The fundamental reasons behind the rise in today’s key stock indices are missing. For a real rally to happen, there has to be rising demand in the U.S. economy, consumers must be confident to spend, and businesses should see their sales rising. None of this is taking place.

Industrial production in the U.S. economy decreased 0.5% in April—marking the second decline since the beginning of the year. (Source: Federal Reserve, May 15, 2013.)

Similarly, manufacturing in the U.S. economy is also portraying a bleak picture of demand. Manufacturing output in the U.S. economy declined 0.4% in April after continuing its slump from March, when it decreased by 0.3%.

In the first quarter, a large number of companies on the key stock indices, like the S&P 500, were able to show better-than-expected corporate earnings. But in hindsight, they showed one troubling phenomenon: as the majority of the companies on the S&P 500 have already reported their corporate earnings, only 48% of them were able to beat revenue expectations. (Source: FactSet, May 10, 2013.)

Looking ahead, the picture for the key stock indices in the U.S. economy doesn’t look bright. For example, as of May 10, out of all the companies on the S&P 500 that have issued their corporate earnings guidance, more than 79% of them have issued a negative outlook. The estimated earnings growth rate for companies on the S&P 500 stands at 1.6%, compared to 4.5% near the end of March.

On top of all these troubles in the U.S. economy, the global economy is weakening, as major economic hubs are begging for growth. Look at China, for example. The country is expected to move at a very slow rate this year. Japan is in a recession. The eurozone just announced it has now completed six quarters of negative gross domestic product (GDP).

As a result of all these negative factors, companies on the key stock indices will eventually suffer—and suffer big. During an economic slowdown, consumers buy less and hoard what they have, because they are uncertain about their future. So companies don’t really sell more and their profitably decreases and, obviously, this is priced into the key stock indices.

In the first quarter of this year and the last quarter of 2012, we saw an unprecedented increase in share buyback activity from companies in the U.S. economy. Some of the most notable corporate names in history bought back their shares—all this does is increase the earnings ratio without really increasing the profit.

I continue to be skeptical as the key stock indices move higher. Right now, it seems as if investors are looking for reasons to buy no matter what. Unfortunately, optimism is the stock market’s worst friend.

The debt-infested countries in the eurozone, such as Greece, Spain, Italy, and Portugal, are already experiencing severe economic contraction; and to say the very least, they have a lot of issues to resolve before they even come close to seeing any economic growth.

What concerns me the most is that the stronger nations in the eurozone are starting to show weakness—the economic slowdown is picking up speed. It could make the economic contraction in the entire region much more severe and could send the eurozone into another downward spiral.

Consider the French economy—the second-biggest economic hub in the eurozone. In the first quarter of 2013, France witnessed an economic contraction—GDP declined 0.2% and France entered a recession. (Source: Bloomberg, May 15, 2013.) For the past few quarters, France’s economy has been witnessing severe pressures, and unemployment in the country continues to be a major problem.

Similarly, Germany—the biggest nation in eurozone by GDP—grew at a dismal pace in the first quarter of 2013, below economists’ estimates. The German Federal Statistical office reported that the German economy grew 0.1% in the first quarter, and the revised calculation showed the country experienced an economic contraction in the last quarter of 2012, when its GDP declined by 0.7%. (Source: Destatis, May 15, 2013.) But there are even more troubling statistics; looking at it from a year-on-year basis, Germany’s GDP declined by 1.4% in the first quarter of 2013.

All of this shouldn’t come as a surprise to the readers of Profit Confidential; I have been harping on about more economic contraction in the eurozone for some time now. All the pieces of the puzzle are just falling into place.

Dear reader, the troubles in the eurozone are important to observe, because the region as a whole can create a significant amount of demand in the global economy. If the area struggles further, it will weigh heavily on global trade. More specifically, major U.S.-based companies that operate in the eurozone will see their profitability decline.

Airlines around the world have reaped the benefits from the improved travel sector.

The airline sector is estimated to earn $10.4 billion in profits this year, up from the previous estimate of $8.4 billion, according to the International Air Transport Association (IATA). (Source: “Small Boost to Airline Profitability – Industry Profit Margin Improves to 1.6%,” International Air Transit Association web site, March 20, 2013.)

According to the IATA report, the top market in the airline sector is predicted to be the Asian-Pacific airlines, with estimates calling for $4.2 billion in net profits this year, up from $3.9 billion in 2012 and accounting for a 40.4% share of the total global airline sector.

The North American airline sector is also looking good, with profits estimated at $3.6 billion this year, well ahead of the $2.3 billion recorded in 2012.

Coming in third is expected to be the Middle Eastern airline sector, with $1.4 billion in profits, more than 50% higher than the $900 million in 2012.

The airline sector has been improving since the end of the recession. Lower fuel costs and increased bookings and travelling have helped to drive up the sector.

Take a look at the Dow Jones US Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 in correlation with the S&P 500, as highlighted by the green line.

Chart courtesy of www.StockCharts.com

In the low-cost discount side, a carrier that I frequently fly with and like is JetBlue Airways Corporation (NASDAQ/JBLU). I have followed the stock for over a decade and continue to feel the company has what it takes to be a major player in the discount airline sector.

Chart courtesy of www.StockCharts.com

First formed in 1998, JetBlue Airways is a discount air carrier serving markets in the United States, Puerto Rico, and Mexico; along with 10 countries in the Caribbean and Latin America region. JetBlue offers services to 77 cities via 800 daily flights.

In April, the airline’s key revenue passenger miles reading came in at 11.5 million for an 83.8% load factor, up 6.8% year-over-year. (Source: JetBlue Airways Corporation, last accessed May 16, 2013.)

Following a decline in revenues from 2008 to 2009, JetBlue came back with growth in 2010 to 2012 and Thomson Financial estimates call for the growth to continue in 2013 and 2014.

For more of a global airline sector play, United Continental Holdings, Inc. (NYSE/UAL) is worth a look. The company formed from the merger of Continental Airlines and United Airlines in 2010.

Chart courtesy of www.StockCharts.com

United Continental offers around 5,446 flights daily to 370 airports on six continents.

Revenues are predicted to rise three percent to $38.3 billion this year, followed by $39.7 billion in 2014, up 3.9% year-over-year.

To play the growth in the airline sector, you can also play the suppliers of parts and services, which I discussed in “Aerospace: The Only Way Left to Play Global Growth.”

It is a phrase that’s pertinent to the stock market.

Without question, I remain completely taken aback by what has transpired with the stock market since the beginning of the year.

Looking at the numbers, not being invested in many corporations has been costly.

Excluding the reasons why, the simple fact is that the Dow Jones Industrial Average is up 16% since the beginning of the year (not including dividends).

The S&P 500 is up 15.7%. The NASDAQ Composite is up 14.8% and the Russell 2000, an index of small-caps, is up 16.6% (not including dividends).

I think this stock market can smell the end of quantitative easing.

More meaningful, however, is the Federal Reserve’s policy regarding interest rates, which are going to continue to be low for the near future, as it has been made very clear.

This is a huge, perhaps neglected, certainty for the stock market and corporations.

Making the case for being a buyer in this market is extremely difficult. Institutional investors have already placed their bets and a lot of corporations—good companies with real staying power and solid prospects for earnings growth going forward—are fully priced.

Johnson & Johnson (NYSE/JNJ) is a benchmark stock. Like many large corporations, Johnson & Johnson does everything it can to squeeze every penny out of its bottom line. The company lays off employees, closes plants, and does everything to minimize taxes. Johnson & Johnson’s 10-year stock chart is featured below:

Chart courtesy of www.StockCharts.com

Like many global corporations, Johnson & Johnson grows organically and by acquisition.

In the second quarter last year, the company bought Synthes Incorporated, a global manufacturer of orthopedic devices, for $20.2 billion (in cash and stock).

In its first quarter of 2013, the company’s worldwide sales were $17.5 billion, representing a gain of 8.5%. The acquisition of Synthes, net of a separate divestiture, helped revenues by 5.7%.

Revenue strength in the first quarter was strongest in the U.S. and Canada. According to the company, sales gained 11.2, coming in at $8.0 billion.

Unlike many other global corporations, Johnson & Johnson experienced sales growth in all international regions. But the standout growth at home is meaningful.

The opportunity cost of not owning Johnson & Johnson’s shares since the beginning of the year has been significant. On the stock market, the position is now up approximately 24%, excluding its dividend payment (recently boosted 8.2%), since the beginning of the year.

From 2005 to 2011, the position was flat, while the corporation paid increasing dividends.

This is the way so many corporations trade, and it should be part of an investor’s expectation that there will be considerable periods of non-performance. (Read “Stock Market Fake-Out: Where Is the Retrenchment?”)

With a price-to-earnings ratio of approximately 24, Johnson & Johnson is fully priced on the stock market.

But I don’t expect this position—or the stock market for that matter—to just come apart without some sort of astonishing shock, like a big change in Fed policy, war, sovereign debt shock from Europe, or a big derivatives trade gone bad.

All eventualities are possible with the stock market at a record high. But the opportunity cost of not being in it has proven to be significant.

A meaningful, full-blown correction in the stock market would be a very healthy development for the medium-term trend.

Given current information, I think Johnson & Johnson will be a buying opportunity.

