an upgrade cycle in the PC market, as companies replace aging machines.  The stock rose 71¢.  If you would like to learn more about MSFT, click on this link:

Microsoft Rises After Profit, Revenue Top Estimates on PC Market Recovery

Microsoft (MSFT)

UPS reported Q3 earnings that beat estimates, buoyed by intl exports, & said it expects shipments during Dec to climb 11%.  EPS rose to $1.32 a diluted share from $1.16 a year earlier.  Analysts predicted $1.28.  It’s the first time UPS surpassed analysts’ projections this year.  UPS is working to avoid the peak season problems it faced last year, when unseasonably cold and snowy weather combined with a surge in late, online orders & led to missed deliveries on Christmas.  This year it is bracing for even more orders.  “We expect another robust peak season and are confident our network is prepared to operate at the highest level,” Kurt Kuehn, CFO, said.  UPS said it plans to spend $175M on improving its operations during the holiday rush.  It’s opening 14 temporary shipping facilities to help expedite deliveries, upgrading its Orion software to help plot the best route for drivers, & is hiring as many as 95K seasonal workers to help field packages.  The world’s largest package delivery company also confirmed its full-year 2014 EPS estimate of $4.90-$5.00.  Results in Q3 were boosted by a 9.4% gain in intl exports, with strong growth in Asia & Europe, & a 6.9% increase in US daily packages.  Total revenue rose 5.7% to $14.3B, as UPS shipped 1.1B packages around the world, a record for a non-peak qtr.  The stock rose 93¢.  If you would like to learn more about UPS, click on this link:

UPS Profit Tops Estimates, Sees December Shipments Rising 11%

United Parcel Service (UPS)

After a good week, stocks are attempting to extend their gains.  Earnings have been fairly good with decent guidance going forward.  Dow is up 380 this week but remains down more than 300 in Oct.  In addition, triple digit daily swings have become common.

Dow Jones Industrials