For more than a decade, the business of making memory chips was a lousy one. The industry had ample excess capacity and pricing power was non-existent. And then the management team at Micron Technology, Inc. (Nasdaq: MU) decided to change all that. They correctly understood that by acquiring rivals — and then closing down excess manufacturing capacity — they could drive up prices and profits. I looked at this issue in 2012 and shares of Micron eventually soared to $36 from around $6. #-ad_banner-#A healthy supply/demand environment similarly created robust gains for rival chip-maker SanDisk Corp. (Nasdaq: SNDK). Not only… Read More

For more than a decade, the business of making memory chips was a lousy one. The industry had ample excess capacity and pricing power was non-existent. And then the management team at Micron Technology, Inc. (Nasdaq: MU) decided to change all that. They correctly understood that by acquiring rivals — and then closing down excess manufacturing capacity — they could drive up prices and profits. I looked at this issue in 2012 and shares of Micron eventually soared to $36 from around $6. #-ad_banner-#A healthy supply/demand environment similarly created robust gains for rival chip-maker SanDisk Corp. (Nasdaq: SNDK). Not only have these firms benefited from more rational supply trends, they are also benefiting from a powerful growth driver: surging demand, as solid state memory (also known as “flash memory”) is used in a proliferating number of electronic devices. Even personal computer manufacturers are making the switch from disk drive storage to solid state storage in many high-end machines. Yet even the best industries experience temporary headwinds. A recent modest pullback in demand and pricing has led to sharp share price pullbacks for both Micron and SanDisk. In my mind, only one of these two firms is poised for a solid… Read More

Over the past five years, the United States economy has been on the mend. So why is there still a pervasive sense that we’re stuck in the mud? Perhaps it’s because our economy has expanded at a 2.2%-to-2.4% rate in each of the past three years. That seems downright anemic compared to economic growth rates seen in prior decades. Yet every spring, economists sing the same refrain: “This is the year we’ll finally reach 3% GDP growth, and the economic recovery will finally feel real.” This year began with a similar refrain. According to a Wall… Read More

Over the past five years, the United States economy has been on the mend. So why is there still a pervasive sense that we’re stuck in the mud? Perhaps it’s because our economy has expanded at a 2.2%-to-2.4% rate in each of the past three years. That seems downright anemic compared to economic growth rates seen in prior decades. Yet every spring, economists sing the same refrain: “This is the year we’ll finally reach 3% GDP growth, and the economic recovery will finally feel real.” This year began with a similar refrain. According to a Wall Street Journal survey conducted in January, economists looked into their crystal balls and once again predicted a 3% economic growth rate this year. (That article suggested that the economy grew 2.6% last year, but that figure has been subsequently ratcheted down to 2.4%.) “The plunge in energy prices provides big dividends to consumers and businesses,” said Bernard Baumohl, chief global economist of the Economic Outlook Group to the WSJ at the time. Here’s the problem: any sort of oil-related dividend is nowhere to be found. Consider this recent sampling of economic data points: — Revolving credit (which mostly reflects credit… Read More

April will be the 70th month of economic expansion for the United States. That seems like a long amount of time, but it’s not abnormal. The last three expansions in the United States lasted an average of 95 months, with the longest lasting 10 years. Using recent history as a guide, we can estimate how far away we are from the next recession (about two years based on the average expansion length). But we have no way of knowing if our current expansion will end before then or maybe set a new record. Not even economists know when we’ll transition… Read More

April will be the 70th month of economic expansion for the United States. That seems like a long amount of time, but it’s not abnormal. The last three expansions in the United States lasted an average of 95 months, with the longest lasting 10 years. Using recent history as a guide, we can estimate how far away we are from the next recession (about two years based on the average expansion length). But we have no way of knowing if our current expansion will end before then or maybe set a new record. Not even economists know when we’ll transition from one phase into the next. In fact, economists generally don’t know that we’re even in a recession until 6-12 months after it begins. Knowing that we’re most likely nearing a later stage of our expansion, my focus has turned to what comes next. More specifically, I want to know whether the companies I’m investing in are prepared for the end of this expansion. #-ad_banner-#While it’s not possible to know when the next recession will start, we can work around that by investing in companies that perform well during both feast and famine. If a company… Read More

Slumping oil prices are crushing profits across the energy sector. And it won’t be long before the sector’s weakest players are forced to take drastic action in an attempt to survive. (My colleague Joseph Hogue touched on this theme last month.) There are currently several hundred distressed energy companies, most of which are smaller, highly-leveraged shale drillers. Some of these firms have perhaps three-to-six months of solvency remaining. Thus, by summer, we should begin seeing a spike in asset sales, restructurings and other cash-raising maneuvers as cash balances dry up. #-ad_banner-#Mergers and acquisitions, or M&A, is especially popular in these… Read More