Between fiscal 2009 and 2012, U.S. agricultural exports increased 41% to $135.8 billion. Going forward, world trade growth is expected to climb to between four and five percent in 2013. Europe’s recession and Japan’s economic slowdown will be major factors preventing more rapid growth in 2013. At the same time, the U.S., Asian, and Latin American economies are expected to drive higher growth in 2013. (Source: “Latest U.S. Agricultural Trade Data,” United States Department of Agriculture web site, May 2, 2013, last accessed May 16, 2013.)

And 2013 is shaping up to be a record year for U.S. agriculture. Year-to-date, U.S. agricultural exports are up 10.9% at $79.2 billion versus the same period in 2012. Thanks to overall world macroeconomics, fiscal 2013 U.S. agricultural exports are forecast at a record $142 billion. (Source: “Outlook for U.S. Agricultural Trade – FY 2013 Exports Forecast at a Record $142 Billion; Imports at a Record $112.5 Billion,” United States Department of Agriculture, Cornell University Library web site, February 21, 2013, last accessed May 16, 2013.)

As one of the most diverse sectors, where should investors interested in U.S. agricultural stocks turn? The agricultural sector contains the more obvious, traditional operations—those that grow crops and raise livestock to processors who prepare and package the products for sale.

The agriculture sector also includes a number of agribusiness companies. Unfortunately, there is no real definition of what constitutes an agribusiness; any company that derives at least half of its revenue, either directly or indirectly, from agriculture is a good starting point.

In which case, there are a lot of companies operating in the agriculture sector, including those that manufacture tractors and other farm implements. Perhaps more surprisingly, there are some mining companies that can also be placed comfortably under the agriculture umbrella.

Potash is an essential ingredient in fertilizer, used to strengthen plant stalks against drought and disease. As a result, certain mining companies cross over to the agribusiness sector, because a large portion of their revenue is derived from the farming community.

Given that 2013 is expected to be a record year for U.S. agricultural exports, a multi-crop product like fertilizer could be a good place to start investing.

Potash Corporation of Saskatchewan Inc. (NYSE/POT) sells fertilizers and related industrial and feed products in the United States and Canada. The company has a market cap of $37.3 billion, a forward price-to-earnings (P/E) ratio of 13.1, levered free cash flow of $528 million, and an annual dividend of 2.6%.

During the first quarter of this year, Potash Corp. announced that sales were up 56% in North America and up 74% in the rest of the world. That helped the company report strong first-quarter net income of $556 million, or $0.63 per share, versus the $491 million, or $0.56 per share, in the same prior-year period. (Source: “Q1: Potash Corp First-Quarter Earnings Increase to $0.63 per Share,” Potash Corporation of Saskatchewan Inc. web site, April 25, 2013, last accessed May 16, 2013.)

Potash Corp. recently released data showing strong month-over-month potash export sales and a decline with inventories. The company also said potash sales are up in China, Latin America, and India, which signals growing international demand. (Source: “Complete Market Data,” Potash Corporation of Saskatchewan Inc. web site, May 13, 2013.)

Another fertilizer company with an upbeat outlook is Agrium Inc. (NYSE/AGU). The company supplies crop products and crop nutrients, such as dry and liquid nitrogen, phosphate, potash, and other fertilizer products, including time-release crop-nutrient technologies.

The company has a market cap of $13.3 billion and a forward P/E of 9.3; Agrium provides an annual dividend of 2.2%. The company reported first-quarter net income of $141 million, or $0.94 per share, a record $351 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), $3.2 billion in revenue, and its approval of a share repurchase program of up to five percent. (Source: “Agrium reports strong first quarter results,” Agrium Inc. web site, May 9, 2013.)

In spite of the cold, wet spring weather, these agricultural stocks still expect demand to be excellent, thanks to underlying agricultural fundamentals.

Well I wish I had now, as Tesla is seeing its shares supercharge on the price chart, up 70% in the first few weeks of May and 167% so far in 2013, based on my stock analysis. Tesla is up a sizzling 198% over the past 52 weeks compared to the S&P 500’s 23% increase.

My stock analysis suggests that the maker of the sharp-looking electric sports car has really shocked the stock market with its superlative price appreciation. Who would have known?

I thought Tesla was interesting and gimmicky in some ways, but never in my wildest imagination did I expect the stock to surge as much as it has.

According to my stock analysis, you can thank the short-sellers for running to the exits and unloading their positions in a classic short squeeze. At the end of April, there were 27.5 million shares of Tesla shorted. The share price was $53.99. Fast-forward 10 sessions, and the price has surged to over $90.00.

Now you can’t blame short-covering for all of the increase in the share price. Tesla did deliver some awesome numbers that tore apart Wall Street’s estimates, according to my stock analysis.

In the first quarter, Tesla sold 4,900 vehicles. That’s it. By comparison, General Motors Company (NYSE/GM) sold 237,646 in the month of April alone. For the entirety of 2013, Tesla expects to sell just over 20,000 vehicles. General Motors (GM) will sell over two million.

My stock analysis suggests that the growth in Tesla is strong, with sales up 83% in the first quarter. While the small quantity makes me shake my head, the company is estimated to turn a small profit in 2013 and earn $1.04 per diluted share in 2014, according to Thomson Financial.

Tesla is estimated by Thomson Financial to see its revenues grow 366.5% this year and 31.7% in 2014. Again not bad numbers, but they’re not supportive of the share price and valuation, as my stock analysis indicates.

Consumer Reports does love the Tesla “Model S” sedan that was assigned a score of 99 out of 100.

Now, if you base the share price of Tesla purely on valuation, it’s clearly out of whack versus both GM and Ford Motor Company (NYSE/F), as you can see in the table below.

But Tesla is trading based not on valuation but on potential. Yet even based on potential, the company is way overpriced, based on my stock analysis, which makes the stock tempting.

Of course, the current short sellers have paid dearly, but the stock was at a much lower price. At nearly $100.00, it may be time to get in on some of the action, but on the short side.

The chart may indicate upward movement in the stock, but my stock analysis indicates it’s more likely to move downward in the near term.

This  article One Sports Car Stock That’s Shocking the Market was originally published at Investment Contrarians

With all this, the direction in which the key stock indices are headed next has become a topic of discussion among investors: can they go any higher? Or we are bound to see another market sell-off, like the one we saw in 2008 and early 2009?

When looking at the state of the global economy, things are turning bleak. We have major economies outright worried about their future economic growth. For example, the Chinese economy is expected to grow at a slower rate compared to its historical average; the Japanese economy is still struggling with a recession, and efforts by the Bank of Japan to boost the economy haven’t really showed much success; and the eurozone is witnessing its longest economic contraction, with major nations falling prey to economic slowdown.

But looking at the U.S. economy, it portrays a different image; it appears things have improved. Unemployment is lower and consumer spending has increased since it edged lower in the financial crisis—both possible good signs of a stock market rally.

To no surprise, the noise is getting louder and louder as the key stock indices are moving higher. The bears are calling for the end of the bull market, while the bulls are cheering for the key stock indices and believe that they are bound to go much higher. Estimates are being thrown out; for example, some are calling for the Dow Jones Industrial Average to reach 20,000.

Regardless of the noise, looking at the long-term chart of the key stock indices like the S&P 500 and the Dow Jones Industrial Average, it appears they are in a breakout. Take a look at the long-term chart of the S&P 500 below:

Chart courtesy of www.StockCharts.com

The S&P 500 recently broke above the previous resistance area (as indicated by the red circle in the chart above)—an area that’s considered an important level by technical analysts and where the index turned and headed lower in 2000, and then again in 2007. However, the chart shows the direction is currently in favor of the bulls—the key stock indices may just continue to climb higher.

By looking at this, should investors jump into the stock market with full force and buy? The answer to this question is simply “no.”

From the chart above, it is clear that the key stock indices like the S&P 500 are in long-term breakouts, but there are still some risks that investors need to watch out for. Things can turn very quickly, and they might just hurt their portfolio with losses.

To profit from the soaring key stock indices, investors may want to look at exchange-traded funds (ETFs) that track the performance of the stock market. One example of this type of ETF is the SPDR S&P 500 (NYSEArca/SPY), which tracks the performance of the S&P 500. Another ETF worth looking at is the SPDR Dow Jones Industrial Average (NYSEArca/DIA); as the name suggests, this ETF lets investors track the performance of the Dow Jones Industrial Average.

Regardless, investors need to continue to focus on asset allocation, because a portfolio allocated to just one asset class can be too risky. Those who are saving for retirement should continue to focus on this principle, since every penny counts.

It wasn’t too long ago that the eurozone was in the midst of a financial crisis. While the worst appears to be over—at least temporarily—economic growth still remains elusive for the eurozone.

Yet in spite of all the dangers, investors have returned to the eurozone en masse. Spain recently sold one-year bills yielding just 0.994%, the lowest since 2010. Demand is extremely strong for these periphery nations, even though it’s clear that many parts of the eurozone are lacking economic growth.

Currently, Spanish 10-year bonds yield approximately 4.29%, which is down from last summer when they were yielding 7.75%. (Source: Benoit, A., et al., “Spain Sells Bill at 3-Year Low Yield as Banks Hired for Bond,” Bloomberg, May 14, 2013, accessed May 14, 2013.)

