Where the Stock Market’s Going:
The Benchmark Stocks That Will Tell Us
There are a number of benchmark stocks that I follow and, even though I may not own them, these stocks are very good indicators either for a specific industry, the economy in general, or the stock market.
One company that I feel is an important benchmark stock to follow is Automatic Data Processing, Inc. (NASDAQ/ADP). This well-known payroll and human resources outsourcing company provides a great barometer on the Main Street economy and the U.S. employment picture specifically. The stock corrected along with the broader stock market to $45.00 per share in the third quarter of last year, then recovered smartly back above $50.00 per share. Now the stock is trading at approximately $55.00 per share and it recently hit a new 52-week high of $57.10 per share. As a benchmark stock, this performance is telling.
Automatic Data Processing’s quarterly results last year were very solid considering the state of the economy and earnings held up well. Just in the last 30 days, a number of Street analysts increased their earnings estimates for Automatic Data Processing’s next two quarters and its upcoming fiscal year. If a benchmark stock like Automatic Data Processing is trading right near its 52-week high, then, in my mind, it’s one more sign that the U.S. economy is moving in the right direction, albeit slowly.
Another benchmark stock that’s always worth keeping an eye on is IBM Corporation (NYSE/IBM), which has proven to be an outstanding wealth creator on the stock market, especially recently. It truly is impressive to see a $200-billion-dollar company appreciate so much on the stock market. This stock has been going up, virtually in a straight line, since September of 2010. Back then; it was trading around $125.00 a share. Today, the stock is priced right at its all-time record high of $194.00 per share, trading at about 15 times trailing earnings. This to me is impressive. IBM is a benchmark stock that’s been a big help to the Dow Jones Industrial Average. Wall Street analysts are continuing to increase their earnings expectations for IBM. In the last 30 days, 18 analysts increased their earnings estimates for IBM for all of 2012 and eight Street analysts revised their numbers upward for 2013. IBM’s performance is another good sign regarding the health of corporate America and the technology sector. (See What Early Reporting From the Technology Sector Reveals.)
One benchmark stock in which I would like to see a breakout is General Electric Company (NYSE/GE). The stock market hasn’t been very kind to General Electric since October of 2007 and the company’s share price performance can definitely be used as a leading indicator on the global economy. This stock has basically been trading between $10.00 and $20.00 a share since the stock market low of March 2009. A handful of Street analysts recently increased their earnings expectations on General Electric slightly, but the company is still stuck in a slow growth environment. However, I would add that any meaningful and sustained breakout above the $20.00-per-share level would be a very positive development for this benchmark stock and the rest of the stock market. General Electric proved to be a good leading indicator for the global economic slowdown and should therefore be a good indicator of its recovery.
I find it very helpful to follow benchmark stocks, even if I’m not planning on taking on new positions in the stock market. Tracking these companies helps hone your stock market view and see where the leadership is or isn’t in the marketplace. I would bet that IBM and Automatic Data Processing keep ticking higher over the coming quarters and that General Electric will stay in its long-run trading range. The near-term trading action in the stock market continues to look positive, but, like the economy, not all sectors are participating.