Slumping oil prices are crushing profits across the energy sector. And it won’t be long before the sector’s weakest players are forced to take drastic action in an attempt to survive. (My colleague Joseph Hogue touched on this theme last month.) There are currently several hundred distressed energy companies, most of which are smaller, highly-leveraged shale drillers. Some of these firms have perhaps three-to-six months of solvency remaining. Thus, by summer, we should begin seeing a spike in asset sales, restructurings and other cash-raising maneuvers as cash balances dry up. #-ad_banner-#Mergers and acquisitions, or M&A, is especially popular in these situations. Simply put, weaker firms are more likely to pull through if they combine forces with a competitor or are bought out by one of the stronger industry players. As struggling energy companies increasingly opt for M&A, they’ll need investment banking expertise to shepherd them through the process. A top energy industry advisor: Evercore Partners, Inc. (NYSE: EVR). While the name may not be as well-recognized as those of huge rivals like The Goldman Sachs Group, Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS), Evercore has an impressive track record. The firm was among the bankers involved in the high-profile… Read More

I bet you made a few New Year’s resolutions at the start of 2015. In fact, I’ll do you one better — I bet your resolution was to either eat better or exercise more. I’m no psychic, but studies show those are the two most common New Year’s resolutions. Aside from health and fitness though, the Journal of Clinical Psychology notes that financial resolutions rank No. 3 on the list of the most popular promises people make to themselves each year. Sadly though, the journal also notes that only 8% of people are successful in achieving them. Most fail fairly… Read More

I bet you made a few New Year’s resolutions at the start of 2015. In fact, I’ll do you one better — I bet your resolution was to either eat better or exercise more. I’m no psychic, but studies show those are the two most common New Year’s resolutions. Aside from health and fitness though, the Journal of Clinical Psychology notes that financial resolutions rank No. 3 on the list of the most popular promises people make to themselves each year. Sadly though, the journal also notes that only 8% of people are successful in achieving them. Most fail fairly quickly. I bring this up to ask an important question — one that I’ve never asked my readers before… Are you investing enough? It’s an honest question. And you needn’t undergo some sort of financial crash diet to figure it out. All you really need is a basic household budget and a little time around the kitchen table with the people in your life who spend your money. Budgets, I’ve noticed, are like balance sheets in one regard: they scare people silly. See it’s not the list of expenses that makes people uncomfortable; it’s the “other” number that makes… Read More

In hindsight, the six-year bull market was an easy rally to predict. Valuations were very low in early 2009, and Federal Reserve policy has been remarkably accommodating. Yet the forward view may not be so rosy. Sales growth is getting harder to achieve for companies in the S&P 500. Analysts are expecting sales per share at S&P 500 companies in 2015 to decline by 1.4%, while earnings are expected to eke out 2.5% growth to $120.17 per share, according to FactSet Research. #-ad_banner-#Sales growth has not been stellar in recent years, but companies have been able to increase earnings through… Read More

In hindsight, the six-year bull market was an easy rally to predict. Valuations were very low in early 2009, and Federal Reserve policy has been remarkably accommodating. Yet the forward view may not be so rosy. Sales growth is getting harder to achieve for companies in the S&P 500. Analysts are expecting sales per share at S&P 500 companies in 2015 to decline by 1.4%, while earnings are expected to eke out 2.5% growth to $120.17 per share, according to FactSet Research. #-ad_banner-#Sales growth has not been stellar in recent years, but companies have been able to increase earnings through expense management and lower interest expense. Net margins on results over the last four quarters are at 10% for the companies in the S&P 500, well above the 8.6% average over the last ten years. It is going to be progressively more difficult to squeeze out higher earnings on cost management alone and higher interest rates could be another headwind on profit margins. This tough corporate environment is coming as the Federal Reserve inches closer to a less accommodative monetary policy. Global growth has yet to fulfill the promise of increased easing by developed nation’s central banks and U.S. firms… Read More

“The world is on the brink of a demographic milestone,” claims the World Health Organization (WHO). According to WHO, children have outnumbered adults since the beginning of recorded history. But this situation is poised to change. For the first time, seniors over age 65 will soon outnumber children under 5. Two factors primarily account for this shift: declining fertility rates and medical advances prolonging life spans. This demographic shift creates a big opportunity for select health care firms. #-ad_banner-#Against the backdrop of the increasing need for medical care due to longer life expectancies, a trend is emerging. U.S. hospitals appear… Read More

“The world is on the brink of a demographic milestone,” claims the World Health Organization (WHO). According to WHO, children have outnumbered adults since the beginning of recorded history. But this situation is poised to change. For the first time, seniors over age 65 will soon outnumber children under 5. Two factors primarily account for this shift: declining fertility rates and medical advances prolonging life spans. This demographic shift creates a big opportunity for select health care firms. #-ad_banner-#Against the backdrop of the increasing need for medical care due to longer life expectancies, a trend is emerging. U.S. hospitals appear to be losing patients to ambulatory and homecare services. Over the past five years, hospital inpatient stays have declined 4% while the home health care market has grown. And it looks like this trend will continue. According to a 2014 report by Transparency Market Research, the global home health care market is expected to explode to $303.6 billion in 2020, up from $176.1 billion in 2013, growing at a compound rate of more than 8% per year. One company that should be a direct beneficiary of the growth in home health care is Kentucky-based Almost Family (NASDAQ:… Read More