Investors are becoming complacent yet again. Instead of simply dipping their toes into the water, they’re plunging into some of the riskier parts of the eurozone that have the least potential for economic growth, and these investors are hoping that if things don’t work out, the European Central Bank (ECB) will bail them out.

The danger is that the ECB has previously stated that it will only consider short-term duration investments for possible support, not the long-term bonds. Either way, economic growth needs to re-ignite for long-term investments in the eurozone to make sense.

However, recent data from even the strongest eurozone member, Germany, indicate that a rebound in economic growth is far from certain.

According to the Center for European Economic Research (ZEW), its index of investor expectations looking out over the next six months did move slightly upward in May to 36.4 versus 36.3 in April; however, a median forecast from economists estimated that the index would move up to 40. (Source: “ZEW indicator of economic sentiment,” ZEW.de, May 14, 2013, accessed May 14 2013.)

While these data are not bad, they do not necessarily translate into strength for the entire eurozone. Even though Germany might be able to stabilize and generate some level of economic growth, I would not necessarily extrapolate this to include the entire eurozone region.

Investors are becoming complacent, as the lack of any crisis recently has allowed the water to remain calm. But beneath the surface, there is the potential for much turmoil to re-emerge within the eurozone.

The danger is that many of these investments are becoming interlinked. So a sell-off in one region could create a domino effect, causing volatility in another investment.

As long as the water is calm, the sailing is smooth. However, I would certainly suggest taking precautions and ensuring that one has a life jacket available for the inevitable storm. As I stated previously, I would certainly avoid investing in long-term fixed-income assets, as this sector is priced to perfection.

This article The New Hidden Eurozone Risk was originally published at Investment Contrarians

Since their peak in July of 2012, 30-year U.S. bonds have declined in value—they are down almost six percent. Trading above $153.00 in mid-2012, 30-year U.S. bonds now hover around $144.00, as depicted in the chart below.

Chart courtesy of www.StockCharts.com

Keep in mind that bond investors use U.S. bonds as a benchmark to what kinds of rates other types of bonds, such as corporate bonds, municipal bonds, and junk bonds, should sell at.

For example, if U.S. bonds decline in value, chances are the other types of bonds in the bond market will follow in the same direction. So the yield on 30-year U.S. bonds really matters when it comes to looking at the direction of the overall bond market.

The bond market experienced a significant run-up as the 2008 financial crisis unfolded and investors sought safety. Now, investors have a different type of worry on their hands.

The Federal Reserve, which has become a major buyer of long-term U.S. bonds, buying up to $45.0 billion worth of them a month, is contemplating when it should stop reducing the amount of bonds it purchases each month.

According to data from Investment Company Institute, an association of U.S. investment companies, in the first three months of 2013, long-term bond mutual funds had inflows of $68.9 billion. This was 25% lower than the same period a year ago, when these funds had inflows of $92.08 billion. (Source: Investment Company Institute, May 8, 2013.)

As I have been harping on about in these pages for some time now, caution and capital preservation are hands-down the best strategy for bond investors, as conditions in the overall bond market are changing. A decline in the bond market will hit the most conservative type of investments, like pension funds and insurance companies, which invest heavily in bonds.

I am watching the bond market very closely as the recent decline in bond prices is significant. Bonds are signaling higher interest rates ahead, something very few economists are talking about.

Where the Market Stands; Where It’s Headed:

As I wrote last week, it feels like 2007 all over again. The stock market rises on good news and bad news. Bullishness among investors and stock advisors is near a multiyear high. Corporate profit growth has stalled. The higher this market goes, and it has gone higher than even I thought it would, the bigger the drop will be. The bear market has done a masterful job at convincing investors the stock market is a safe bet again.

What He Said:

“If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure – these are the bank stocks I wouldn’t own.” Michael Lombardi in Profit Confidential, May 2, 2007. From May 2007 to November 2008, the Dow Jones U.S. Bank Index of the world’s largest bank stocks was down 65%.

Chicago Bridge & Iron Co (CBI) is the most complete energy infrastructure focused company in the world and a major provider of government services.

This article will reveal the business prospects of Chicago Bridge & Iron Co through the lens of FAST Graphs – fundamentals analyzer software tool.   Therefore, it is offered as the first step before a more comprehensive research effort.  Our objective is to provide companies that have excellent historical records and appear reasonably priced based on past, present and future data and expectations.

A quick glance at the graph itself and the orange earnings justified valuation line will tell the readers volumes about how well the company has historically been managed and performed as an operating business.  Simply put, the reader should ask whether this example is worthy of a greater investment of their time and effort based on the data as presented and organized.  The FAST Graphs’ unique advantage is the graphical articulation of the price value proposition.

Earnings Determine Market Price:  The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings.  The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line.  On graph after graph the lines will move in tandem.  If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.

Earnings & Price Correlated Fundamentals-at-a-Glance

A quick glance at the historical earnings and price correlated FAST Graphs™ on Chicago Bridge & Iron Co shows a picture of undervaluation based upon the historical earnings growth rate of 17.9% and a current P/E of 16.4.  Analysts are forecasting the earnings growth to continue at about 14.5%, and when you look at the forecasting graph below, the stock appears slightly overvalued (it’s inside of the value corridor of the five orange lines – based on future growth).

Chicago Bridge & Iron Co:  Historical Earnings, Price, Dividends and Normal P/E Since 1999

Performance Table Chicago Bridge & Iron Co

The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return:  capital appreciation and dividend income.  Dividends are included in the total return calculation and are assumed paid, but not reinvested.

When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident.  In addition to the 23.3% Annualized ROR (w/o Div) (green circle), long-term shareholders of Chicago Bridge & Iron Co, assuming an initial investment of $10,000, would have received an additional $4,958.22 in total dividends paid (blue highlighting) that increased their Annualized ROR (w/o Div) from 23.3% to a Total Annualized ROR plus Dividends Paid of 23.5% versus 2.9% in the S&P 500.

The following graph plots the historical P/E ratio (the dark blue line) in conjunction with 10-year Treasury note interest.  Notice that the current price earnings ratio on this quality company is as low as it has been since 1999.

A further indication of valuation can be seen by examining a company’s current P/S ratio relative to its historical P/S ratio.  The current P/S ratio for Chicago Bridge & Iron Co is .86 which is historically normal.

Looking to the Future

Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:

1.            The rate of change (growth rate) of the company’s earnings

2.            The price or valuation you pay to buy those earnings

Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound and profitable performance.

The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.

The consensus of 16 leading analysts reporting to Capital IQ forecast Chicago Bridge & Iron Co’s long-term earnings growth at 14.5%.  Chicago Bridge & Iron Co has medium long-term debt at 46% of capital.  Chicago Bridge & Iron Co is currently trading at a P/E of 16.4, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18.  If the earnings materialize as forecast, based upon forecasted earnings growth of 14.5%, Chicago Bridge & Iron Co’s share price would $130.84 at the end of 2018 (brown circle on EYE Chart), which would represent a 15.9% annual rate of total return which includes dividends paid (yellow highlighting).

Earnings Yield Estimates

Discounted Future Cash Flows:  All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.

Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Chicago Bridge & Iron Co to an equal investment in 10-year Treasury bonds illustrates that Chicago Bridge & Iron Co’s expected earnings would be 8 (purple circle) times that of the 10-year T-bond interest (see EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.

Summary & Conclusions

This report presented essential “fundamentals at a glance” illustrating the past and present valuation based on earnings achievements as reported.  Future forecasts for earnings growth are based on the consensus of leading analysts.  Although with just a quick glance you can know a lot about the company, it’s imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.

Disclosure:  No position at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. A comprehensive due diligence effort is recommended.

Core retail sales declined 0.1% in April—and that’s after they already fell 0.4% in the previous month! (Source: U.S. Census Bureau, May 13, 2013.)

When compared to the first four months of 2012, consumer spending in the U.S. economy declined in the first four months of 2013 at electronics and appliance stores, health and personal care stores, gasoline stations, and general merchandise stores.

And looking forward, consumer spending in the U.S. economy doesn’t appear to look very promising either.

If companies don’t spend or create better-quality/better-paying jobs, can consumer spending really pick up? It’s well documented in these pages: the job creation we have seen since the financial crisis started has been in low-wage-paying sectors.

Keeping all this in mind, with consumer spending still bleak and core retail sales constantly declining, the retailer must be suffering.

But that’s not so!

When you look at the stock market and, more specifically, at the retailers, it appears that consumer spending in the U.S. economy is booming! Consider the chart below of the S&P Retail Index. This index tracks the performance of some of the most well-known retailers in the U.S. economy.

Chart courtesy of www.StockCharts.com

Dear reader, the stock market isn’t portraying the real picture of the U.S. economy. The retail sales number actually shows how consumer spending—the biggest contributor to our gross domestic product (GDP)—is fairing, and those numbers look terrible.

Even with the printing of trillions of dollars of new money via quantitative easing, the Federal Reserve hasn’t been able to do what it originally intended to do—spur economic growth in the U.S. economy. The Fed has made the banks financially stronger and has sent the stock market higher, but the “little guy” really hasn’t been helped.

It’s a vicious cycle that’s not working right now. For consumer spending to pick up, businesses must be willing to spend and invest rather than spending their money buying back their own shares to boost their earnings. Mark my words: this can only go on for so long.

