Yesterday, Growth Portfolio member and the largest retailer in the world Wal-Mart (WMT) reported its second-quarter results. Earnings per share were up 9 percent – and, more important, the company increased its EPS guidance for the full year. It’s now expecting to make from $3.95 to $4.05, exceeds its earlier forecast of $4 profit for the year.

With the economy remaining weak, we view its sales growth as disappointing, although Wal-Mart continued to excel in leveraging expenses. As a result, operating income increased at a 4.4 percent rate over the like last year period, a better rate than sales. Wal-Mart customers continued to spend cautiously, and, as was commented on the company’s conference call, “the paycheck cycle remains pronounced. Government assistance continues to increase as a form of payment, particularly in regions with higher unemployment and credit now only represents about 15 percent of our tender.”

The soft U.S. economy was reflected in Wal-Mart’s flat U.S. sales. Same-store sales and same-store traffic declined—although they did show improvement by the end of the quarter. The weakness of the U.S. market was partially offset by strong trends in Wal-Mart International. Internationally, net sales increased by 11 percent and operating income grew faster than sales, reflecting growing margins.Read more...

Short-Term Key: Neutral Long-Term Key -63 (Neutral)

     We love it when the market keeps going up week after week. Who doesn't? But we also know better than to get carried away when the fundamentals do not support long-term gains.

      For now, our technical indicators say the uptrend is intact. The most important of these is the ratio of the relative strength of small caps vs. that of large caps, which remains positive. So we willingly maintain our exposure to stocks – but for the near-term only.

     How long will the rally continue? We can't say for certain. It could be as short as a month or as long as a year. Regardless, don't look on this as a return to the heyday of the 1990s. If anything, the fundamentals underlying the world's economy are getting worse. And that can only end in tears.

     It is worth mentioning, however, that in the very short term there are a few specks of grey. Over the past couple of days the market has become somewhat less discriminatory and that sometimes sets the stage for a very near term setback. But near term setbacks are always possible. Barring a sharp change in the indicators any correction should be less than 10 percent.Read more...

BHP Billiton (BHP), which is featured in both our Growth and Income Portfolios, failed to consummate a marriage with Rio Tinto (RTP) last year. But a subsequently proposed joint venture between the pair, the second- and third-largest iron ore producers in the world, could be nearing reality. The partnership between the two companies, if the deal is finalized, would merge their iron ore operations in Australia and create a synergy that could save around $10 billion a year on capital and production costs. The two companies are expected to ship more than 300 million tons combined of iron ore worldwide this year.

The joint venture is not written in stone yet. The companies are looking to finalize the deal by a December 5 deadline stated by Rio, while BHP’s CEO Marius Kloppers is less concerned about the date and is looking for completion before year-end. Regardless, the joint venture makes sense for both companies. Moreover, BHP could potentially revisit plans for a takeover if negotiations fall apart now that Rio Tinto has reduced its debt and commodity prices are stronger—the main reasons BHP had abandoned initial takeover plans—so a merge between the two companies in some form appears to be in the works. Read more...

Short-Term Key: Negative Long-Term Key: -14 (Neutral)Read more...