Legendary banker J.P. Morgan was once asked by a reporter how the stock market will do. “It will fluctuate,” was his terse reply. But J.P. Morgan might have changed his response if he were alive today. Over the last three years,  the market has slowly marched upward with very few swings along the way. A look at a popular gauge of market choppiness (the volatility index, commonly referred to as the fear gauge, or the “VIX”) shows extremely low volatility in the equity markets since 2012. In tandem with the drop in volatility has been a slump in… Read More

Legendary banker J.P. Morgan was once asked by a reporter how the stock market will do. “It will fluctuate,” was his terse reply. But J.P. Morgan might have changed his response if he were alive today. Over the last three years,  the market has slowly marched upward with very few swings along the way. A look at a popular gauge of market choppiness (the volatility index, commonly referred to as the fear gauge, or the “VIX”) shows extremely low volatility in the equity markets since 2012. In tandem with the drop in volatility has been a slump in trading volume, which has been steadily falling since the financial crisis. For discount brokerages like TD Ameritrade Holding Corp. (NYSE: AMTD) and E*TRADE Financial Corp. (Nasdaq: ETFC), low trading volume is bad for business. TD Ameritrade earns more than 40% of its revenue from trading commissions; for E*TRADE, commissions are 25% of revenue. Yet J.P. Morgan’s insight on markets still remains relevant. Financial crises (such as  oil shocks) happen from time to time. And when these phenomena appear, trading volume and market volatility will rebound off of current low levels. #-ad_banner-#In the first part of 2015, as investors… Read More

Previously seen as little more than as an annoyance to corporate boards, activist investors have stepped up the heat in recent years. Backed by hedge funds and the ultra-rich investors, they are making a strong push to force companies to unlock shareholder value. #-ad_banner-#So far, these activists have been most vocal about higher cash returns to shareholders. Carl Icahn launched his historic fight with Apple, Inc. (Nasdaq: AAPL) in October 2013, calling for a $150 billion buyback. Reluctant at first, Apple has since instituted a dividend and bought back $68 billion in shares. Beyond higher cash returns, activist investors have… Read More

Previously seen as little more than as an annoyance to corporate boards, activist investors have stepped up the heat in recent years. Backed by hedge funds and the ultra-rich investors, they are making a strong push to force companies to unlock shareholder value. #-ad_banner-#So far, these activists have been most vocal about higher cash returns to shareholders. Carl Icahn launched his historic fight with Apple, Inc. (Nasdaq: AAPL) in October 2013, calling for a $150 billion buyback. Reluctant at first, Apple has since instituted a dividend and bought back $68 billion in shares. Beyond higher cash returns, activist investors have also increased their calls for spinoffs, management changes or an outright sale of the company. But a recent ruling by the Internal Revenue Service may spark a new wave of activist demands. The IRS’ moves could have a strong impact on one industry in particular, has already drawn the interest of a major activist investor. Do You Really Want To Be A Real Estate Company? The IRS ruling in question regards document storage firm Iron Mountain, Inc. (NYSE: IRM). The company was given the greenlight to convert into a real estate investment trust (REIT). Shares soon… Read More

There has been an unprecedented rally going on in an often-ignored corner of the market. And its enormous move has important ramifications for U.S. equities.  Starting in June, the U.S. dollar index, a measure of the value of the dollar relative to a basket of international currencies heavily weighted to the euro, has rallied 25%. The current rally is even greater in both speed and magnitude than the one we saw during the 2008 financial crash. This is a historically significant move. The index just made a key upside break above three decades’ worth of resistance,… Read More

There has been an unprecedented rally going on in an often-ignored corner of the market. And its enormous move has important ramifications for U.S. equities.  Starting in June, the U.S. dollar index, a measure of the value of the dollar relative to a basket of international currencies heavily weighted to the euro, has rallied 25%. The current rally is even greater in both speed and magnitude than the one we saw during the 2008 financial crash. This is a historically significant move. The index just made a key upside break above three decades’ worth of resistance, shown on the monthly chart below. Before we get into what this means for your portfolio going forward, let’s start with a quick primer on currency.  Currency is always valued relative to other currencies. For example, we can value the U.S. dollar based on how many Japanese yen one dollar can purchase. The dollar is often valued against the euro or a basket of currencies, which is what the dollar index above measures. Currencies have two main factors that drive their trends. The primary factor is the interest rate differentials between two countries. The country with the higher… Read More