Michael’s Personal Notes:

Something is starting to smell in the bond market…

Since their peak in July of 2012, 30-year U.S. bonds have declined in value—they are down almost six percent. Trading above $153.00 in mid-2012, 30-year U.S. bonds now hover around $144.00, as depicted in the chart below.

Chart courtesy of www.StockCharts.com

Keep in mind that bond investors use U.S. bonds as a benchmark to what kinds of rates other types of bonds, such as corporate bonds, municipal bonds, and junk bonds, should sell at.

For example, if U.S. bonds decline in value, chances are the other types of bonds in the bond market will follow in the same direction. So the yield on 30-year U.S. bonds really matters when it comes to looking at the direction of the overall bond market.

The bond market experienced a significant run-up as the 2008 financial crisis unfolded and investors sought safety. Now, investors have a different type of worry on their hands.

The Federal Reserve, which has become a major buyer of long-term U.S. bonds, buying up to $45.0 billion worth of them a month, is contemplating when it should stop reducing the amount of bonds it purchases each month.

According to data from Investment Company Institute, an association of U.S. investment companies, in the first three months of 2013, long-term bond mutual funds had inflows of $68.9 billion. This was 25% lower than the same period a year ago, when these funds had inflows of $92.08 billion. (Source: Investment Company Institute, May 8, 2013.)

As I have been harping on about in these pages for some time now, caution and capital preservation are hands-down the best strategy for bond investors, as conditions in the overall bond market are changing. A decline in the bond market will hit the most conservative type of investments, like pension funds and insurance companies, which invest heavily in bonds.

I am watching the bond market very closely as the recent decline in bond prices is significant. Bonds are signaling higher interest rates ahead, something very few economists are talking about.

Where the Market Stands; Where It’s Headed:

As I wrote last week, it feels like 2007 all over again. The stock market rises on good news and bad news. Bullishness among investors and stock advisors is near a multiyear high. Corporate profit growth has stalled. The higher this market goes, and it has gone higher than even I thought it would, the bigger the drop will be. The bear market has done a masterful job at convincing investors the stock market is a safe bet again.

What He Said:

“If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure – these are the bank stocks I wouldn’t own.” Michael Lombardi in Profit Confidential, May 2, 2007. From May 2007 to November 2008, the Dow Jones U.S. Bank Index of the world’s largest bank stocks was down 65%.

It’s a broad, vague term that’s as annoying as it is enigmatic. What exactly is the future, and what does it mean to embrace the future while simultaneously living in the present?

For purposes of this article, let’s say that the future of banking and consumer branding is the race to figure out new marketing technologies; social media, smart phone apps, and an improved (and instantaneous) user experience. Hmmm… the future sort of sounds like the present, doesn’t it?

When it comes to big-time credit card issuers, branding their products as forward-thinking while producing newer, better ways to serve its customers has turned from a marathon to a dead-sprint, only the finish line hasn’t moved. (Let’s face it – there isn’t a finish line.)

So who’s in the lead when it comes to which credit card companies have embraced the future of spending and led rather than followed in 21st century banking? Let’s consider a few categories.

Mobile Banking

By now, all credit card companies use mobile banking. That said, some issuers had a jump on others. According to BankRate.com, both Discover and Bank of America have offered easy-to-use mobile banking interfaces for smart phone users for years, giving them the edge when it came to attracting tech-savvy consumers willing to work out the early kinks (and possible risks) of mobile banking. It should be noted that both issuers – Discover and Bank of America – offered liability protection for mobile bankers, same as if they were banking by desktop computer or over the phone.

With tablets and smart phones churning out excellent new banking apps seemingly one-after-the-other, it’s easy to forget that just a few years ago mobile banking was the exception rather than the norm. And yet, Western Union is still a thing…

Tech-Savvy Cards

Speaking of the shortfalls of physically wiring money, tech-friendly cards have introduced new ways of sending money between accounts or to family members and friends. For example, American Express® Serve (a prepaid card at that) allows cardholders to send money via e-mail, text message and even Facebook. A self-described “Digital Prepaid Account“, Serve is as serviceable an alternative to a checking account out there today. Set up direct deposit, swipe it wherever American Express is accepted, and use this prepaid card like you would any debit or credit card.

Chip and PIN Security

American Express has also made strides as an American leader in Chip and PIN technology. Chip and PIN is common abroad, but credit cards domestically have only recently gotten around to instituting the technology stateside. The American Express Platinum Card offers chip and PIN for free by request, which essentially provides another layer of security to your card since the PIN step of Chip and PIN is essentially identical to what is required when we pay with our debit cards. The chip part replaces the magnetic stripe found on current cards with a microchip within the card, and eliminates the issue of “credit card scraping” that has led to numerous instances of identity fraud over the last few years.

The technology isn’t available for all AmEx products (or even most), and it’s worth mentioning that both Chase and Citi have introduced the technology to select travel cards domestically. Look for more and more credit cards to begin issuing Chip and PIN credit cards in the coming months and years.

Social Media

Finally, you can’t run a successful marketing campaign anymore without social media. Twitter, Facebook, Pinterest and Instagram have all been embraced by major credit card issuers, with varying degrees of success.

A quick survey of the major issuers’ Facebook pages tells us that Capital One actually has the most Facebook likes (nearly 3 million) with American Express a close second, though you have to like what Chase did by separating that Facebook pages by card. Obviously, the number of Facebook likes a company has doesn’t exactly translate into a successful business, but in the case of credit card companies you could assume that at least a majority of the likes are from actual cardholders.

It’s a different story on Twitter, where American Express easily dominates the competition with 6x the amount of followers of any another major issuer. Again, followers doesn’t necessarily mean business, but it’s likely that the VIP perks associated with AmEx – especially their pre-sale ticket privileges – provide members with more of an incentive to follow them on Twitter.

The Bottom Line

It’s hard to say what the next major breakthrough in banking will be; weren’t we supposed to have hologram cards by now? But with the competition as tight and the demand for a tech-friendly credit card experience never greater, you can be sure that the future of banking is bright. (And yes, we mean holograms. We can dream, right?)

Yet while the collapse of the factory building was a total shock, the underlying issues of major apparel makers using cheap labor in these poor countries have been going on for decades as a way of improving earnings.

In the pursuit of earnings growth, The Gap, Inc. (NYSE/GPS) and Wal-Mart Stores, Inc. (NYSE/WMT) have long been accused of turning a blind eye to the extremely poor working conditions of the third-party factory workers who produce cheap goods for consumers here and abroad. The reason is the need to deliver earnings.

The reason why the conditions are largely ignored is simply a matter of cutting costs and increasing earnings. Consumers in the richer countries want cheaper clothing and goods. Companies want lower costs and higher earnings. The demand for low costs places immense pressure on the third-party manufacturers to run a very tight operation, which is why the incident in Bangladesh was allowed to happen and why similar incidents will continue to occur as long as earnings are key. (Read “Market Near Record High, but Where’s the Revenue?”)

For those who want to support the local manufacturing sector, especially in the highly competitive apparel sector, there are still some U.S. companies that manufacture here.

A small-cap speculative retail play with high risk and above-average upside potential is Los Angeles, California-based American Apparel, Inc. (AMEX/APP), with a share price of $1.81. A big surprise is that the manufacturing for American Apparel is not done in China or another low-cost country; rather, the company makes its clothes out of an 800,000-square-foot facility in downtown Los Angeles. Other facilities are found in California.

Chart courtesy of www.StockCharts.com

The company is a vertically integrated manufacturer, distributor, and retailer of branded fashion apparel for women, men, children, and babies. Its products include T-shirts, denim, sweaters, jackets, and casual wear, along with related accessories and personal care products.

American Apparel is a global company with over 260 retail stores in 19 countries, including the United States, Canada, Mexico, Brazil, the United Kingdom, Ireland, Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland, Australia, Japan, South Korea, and China. About 146 stores are situated in the U.S., with Canada at around 38 stores.

American Apparel reported 23 straight months of positive comparable store sales, according to the company web site. In April, comparable store sales jumped five percent, but the growth from the company’s online sales to over 60 countries surged 17%.

American Apparel is a high-risk buying opportunity that can return big profits if the company can deliver steady revenue and earnings growth.

The earnings side will come, but it’s more difficult, given the higher domestic labor costs.

The company reported sequential annual revenue growth from $201.5 million in 2006 to $558.8 million in 2010 to $547.3 million in 2011 and $617.3 million in 2012. The revenue growth is estimated to continue at 6.2% in 2013 and seven percent in 2014, according to data by Thomson Financial.

If you want to buy “Made in the USA” stocks while taking a stand against the terrible working conditions in global sweatshops, look to American Apparel.

These are just some of the provocative words in the Medium Term Oil Market Report-2013 that was just released by the International Energy Agency (IEA).

I don’t think I’ve ever read a more enthusiastic and fervent document from a government body in my life.

The IEA is an organization funded by 28 countries that was created after oil prices skyrocketed in 1973 and 1974. As policy, the agency doesn’t forecast oil prices.

The IEA’s executive director, Maria van der Hoven, said, “North America has set off a supply shock that is sending ripples throughout the world.” (Source: “Supply shock from North American oil rippling through global markets,” International Energy Agency web site, last accessed May 15, 2013.)

