Step right up, Foolish readers… and jump aboard the bull market express. It's time to put on the party hats and keep on dancing while the ultra-low interest rates music keeps playing.
The US S&P 500 gained 1.1% overnight, adding to its biggest four-day rally in more than a year. New US Fed chairman Janet Yellen has committed to…
"…helping the economy to return to full employment and returning inflation to 2% while ensuring that it does not run persistently above or below that level."
Choo, choo…
The bottom line is this year could be an even better year than the past two years, and that's saying something considering the S&P/ASX 200 Index rose around 15% in each of those years.
ASX 6,000 here we come?
Stock markets around the globe are finally realising that rather than fear the taper, they should embrace it, hold it and cuddle it… just like they did with Ben Bernanke and his printing press.
As Bloomberg reports… "Investors are betting that the economy is strong enough to weather further stimulus cuts."
And as JP Morgan Private Bank head of US equities Steven Rees told Bloomberg… "The economy is still on track to have a good year."
And the good news is showing up in company earnings so far. 76% of US companies have beaten analysts' profit estimates, according to Bloomberg, and here in Australia, we're off to a cracking start to our reporting season.
BUMPER, and I mean BUMPER results from Commonwealth Bank…
Here at home, the party is in full swing, with the Commonwealth Bank of Australia (ASX: CBA) reporting a 14% rise in half year profit to a whopping $4.3 billion, easily beating analysts' expectations of a measly $4.1 billion. I admit I was surprised at the strength of these results. At least I wasn't the only Fool to be taken by surprise.
"I admit I was wrong on Commonwealth Bank"
Motley Fool Australia General Manager Bruce Jackson said… "I admit I was wrong on Commonwealth Bank. I hereby declare Commonwealth Bank is a wonderful business." He was last seen eating his Foolish hat.
Motley Fool Hidden Gems co-advisor Joe Magyer said… "I am willing to declare I have just been plain wrong about Commonwealth Bank… so far. Revenue up by 8% is pretty good, even I must say." Joe was last seen pouring over results from a host of other ASX companies, hunting for the next "Hidden Gem." You'll be hearing more from Joe in the coming weeks.
A value investor with an intriguing twist
Joe Magyer is our resident value investor, although once you see Joe's stock picks, you'll quickly realise Joe's definition of value is very different to almost all other typical value investors. The results, as measured by the performance of Joe's Motley Fool Inside ValueUS newsletter, speak for themselves…
- The top spot in the Hulbert Financial Digest's five year rankings to June 30 2013, out of more than 200 US investment advisory services.
- Motley Fool Inside Value has beaten the Wilshire 5000 for the 6th consecutive year. It is the only newsletter in America to do so, per Hulbert's Financial Digest.
Like Joe, you won't see me buying shares in the world's most expensive bank at these prices. But if you absolutely have to have a bank in your portfolio, the smart money is pouring into one of smaller banks — more on that below.
Sizzling hot pizza… and another stunning confession
If you like your pizza sizzling hot, Domino's Pizza Enterprises' (ASX: DMP) has today reported a 39% increase in net profit for the half year. And in another stunning confession, Bruce Jackson said… "I hereby declare I was wrong about Domino's Pizza too."
Bruce and Scott Phillips advised Motley Fool Share Advisor members SELL Domino's Pizza at $13.50, locking in a 40% profit for subscribers. While the old saying "you never go broke taking a profit" is true, Bruce and Scott clearly left a lot of hot pizza on the table. Today Domino's Pizza shares are changing hands at $18……Ooops.
On the bright side, if you are going to make an investing mistake, and everyone does, this is not the worst mistake you can make.
Earnings season off and running
Most ASX sectors are seeing nice growth in earnings. Today health care provider Primary Health Care (ASX: PRY) announced its net profit grew by 13%, and share registry Computershare (ASX: CPU) saw a 47% jump in net profit. But there's always one that wants to be the party pooper.
Airline industry in terminal nose dive
Surprise, surprise, it seems the domestic airline industry is on a steep descent, headed straight for the ground, according to Garry Filmer, chief operating officer at Regional Express Airlines (ASX: REX).
Regional Express says its first-half profit will fall by 60%, as demand for travel slumped. Mr Filmer has told The Australian… "The entire aviation industry is financially haemorrhaging right now and approaching collapse." Regional carrier Brindabella collapsed in December, just six months after merging with smaller regional airline Aeropelican… probably not surprising given the name of the latter company.
Virgin Australia (ASX: VAH) has flagged that it will post a first half loss of around $49 million. Larger competitor, Qantas Airways (ASX: QAN) has conceded it will report a pre-tax loss of between $250 and $300 million, amid a fierce battle over domestic travel routes with Virgin.
Qantas in deep doo doo
Never one to mince words, Virgin Australia founder Sir Richard Branson has reportedly claimed Qantas boss Alan Joyce is in "deep s__t", for sticking to the company's strategy of maintaining its 65% share of the domestic market. Mr Branson says Qantas has lost hundreds of millions of dollars over it.
Qantas has appealed for help from the Federal government, claiming Virgin's three large airline shareholders — Etihad, Singapore Airlines and Air New Zealand (ASX: AIZ) — allow Virgin to adopt a loss-making strategy to win market share, since they are partially backed by their respective governments. Where this battle will end no one knows, but we'll be watching this one play out from the sidelines. At least it's more entertaining than the meal offerings Virgin and Qantas serve up on their domestic flights.
I'm not the only investor steering clear of the Big Four banks
Speaking of looking for better investment alternatives, the AFR reports that one canny fund manager is steering clear of the big four banks.
A better bet than the big four overpriced banks?
Airlie Funds Management's John Sevior, a widely respected stock picker, is reportedly building a position in Queensland-based Suncorp Group (ASX: SUN). Suncorp appears cheaper than its four larger brethren, on a P/E ratio of 12 times, compared to the big four on 14 times earnings. The SMSF Army may be a bit disappointed in the dividend yield, which is currently around 4.5% and lower than the average for the big four – but it is still fully franked.
But perhaps the least well known fact about Suncorp, especially among retailer shareholders, is that Suncorp generates the majority of its earnings from insurance, so it's hardly a pure banking play. The insurance division generated $1.2 billion in earnings in 2013, compared to just $290 million from its banking business.
More dividend joy ahead?
Analysts appear upbeat about Suncorp's prospects, saying the company is coming out of its bad, old, dark days and could even surprise investors with increased dividends or a one-off special dividend. Suncorp is due to report its half year results in a week's time, and at least one savvy investor will have their eye on it.
