My Favorite Benchmark Stocks
That Lead the Stock Market

U.S. employmentEarnings seasons are always the best times of the year to be researching stocks. I have a number of benchmark stocks that I very much look forward to reviewing and I enjoy reading up on these companies even if I’m not contemplating them for investment.

One of the benchmark stocks that I always review is Union Pacific Corporation (NYSE/UNP). Following this company is a great way to get a feel for the industrial economy. The railroads are also a key indicator for the stock market where Union Pacific is the market leader within the group. The company’s shares have been an amazing wealth creator since 2005. The stock got cut in half during the financial crisis (like the rest of the stock market), then tripled over the last three years with a solid dividend yield between two percent and three percent. I expect Union Pacific to report another great quarter, particularly as automobile shipments are accelerating. We could see some weakness in coal shipments due to competition from natural gas, but on balance, business at the railroads is very good.

Another one of the benchmark stocks that I always keep an eye on is International Business Machines Corporation (NYSE/IBM). The company reports shortly and its shares have been amazingly strong on the stock market for the last couple of years. Large-cap technology has definitely been the stock market’s leading sector this year and I always want to know what both IBM and Intel Corporation (NASDAQ/INTC) say about their businesses. If we get better-than-expected earnings results in large-cap technology, I think the stock market has a good chance of moving higher, perhaps by another 10%.

And there are other benchmark stocks that I think are very important to follow. Automatic Data Processing, Inc. (NYSE/ADP) is one of the best market indicators regarding the employment situation. A payroll processing and human resource business is literally like having a finger on the pulse of the U.S. economy. Automatic Data Processing has done well on the stock market over the last 18 months, as institutional investors have been betting on a recovering economy. Automatic Data Processing is a great benchmark stock to follow also because the company reports a number of private sector surveys about U.S. employment and this information moves the stock market.

Finally, I can’t get through an earnings season without reading up on a few consumer goods companies, such as PepsiCo, Inc. (NYSE/PEP) and Colgate-Palmolive Company (NYSE/CL). Johnson & Johnson (NYSE/JNJ) is an important benchmark stock representing both consumer and pharmaceutical goods. I find it very useful to read up on companies whose products I use every day. (See PC-03-23-12 Want to Know the Market’s Best Stocks? Look For The Best Brands.) Colgate-Palmolive is one of the best long-term wealth creators in the stock market and it’s done so selling toothpaste and soap.

No analysis of the marketplace would be complete without reviewing the numbers from an integrated oil and gas benchmark stock. Oil remains a huge part of the economy and the stock market. What ConocoPhillips (NYSE/COP), for example, says about its business is telling. The company’s numbers are usually great, but production is slowly going down. It’s not for a lack of effort on their part; it’s just that we’re actually running out of easy-to-produce oil.

As I say, following some benchmark stocks is a great way to hone your stock market view, even if you’re not considering a particular company for investment. It’s not difficult at all to look beyond the headline numbers and get a decent feel for how a business and industry is doing. Following benchmark stocks helps provide clarity through all the noise.