The IEA forecasts the North American oil supply will grow by 3.9 million barrels of oil per day (mbopd) from 2012 to 2018. That’s significant.

Chart Industries, Inc. (NASDAQ/GTLS) out of Garfield, Ohio is an oil and gas storage manufacturer that was recently featured in these pages. (Read “This Is an Investment Theme Worth Paying Attention To.”)

But the biggest gain of all, according to the IEA, will be in global oil refining capacity, which is expected to surge by 9.5 mbopd over the next five years, led by China and the Middle East.

The report said that higher oil prices over the past few years provided the backdrop for the “revolution.” Lofty oil prices helped make fracturing technology (used to extract oil from under rock) and Canadian oilsands production economically viable.

What’s most interesting (and worrisome) is that the report said the supply “revolution” is transforming the global supply chain, but that future economic growth related to the global oil industry will be strongest in commercial storage capacity and global hubs to support long-haul crude oil. (Source: Ibid.)

The ripples that van der Hoven is referring to have serious consequences—and not just for oil prices.

The report implies that the North American production boom, may only be that. With oil prices where they are (or better) much of the new hydrocarbons are going to get sent directly overseas.

The benefits of the oil and gas resurgence (refining, new infrastructure, jobs, spin-offs, the chance for lower oil prices, and lower prices at the pump) could essentially be shipped overseas.

There are infrastructure benefits (and costs) occurring now because of the oil and gas build-out. Oil prices recently strengthened.

The IEA said that every aspect of the global energy industry will experience some degree of “transformation” over the next five years.

I believe it. But if the “bonanza” simply gets shipped overseas, a huge opportunity will be lost.

The IEA and Exxon Mobil Corporation (NYSE/XOM) predict North America will become a net energy exporter by 2030.

When I read this report from the IEA and considered what it hinted at, it made me think how important it is not to give away the store.

Energy in all its forms (and alternative energy) has so much potential to help revitalize the U.S. economy.

That said, investors need to look out for many different types of risks. To name a few, investors need to protect their portfolio from market fluctuations, reduce industry-specific risks, and keep in mind the rate of inflation.

While these risks may be known to investors—and they are very often quoted in the financial media—sometimes they may be exposed to currency fluctuation in hindsight. This type of risk is often referred to as “currency risk.”

Simply stated, currency risk is how the portfolio will react to the fluctuations in the exchange rates of currencies.

To say the very least, it can affect the rate of return investors earn on their portfolio, and without a doubt, investors need to be aware of this phenomenon.

For example, if an investor buys shares of a company that trades on a Canadian stock exchange, and their broker’s account is valued in U.S. dollars, upon buying the Canadian stock, investors will need to convert their U.S. dollars into Canadian dollars and buy the shares.

Now, let’s say if the stock goes up by five percent over a month and investors want to sell their position. But assume that, as the stock price appreciated, the value of the Canadian dollar went down by two percent compared to the U.S. dollar. As a result, investors’ actual gains would be smaller than they appear.

Investors need to know that they aren’t the only ones affected by currency risk. Big-cap companies have to deal with this risk, as well.

Consider Encana Corporation (NYSE/ECA, TSX/ECA), the biggest natural gas producers in Canada. In the first quarter of 2013, the company registered a loss of $431 million, compared to net income of $12.0 million in the same period a year earlier. One of the major contributors to this loss was Encana losing more than $100 million due to currency fluctuation. (Source: “Encana Sees Earnings Erased on Foreign-Currency Losses, Hedging,” Bloomberg, April 23, 2013.)

To avoid losses due to currency fluctuations, big-cap companies use hedging strategies; for example, they may set the prices of goods they will deliver in advance, so even if the currency value fluctuates, it doesn’t affect them in any manner.

Investors, on the other hand, can’t really do this, since they are not producing any goods. To protect their portfolio from exchange rate fluctuation, investors may want to look into buying an exchange-traded fund (ETF) that lets investors profit if a certain currency rises or falls in value, or an ETF that is hedged against currency fluctuation.

The big market for Chinese IPOs will be at home in China where there could be as many as 349 IPOs this year, according to a calculation by Goldman Sachs. (Source: “IPO deep dive: The Sword of Damocles or Paper Tiger?,” Goldman Sachs web site, January 23, 2013, last accessed May 14, 2013.) Of course, we have seen only a trickle this year, so the Goldman estimate seems to be more fiction than fact.

In the U.S., there are no Chinese IPOs scheduled for the immediate future, a stark contrast to the 60 Chinese stocks that debuted on U.S. equities markets from 2008 to 2011.

The more recent numbers look even worse, and tell us a tale of misfortune for Chinese IPOs.

In 2012, there was one Chinese listing on U.S. equities markets, but we saw the delisting of several Chinese stocks that have been taken private. Since August 2011, 23 Chinese stocks have delisted from U.S. equities markets, according to Money Week magazine.

Based on what I have been reading, I doubt that there will be much activity this year or next for Chinese IPOs, unless the rules of engagement for financial reporting and auditing are made better and meet U.S. standards. The Securities and Exchange Commission (SEC) wants any Chinese company aiming for access to U.S. capital markets to use one of four approved U.S. Big Four auditors. That request is fine, but the problem lies in the SEC also wanting access to the underlying data and records that support the financial statements—China has refused to provide that access.

I have no issue with the SEC and believe its requests are the only recourse to try to prevent another reporting scandal associated with a China-based company. There are many Chinese companies that want access to the U.S. capital markets, but for that to happen, these companies must prove that they are clean and trustworthy.

Until that happens, I wouldn’t expect any Chinese IPOs anytime soon. There are still some good Chinese companies listed on U.S. exchanges, but for new deals, you will have to look to China, and I’m not sure if that’s a good idea given the high risk.

The last Chinese IPO was China-based social networking company YY Inc. (NASDAQ/YY), which has surprisingly more than doubled in price since its IPO debut at $10.50 on November 21, 2012. Chinese Internet plays continue to show above-average promise.

The only Chinese IPO that is expected to come onboard in the U.S. is the Beijing-based online retailer LightInTheBox, which is planning to raise nearly $90.0 million in an IPO on the New York Stock Exchange (NYSE).

This article SEC Raises Requirement for Chinese Companies for U.S. Listings; Chinese Companies Looking Elsewhere was originally published at Investment Contrarians

Ultimately, for corporate earnings to move upward, revenues need to increase as well. With the lack of economic growth internationally, this is becoming a serious problem.

As an example of the extent of weak economic growth internationally, McDonalds Corporation (NYSE/MCD) posted a drop of 0.6% for comparable same-store sales in April. (Source: “McDonald’s global comparable sales decreased 0.6% in April,” McDonalds Corporation web site, May 8 2013, accessed May 13, 2013.)

The company saw its comparable same-store sales in Europe decrease by 2.4%, and the Asia-Pacific, Middle East, and African (APMEA) regions reported a 2.9% drop in same-store sales. Most analysts were expecting a drop of only one percent in Europe and a 1.4% drop for the APMEA region.

A positive note showing the disparity in economic growth was that same-store sales for the U.S. increased 0.7%, versus expectations of a slight decline. As weak as the U.S. is regarding economic growth, much of the rest of the world is in worse shape.

One worry for investors looking at the potential for corporate earnings growth is that much of the sales push by McDonalds has been in lower-priced items. This means that, while revenues might be running at a similar pace, margins will drop.

The chart for McDonalds is featured below:

McDonalds’ stock has performed quite well over the past few months, although it appears that the weak economic growth internationally is now starting to hit revenues and ultimately corporate earnings.

While not everyone who invests in McDonalds stock is primarily after corporate earnings growth, since the company does pay a strong dividend yield of approximately 3.1%, at some point, both revenues and corporate earnings do need to increase.

With very little sign that economic growth internationally is about to re-ignite, many stocks that have shot upward on expectations of a brighter 2013 might be susceptible to a significant pullback. If a company such as McDonalds that caters to the lower-end demographic can’t increase corporate earnings, this is clearly a sign that economic growth remains extremely sluggish globally.

With central banks around the world continuing the easy monetary policy, a company such as McDonalds gives us additional information that this money printing is not having an effect on the lower-tier customers.

Before beginning to accumulate McDonalds stock, I would want to see further signs that show economic growth is beginning to accelerate internationally. Until that point, corporate earnings might be susceptible to downward revisions throughout the rest of the year.

This Article Weak Global Economic Growth Hits McDonalds; What’s Next for Your Stocks? was originally published at Investment Contrarians

The U.S. government reported a budget surplus (money coming in was more than money going out) of $112.9 billion for the month of April. (Source: U.S. Department of the Treasury; Financial Management Services, May 10, 2013.)

It’s a surprise, because April’s surplus is the biggest monthly government budget surplus in five years.

But unfortunately, this trend will be very short-lived. The main reason the U.S. government was able to post a budget surplus in April was, obviously, the large amount of individual tax deposits during that month.

One month of budget surplus certainly doesn’t mean the U.S. government is back on its feet. On the contrary, the U.S. government has been posting a budget deficit for a long time now, and as a result, our national debt has skyrocketed to $17.0 trillion. It’s a major problem. So far in fiscal year 2013 (which began in October of 2012), the U.S. government has already run up a budget deficit of about $500 billion.

