The market was not able to keep the early momentum we saw, as some sellers showed up by the early afternoon pushing the averages to close mixed for the day.
Investors took profits on teen clothing retailer Abercrombie & Fitch ( ANF ) following the company's earnings report. Target ( TGT ) saw an early positive reaction from their results, but the stock did finish off its earlier highs. An analyst upgrade of Cliffs Natural Resources ( CLF ) didn't hold up as the mining play slipped into the red as the afternoon wore on. Commodity names could be in danger of seeing consistently lower highs from a technical standpoint, so if there are any aggressive investors sitting heavily positioned in the space, you should be extra cautious as most of those stocks have little in terms of dividend yield support. We learned of a negative analyst call on Ford ( F ) and General Motors ( GM ) (both do not pay a dividend), which is interesting as the stocks are now down about 40% off this year's high print prices. This call is one of the few cautious ones we've seen recently, as most analysts and pundits alike have been consistently pounding the table for the embattled auto giants.
Ignore a Stock's Long-Term Prognosis At Your Own Risk
As we continue to traverse through the market's up and downs, one should not overlook the magnitude of change occurring in the competitive balance of Corporate America. Sure, we're seeing the usual earnings "surprises" from companies where expectations were lowered and whose shares have taken a beating. Unfortunately for some, however, these short-term upticks do nothing to change the long-term prognosis for their businesses. It's more important than ever for investors to stay abreast of changing/declining industries, as holding onto a stock for too long can be catastrophic to one's portfolio. That's why I always advocate having a sell discipline.
Companies that were once strong in areas of tech, retail, and finance are some that come to mind regarding these industry shifts. Even if some of the companies you own still pay a dividend, your cost basis alone can wash away years of plentiful dividends as share prices drift lower and lower. Remember, investing isn't about just buying stocks and forgetting about them. Look at some recent examples of where competitive balances have disrupted the prosperity of brands we're all familiar with. Barnes & Noble ( BKS ) investors are hanging on hopes of a potential buyout, but look at where the stock has been trading for the last 10 years. It was trading at more than $40 a share ten years ago, peaking at $46. Nowadays, it's around $13. I can't tell you how many articles I have read about a particular "value" stock in the past, whether it was for the real estate the company owned (hidden asset), or the thought that its competitors were going away leaving it the "last man standing." These articles tend to ignore the fact that a company's competitive advantage has all but completely eroded. Many, many companies still trading today will show a steady share price deterioration if you pull up a 5- or 10-year chart. It's very difficult to pull out of a spiral like that, but all too many investors will try and catch the many bounces along the downtrend, erroneously believing there is still much value remaining.
At Dividend.com, we are always watching for the competitive balance of companies that we are recommending. Sometimes we need to make the tough call and tell investors it could be time to "ring the register" and exit the stock. Again, selling is a natural part of investing. One should never ignore what could be a shift or trend change in a company's future outlook. The majority of stocks that we recently removed from our Best Dividend Stocks List did not have the kind of issues I mentioned above, but in an ever-changing global marketplace, we are on full alert for major shifts.
As we recently shifted our take on energy plays, we are aware that future technologies will one day have a profound effect on the integrated oil giants we have all known to be reliable investments for several decades. The reality is that when the shift comes, the tide will almost never turn back. Plus, it could happen much sooner than we may think, as the economic volatility we see at a global level forces a change in energy production (solar, electric/hybrid vehicles, etc.). For come recent examples of similar shifts, take a look at brick-and-mortar book sellers, newspapers, certain big-box retailers, land-line phone service providers, etc. The next industry to shift could be cable companies/satellite providers, who are now addressing the need to own and produce their own content, as consumers devour entertainment at much cheaper prices from new competitors (Netflix, Redbox).
The Current Crop of Ill-Conceived "Value" Stocks
As we review this week's earnings reports, we see some specific companies where competition or a shift in consumer spending habits are making the long-term outlooks pretty bleak. Staples ( SPLS ) reported an earnings beat today, but as their competitors (Office Depot, OfficeMax) struggle hang on, are they in danger of becoming similar to Barnes & Noble ( BKS ). Best Buy ( BBY ) is another big retailer that has us worried. I always feel like the "last man standing" in a dying industry is nothing more than being the nicest house in a terrible neighborhood. In the tech space, we see Hewlett-Packard ( HPQ ) and Dell ( DELL ) trying to ride out the Apple innovation storm, and at some point will need to identify new areas of growth. Get ready for numerous articles about the hidden "value" of what those shares could be worth, as analysts love to pen those types of speculative pieces. I guarantee that any plan for these companies will include cost-cutting initiatives, but at the end of the day, they will be hard-pressed to point out where the clear growth drivers will come from. If it's not in-house innovation, then acquisitions must be done and done right (a very, very difficult task). For many brands, unfortunately, their fortunes will be tough to reverse.
This much I can tell you: change is a given. How you navigate through change as an investor is what will determine the maximum success you can achieve in building wealth.
Dividends Making Headlines Again
BlackRock ( BLK ) CEO Larry Fink was featured in this past weekend's Barron's magazine pushing his positive view for dividend stocks in this environment. He joins the list of many well-known pundits that continue to pound the table for dividend investing. We are proud to be that one company you can count on to guide you through the difficult investing climate and provide you with the best possible dividend recommendations.
With the Federal Reserve going on record recently stating that interest rates are going to remain at historically low levels for the next couple of years, investors still need to make up for that continued lost income - and dividend stocks will still be a great way to accomplish just that. Our team here at Dividend.com will continue to be as accurate as possible with our calls, regardless of the market environment.
Thanks for reading, and I'll see you tomorrow! P.S. Please pass this e-mail on to someone you think can use some financial motivation as well as being kept in the financial news loop that could affect them.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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