We are the most indebted nation in the global economy. Remember: when a government runs a budget deficit, it needs to borrow money to pay for its expenses.

And as the government continues to spend and post budget deficits, adding more to its national debt, there’s another set of troubles developing.

Consider the situation in Detroit, Michigan. The city is on the verge of defaulting on its obligations to its creditors because of its massive budget deficit. Detroit is expected to run out of cash, even though the state took control over the city’s finances. (Source: Bloomberg, May 13, 2013.)

Detroit is not the only city in the U.S. economy facing defaults; there are many others. There are states that have a significant amount of pension liabilities.

When cities run out of money, the states they are located in may be able to bail them out. But what happens when the states’ funds run dry? No doubt; they will go to the federal government for help. This phenomenon will force more spending and increase the budget deficit of the U.S. government, pushing the national debt even higher.

I am keeping a close eye on cities and states that are in trouble, because what happens next with them may send ripple effects through the economy.

Right now, the Federal Reserve is purchasing $45.0 billion worth of government bonds, but at the same time, it’s debating if its quantitative easing program should soon end. If the Fed does stop funding the U.S. government, a major buyer of U.S. bonds will be exiting the market. I wonder who will buy our bonds then.

What He Said:

“Over-built, over-speculated, over-financed and over-done. This is the Florida real estate market right now. For those looking to buy for personal use or investment, hold off! The best deals are yet to come. I continue with my prediction that the hard landing in the U.S. housing market, which is now affecting lenders, will have significant negative effects on the U.S. economy.” Michael Lombardi in Profit Confidential, April 3, 2007. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

According to EPFR Global, a firm that tracks money flows, for the week ending May 8, money managers fled from gold bullion and precious metal funds, withdrawing $1.27 billion. So far this year, they have withdrawn $20.8 billion—the largest amount since the firm started to track the data in 2000.

As bears continue to look for reasons to sell and investors pour out of gold, I see a brighter future for gold bullion ahead.

For the price of any investment to decline, there has to be some fundamental changes. Consider the decline in the key stock indices in 2008–2009. The reasons for the broad market sell-off were dismal earnings, a financial system on the verge of collapse, and anemic consumer demand.

But the fundamental reason for the rise in gold bullion prices hasn’t changed. There is still strong demand, and it’s increasing not just in U.S., but in the global economy.

In April, the trade deficit of India, the biggest consumer of precious metals, increased by more than 70% from March due to high imports of gold bullion and silver. The country imported $7.5 billion worth of precious metals in April, compared to $3.1 billion in the same year-ago period. (Source: MarketWatch, May 13, 2013.)

As a result of this pressure on the account deficit, the central bank of India put restrictions on gold bullion imports by banks in that country. In a statement, the Reserve Bank of India (RBI) said, “…to moderate the demand for gold for domestic use, it has been decided to restrict the import on consignment basis by banks, only to meet the genuine needs of exporters of gold jewellry.” (Source: “Reserve Bank of India puts restrictions on gold imports by banks,” The Indian Express, May 13, 2013.)

Dear reader, take a look at the chart below of gold bullion prices stretching back to when the bull run began, and tell me if it looks like the uptrend has been broken.

Chart courtesy of www.StockCharts.com

The long-term trend is still in place, as it is evident that whenever prices touch the upward-moving trendline (the red circles in the chart above), gold bullion prices ended up going much higher.

Readers of Profit Confidential know I am bullish on gold bullion; my opinion remains the same. I consider the recent decline in gold bullion prices an opportunity.

Michael’s Personal Notes:

This has caught some by surprise…

The U.S. government reported a budget surplus (money coming in was more than money going out) of $112.9 billion for the month of April. (Source: U.S. Department of the Treasury; Financial Management Services, May 10, 2013.)

It’s a surprise, because April’s surplus is the biggest monthly government budget surplus in five years.

But unfortunately, this trend will be very short-lived. The main reason the U.S. government was able to post a budget surplus in April was, obviously, the large amount of individual tax deposits during that month.

One month of budget surplus certainly doesn’t mean the U.S. government is back on its feet. On the contrary, the U.S. government has been posting a budget deficit for a long time now, and as a result, our national debt has skyrocketed to $17.0 trillion. It’s a major problem. So far in fiscal year 2013 (which began in October of 2012), the U.S. government has already run up a budget deficit of about $500 billion.

We are the most indebted nation in the global economy. Remember: when a government runs a budget deficit, it needs to borrow money to pay for its expenses.

And as the government continues to spend and post budget deficits, adding more to its national debt, there’s another set of troubles developing.

Consider the situation in Detroit, Michigan. The city is on the verge of defaulting on its obligations to its creditors because of its massive budget deficit. Detroit is expected to run out of cash, even though the state took control over the city’s finances. (Source: Bloomberg, May 13, 2013.)

Detroit is not the only city in the U.S. economy facing defaults; there are many others. There are states that have a significant amount of pension liabilities.

When cities run out of money, the states they are located in may be able to bail them out. But what happens when the states’ funds run dry? No doubt; they will go to the federal government for help. This phenomenon will force more spending and increase the budget deficit of the U.S. government, pushing the national debt even higher.

I am keeping a close eye on cities and states that are in trouble, because what happens next with them may send ripple effects through the economy.

Right now, the Federal Reserve is purchasing $45.0 billion worth of government bonds, but at the same time, it’s debating if its quantitative easing program should soon end. If the Fed does stop funding the U.S. government, a major buyer of U.S. bonds will be exiting the market. I wonder who will buy our bonds then.

What He Said:

“Over-built, over-speculated, over-financed and over-done. This is the Florida real estate market right now. For those looking to buy for personal use or investment, hold off! The best deals are yet to come. I continue with my prediction that the hard landing in the U.S. housing market, which is now affecting lenders, will have significant negative effects on the U.S. economy.” Michael Lombardi in Profit Confidential, April 3, 2007. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

This article intends to demonstrate that more than one third of the 30 Dow stocks (11) are undervalued, another 6 are fairly valued, another 6 fully valued, but not overly so, and finally, only 7 that could rightfully be classified as overvalued.  In other words, the Dow Jones industrial average is rather cheap, even though it sits near an all-time high.

But as I often like to say, “The Angels are in the details.”  The beauty of an index with only 30 constituents is that the details are relatively easy to review.  What follows is a breakdown of the 30 Dow Jones industrials in order of valuation, lowest to highest.  The 30 constituents will be organized according to the four categories depicted above: first the 11 that are undervalued, followed by 6 that are in value, followed by 6 more that are fully valued but not overly so, and finally by 7 that appear overvalued.

I will provide a “F.A.S.T. Graphs™ portfolio review” for each category listing the current P/E ratio, the company’s historical normal PE, each company’s 15-year historical EPS growth rate, the consensus estimated 5-year growth rate, followed by the 5-year estimated annual total return based on those estimates, then the dividend yield, sector, market cap, and finally their debt/capital ratio.

Then I will provide a 15-year earnings and price correlated F.A.S.T. Graphs™ on each company. My objective is to provide the reader a greater insight into what the Dow Jones industrial average truly looks like relative to fair valuation over what they could obtain by simply reading provocative headlines.

In addition to a focus on the current valuation of this bellwether index, I hope that the reader walks away with a more comprehensive understanding of the nature of the 30 businesses that make up the Dow Jones industrial average.  This large-cap index contains many types and categories of common stocks.  It is comprised of growth stocks, dividend growth stocks, cyclical stocks, turnaround situations and everything in between.

Moreover, each constituent is a bellwether of its own respective industry in its own right.  It all adds up to quite a feat for such a small number of companies.  Nevertheless, this index has historically represented itself quite admirably as a proxy for the state of the market and the US economy at large.  I am hopeful that the reader walks away with a much clearer perspective and opinion about the stock market, and stocks in general, as a result of reviewing the Dow Jones 30 industrial average, one company at a time.

Dow Jones Industrial Average Constituents Undervalued

As I previously indicated, there are 11 of the 30 Dow Jones stocks that appear to be undervalued even after the recent market run-up.  What comes next is first a portfolio review of these 11 companies, followed by an individual earnings and price correlated F.A.S.T. Graphs™ on each.  The reader should note that each of these individual earnings and price correlated historical graphs contain a forecast for the current fiscal year’s earnings.  This will be marked by a capital “E” for estimate next to the dollar amount of earnings forecast for the next fiscal year listed at the bottom of the graph.

When reviewing the individual graphs, the orange line represents a metaphor of fair value based on widely-accepted formulas for valuing a business.  Notice how the monthly closing stock price (the black line on the graph) tracks the orange earnings justified valuation line on each individual constituent’s graph.  Even the most cyclical of the Dow stocks will show a high correlation between the company’s stock price and its earnings over time.  Whether the earnings go up, down or sideways, stock price will follow.  Moreover, when price and earnings become disconnected, notice how they inevitably move back into alignment with each other.

Hewlett-Packard Co (HPQ)

Microsoft Corp (MSFT)

JP Morgan Chase & Co (JPM)

Cisco Systems Inc (CSCO)

United Health Group Inc (UNH)

Intel Corp (INTC)

International Business Machines Corp (IBM)

Travelers (TRV)

Caterpillar Inc (CAT)

Chevron Corp (CVX)

Exxon Mobil (XOM)

Dow Jones Industrial Average Constituents In-Value

This next set of six Dow constituents are all trading at theoretical fair value bringing the total to 17, or more than half of the 30 Dow Jones industrials that are either undervalued or fairly valued.  The following portfolio review, and all subsequent portfolio reviews are presented with the same information as we saw with our 11 undervalued Dow constituents.

Once again, when reviewing the individual graphs, the orange line represents a metaphor of fair value based on widely-accepted formulas for valuing a business.  Notice how the monthly closing stock price (the black line on the graph) tracks the orange earnings justified valuation line on each individual constituent’s graph.  Even the most cyclical of the Dow stocks will show a high correlation between the company’s stock price and its earnings over time.  Whether the earnings go up, down or sideways, stock price will follow.  Moreover, when price and earnings become disconnected, notice how they inevitably move back into alignment with each other.

However, in contrast to what we saw with our first 11 undervalued examples where the black monthly closing price was below the orange earnings justified valuation line, with this set of 6 fairly valued companies we see the price approximately touching the orange line indicating fair value.  On the other hand, the concept of fair value means different things for the individual companies in this subset.

For example, today’s fair value for General Electric (GE) is based on a resetting of earnings growth created by the great recession caused by the financial crisis of which General Electric was a major player in.  In the case of DuPont (DD), we see earnings growth that has been both highly cyclical, yet flat.  American Express (AXP) shows a strong recovery in earnings while Walmart’s (WMT) stock price has been tracking earnings justified levels after experiencing a significantly long period of overvaluation.  In the case of the two big pharma’s, Pfizer (PFE) and Merck (MRK), both appear fairly valued based on expected earnings acceleration for fiscal 2013.

General Electric Co

American Express Co

DuPont

Wal-Mart Stores Inc

Pfizer Inc

Merck & Co

Dow Jones Industrial Average Constituents Fully Valued

There are an additional 6 of the 30 Dow Jones industrial average constituents that I would call fully valued, but not dangerously overvalued.  In other words, although the stocks are not cheap, they are far removed from bubble territory.

Once again, when reviewing the individual graphs, the orange line represents a metaphor of fair value based on widely-accepted formulas for valuing a business.  Notice how the monthly closing stock price (the black line on the graph) tracks the orange earnings justified valuation line on each individual constituent’s graph.  Even the most cyclical of the Dow stocks will show a high correlation between the company’s stock price and its earnings over time.  Whether the earnings go up, down or sideways, stock price will follow.  Moreover, when price and earnings become disconnected, notice how they inevitably move back into alignment with each other.

In these six moderately overvalued or fully valued examples the reader should notice that the black monthly closing stock price line is moderately above the orange earnings justified valuation line.  However, only United Technologies Corp (UTX) and AT&T (T) are experiencing a stock price that is above their historical normal P/E ratio (the blue line on the graph).  Consequently, I see this group of stocks as expensive, but not dangerously overvalued.

Boeing Co (BA)

United Technologies Corp (UTX)

AT&T Inc

3M Co (MMM)

McDonald’s Corp (MCD)

Johnson & Johnson (JNJ)

Dow Jones Industrial Average Constituents Overvalued

This final group of seven Dow Jones industrial average constituents I consider as being improperly valued by the marketplace.  Consequently, the label “overvalued” does not precisely fit in all cases.

To clarify, as you review the individual graphs on each, notice that Bank of America (BAC), Alcoa Inc (AA) and Verizon Communications Inc (VZ) are all carrying high P/E ratios because of weak recent earnings.  However, since each of these companies is expected to have a strong recovery of earnings in fiscal 2013, it could be argued that they are not overvalued at all.  Therefore, these three names could theoretically be counted as reasonably priced Dow Jones industrial average constituents.

In contrast, I would argue that both Home Depot (HD) and Walt Disney (DIS) are overvalued under the strictest definitions of overvaluation.  Therefore, I would suggest the risk of investing in them at current levels is high, especially over the short-to-intermediate run.

Finally, Procter & Gamble (PG) and Coca-Cola (KO) are two high-quality blue-chip dividend paying stalwarts with a legacy of being awarded a quality premium valuation by the market.  Consequently, a case could be made that both of these stocks are reasonably valued today, at least on a historical basis, if not a pure earnings yield basis.

Bank of America Corp

Alcoa Inc

Verizon Communications Inc

Home Depot Inc

Disney (Walt) Co

Procter & Gamble Co

Coca-Cola Co

Summary and Conclusions

It is true that the Dow Jones industrial average is trading within an all-time high territory.  However, I do not believe that it’s true that the Dow Jones industrial average is therefore overvalued.  Instead, I believe a closer analysis indicates that the Dow Jones industrial average may have a lot more room to run.  In truth, valuing a market, or for that matter an individual stock is not just about whether it’s trading at or near an all-time high.

By examining each of the individual Dow Jones industrial average constituents, it becomes clear that this is a multifaceted, and one could even say eclectic group, of companies.  Some of the Dow stocks such as Boeing, Alcoa, Travelers and DuPont have long legacies of cyclicality.  The communications constituents AT&T and Verizon have been in a continuous downtrend for many years.  Big Pharma, Merck and Pfizer, have also been very weak over the past decade or so.

Home Depot and Walt Disney have shown a susceptibility to the great recession, but otherwise have good records of historical growth.  Blue-chip stalwarts United Technologies, Procter & Gamble, Johnson & Johnson, McDonald’s Corp, Coca-Cola and 3M have been steady Eddie blue-chip dividend growth stocks. The companies with a financial legacy, General Electric, American Express, JP Morgan, and Bank of America, once all consistent above-average growth stocks saw their earnings and values decimated by the financial crisis-induced great recession.

For the most part the technology components, Cisco Systems Inc., Intel Corp and Microsoft, have suffered from significant overvaluation during the technology bubble which culminated in calendar year 2000, but have subsequently come back into fair value.  Wal-Mart is a non-technology stalwart that has suffered from the same overvaluation issues during the irrational exuberance period. IBM has been a great growth story, and Hewlett-Packard is attempting to recover from a series of mishaps.

Energy constituents Chevron and Exxon have a long history of market undervaluation, as does the healthcare constituent United health Group.  Finally, Caterpillar is a semi-cyclical that appears very undervalued currently.

The bottom line is that the Dow Jones industrial average is made up of 30 very diverse companies.  The purpose of this article was to cast a light upon just how very different each of these companies were, and to illustrate that the Dow Jones industrial average is far from being in bubble territory.  Personally, I believe there is a great deal more insight in reviewing these companies as individual entities than there is in thinking about them as the market in the general sense.

Disclosure:  Long HD, PG, KO, HPQ, MSFT, CSCO, INTC, CAT, CVX, GE, PFE, BA, UTX and MCD at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

It might seem like an overplayed cliche, but it’s always a good idea to look for stocks that do well regardless of where the economy is headed. When it comes to your retirement portfolio, it’s always a good idea to allocate defensive stocks.

In spite of the stubbornly high unemployment rate, high personal debt levels, and fragile housing market, consumer confidence has been rebounding.

The Conference Board, a New York-based private research group, said recently that its Consumer Confidence Index rose 10% month-over-month to 68.1 in April. While the double-digit gain is a welcome sight, it is still well below the 90 reading that indicates a healthy economy; that level of consumer confidence hasn’t been seen since the Great Recession began in late 2007. (Source: “The Conference Board Consumer Confidence Index Improves in April,” The Conference Board web site, April 30, 2013, last accessed May 14, 2013.)

Still, there is reason for some continued optimism, as The Conference Board noted consumers remain upbeat about the short-term outlook. The percentage of consumers expecting business conditions to improve over the next six months climbed to 16.9% from 15.0%. At the same time, those expecting business conditions to worsen slipped to 15.1% from 17.7%.

With consumer spending accounting for about 70% of U.S. economic activity, it’s easy to see why consumer confidence is such an important short- and long-term indicator.

On the heels of founded and unfounded optimism, it’s not a stretch, as we get closer to the hazy, heady days of summer, that upbeat consumer confidence and optimism will help Americans sustain the economy and spend more. Because when times are good, people drink, and when times are bad, people drink.

During the Great Recession, Americans continued to consume alcohol, and many defensive plays gained ground accordingly. Thanks to increasing consumer confidence and optimism in the U.S. and increasing income in emerging economies like Brazil, Russia, India, and China, people could be drinking beer, wine, and alcohol even more.

This sustained growth should translate into an increase in sales and, hopefully, profitability. As a result, defensive beverage plays can offer investors both capital appreciation and a stable dividend yield.

There are a number of beverage companies that have been performing well since the markets bottomed and continue to have great outlooks.

The purveyor of Jim Beam Bourbon, Makers Mark Bourbon, and Laphroaig Scotch, Beam Inc. (NYSE/BEAM) has a market cap of $10.8 billion, a forward price-to-earnings (P/E) ratio of 22.9, and an annual dividend of 1.3%. In early May, the company announced that first-quarter net income jumped 44% year-over-year to $114.5 million, or $0.71 per share; it also reaffirmed full-year guidance for earnings to grow at a high single-digit percentage rate. The company is currently trading up nine percent year-to-date. (Source: “Beam Reports 2013 First Quarter Results,” Beam Inc. web site, May 2, 2013.)

Beer behemoth Molson Coors Brewing Company (NYSE/TAP) has a market cap of $9.1 billion, a forward P/E of 11.9, and an annual dividend of 2.6%. The company reported a 20.3% increase in first-quarter worldwide beer volume and a 19.8% increase in first-quarter net sales due to the June 2012 acquisition of the company’s new Central Europe operations. (Source: “Molson Coors Reports Higher Net Sales and Lower Underlying After-Tax Income for the First Quarter 2013,” Molson Coors Brewing Company web site, May 7, 2013.)

The alcoholic beverage industry has performed strongly over the last number of years and has been, since the end of prohibition, one of the best defensive sectors to invest in. Barring any unforeseen circumstances, beer, wine, and alcohol stocks should continue to provide investors with solid growth.

He made tons of money in the stock market in a short period of time, but his actions were driven solely by excess greed, refusing any advice to lighten his positions. He had a sense of invincibility and felt the stock market was heading much higher.

In 2000, when the NASDAQ traded above 5,000, my overconfident friend was so extremely bullish on the stock market that he decided to take out a reverse mortgage on his parent’s home to play stocks. He promised great returns, early retirement, and a new lifestyle.

The problem was he was investing in speculative issues that had minimal history and financial success. He thought the NASDAQ could rise another 30%.

At that level, he was thinking he would make over a million dollars, pay back the mortgage, and quit his day job to become a day trader.

Luckily, he did not quit his day job, as it’s the only thing he had left after the stock market imploded in early 2000.

New bubbles come and go. Each one is different and driven by different factors—the only commonality is greed.

We are hearing some whispers that this current stock market is bubble-like. While I’m not fully in agreement, I do feel the rally in the stock market to record highs has largely been driven by the Federal Reserve’s easy monetary policy, as is the case with stock markets around the world as global central banks from Europe to Asia cut interest rates.

The reality is there is no viable alternative in which to invest your money other than the stock market. Investment-grade bonds are yielding very little, and unless you are willing to take the risk and invest in bonds in Greece, Spain, Italy, or Portugal, you are out of luck.

There is little choice at this time. I don’t think the stock market is in a bubble yet, as long as the Fed maintains its easy money flow. But you should be careful; interest rates will inevitably rise, and then we’ll see traders making a mad dash toward the exits.

At this juncture, don’t fight the trend. (Read “S&P 500 Could Hit 1,700, but Weaker Stock Cycle Ahead.”) You will never win.

Ride the stock market higher, but at the same time, understand the current rate of the advance this year is not sustainable.

Yes, I feel there will be a pending correction; I’m just not sure when it will happen and by how much. The only thing I know is that a stock market correction will provide a buying opportunity.

Remember the story of my friend; look to lighten up on some of your bigger winners, especially those in the growth and technology areas.

Take some profits off across the board. There’s no shame in this. Greed is not your friend.

Everyone said that in their respective professions (a manufacturing sales manager, an insurance adjuster, a foodservice executive, and a bank manager) business conditions were flat.

I’ve heard this from many people. Countless businesses are holding steady, but despite profound efforts, they can’t generate meaningful top-line growth.

Yet, the stock market just hit an all-time record high on modest first-quarter earnings results.

Quite obviously, this stock market is overbought.

Wall Street and institutional investors are in the business of betting on the future using someone else’s money.

Corporate earnings over the last several quarters have held up. But the earnings have mostly been squeezed out of worker productivity and cost controls.

Blue-chip balance sheets continue to grow stronger, and the lack of certainty in the global marketplace has dampened the willingness of corporations to make new investments.

The result is continued growth in quarterly dividends and share buybacks; and this is one of the many reasons why institutional investors have been buying this stock market—there is nowhere else to go.

I think it is still worth keeping a sharp eye on the crucial movements in the Dow Jones Transportation Average. It is old-school, but I believe that many component companies do provide a decent reflection of economic activity in the U.S.—at least from a corporate perspective. (Read “BlackRock Takes In Billions for Equities: A Signal the Stock Market Is Near a Top?”)

What I learned from many large-cap earnings reports was that sales and prices have somewhat improved domestically.

However, the international contribution combined with a stronger U.S. dollar provided weakness. The result: little to no business growth.

While balance sheets are solid for blue chips, there’s no way the stock market can maintain its recent pace without genuine business growth.

Institutional investors have now placed their bets on the stock market. The gamble is on second-quarter earnings growth, and the stock market must deliver.

From what I read, first-quarter earnings outlooks from many corporations expect business conditions to improve in the bottom half of the year. This is typical and is no surprise.

The manufacturing sales manager said that at his company (which makes highly specialized tools used by other manufacturers) business conditions were better in the first quarter of 2012 than the most recent quarter.

Loads of caution continues to be appropriate. Stock market investors in the first quarter opened their wallets (just slightly) and placed a bet.

The stock market is overbought until second-quarter earnings season.

As a result, bond prices soared and the yields collapsed. To give you some idea: near the end of July 2012, 30-year U.S. bonds had a yield of less than 2.5%. Prior to the financial crisis, these same U.S. bonds provided investors with a yield above 4.5%.

That was the past. Now, the effects of the financial crisis are going away: the U.S. economy actually seems to be improving, the financial system is in better health, and the employment situation appears much better.

With all these changes occurring in the U.S. economy, investors are asking whether the U.S. bonds market is still a safe place to be.

According to Bill Gross, also referred to as “The Bond King” by the mainstream, the bull market in the U.S. 30-year bond probably ended on April 29. The reason: the yields reached lows and the prices peaked. (Source: Cox, P. and Leondis, A., “Gross Says Bond Bull Market Probably Ended April 29,” Bloomberg, May 10, 2013.)

Keeping this in mind, take a look at the chart below of the yields on U.S. 30-year bonds, paying close attention to the circled area:

Chart courtesy of www.StockCharts.com

Looking at this chart through technical analysis, the yields of 30-year bonds show an interesting development. Since the beginning of May, yields on the long-term U.S. bonds have been continuously increasing—meaning the bond prices are rising. To top it all off, the recent surge in yields from below 2.9% to above 3.1% has been the strongest in a while.

Furthermore, the moving average convergence/divergence (MACD) and the relative strength index (RSI), indicators of momentum and relative value, both seem to be favoring the bears. They are hinting that the yields might just continue to increase as the momentum is picking up.

From a fundamental perspective; the Federal Reserve might be halting its purchases of U.S. long-term bonds, as it has been a buyer of $45.0 billion a month. It will also eventually have to sell the bonds it has accumulated on its balance sheet, which could also cause selling pressure and a snowball effect.

Considering all this, as well as all the indicators saying we might see some weakness ahead in the bonds market, investors shouldn’t just go all-out and start to bet heavy on the end of a bull run in the bonds market. Looking at the longer-term chart, the trend is still in place with bonds prices, but the recent move might just be the turning point; remember, the trend is your friend until it’s broken.

Investors need to adjust their portfolio as the conditions change. If they react on impulse, they might be faced with losses. Investors constantly need to adjust their risk exposure and make sure they are not too invested in one asset class.

1. Keep in mind why you want to be debt free 

Imagine the different decisions possible in your life when debt free compared to the burden of having to pay out considerable money. Bearing this in mind should be an incentive to stay out of debt, or if you currently are in debt should encourage you to pay it off as quickly as possible. Living a debt free life is one with significantly less stress, and keeping track on the possibility of no long term debt in your life will certainly help with your quest.

2. Keep a Financial record of your spending and outgoings

Often people fail to keep track of their bills, but doing so can really help you get an idea of what you are spending where. There will usually be fixed bills which can’t be reduced, but it is important to look at any areas of expenditure with room for deductions, and try to buy cheaper things in their place without compromising the quality of your lifestyle. Keeping a budget of everything you spend, you will get an idea of what you spend the most on, therefore giving you the perfect opportunity to weigh up your most important expenditure vs that which is less necessary. Once you have gauged your monthly spending, this should be weighed up against how much you earn. In order to live debt free, your incoming money should be greater than your outgoings.

3. Turn The Heating Down 

This is a very simple piece of advice, but one which can actually save you money with reasonable success. For every degree you turn the heating down (Celsius), you can save between 1 and 3% on your electricity bill overall. Though this doesn’t seem like a lot, it is likely to build a considerable sum of money in the long term. Be sure to only have your heating on when necessary, because wasting energy in this respect can be costly for the environment and your pocket.

4.  Don’t eat or drink out as regularly 

Eating and drinking out can cost a fortune, especially buying coffee from places like Starbucks or going out to nightclubs and buying drinks at extortionate prices. You can significantly reduce your ‘unrecorded’ expenses by choosing to take out your own food and drink. By reducing your trip to nightclubs you can also save significantly, or if you do go out try to not to buy as many drinks. For your work lunch breaks, you can pack your own food and drinks to save considerably.

5. Ride Your Bike 

This is a very good piece of advice, one which contributes greater health, saves the environment and most importantly in the context of this article saves you money. Riding your bike for journeys within reason will cut down your petrol/diesel costs significantly, and reduce other running costs associated with your car. Often you can also carry your bike on public transport, making long journeys easier with this method by combining train travel with cycling for a more efficient journey. This is a positive lifestyle change which should see you saving money in no time.

Thank you for reading today, and hopefully these tips will help you avoid debt, or if you’re already in debt, help you save money to pay it off.