Benchmark Stocks: What They’re Saying About the Market

Benchmark StockesOne of my benchmark stocks for the stock market and the technology sector in particular is Oracle Corporation (NASDAQ/ORCL). The same way a company like Hewlett-Packard Company (NYSE/HPQ) would represent the retail technology industry, Oracle represents that corporate, institutional software sector and is a leader within the entire information technology industry.

Currently regarded as the world’s third largest software company, Oracle disappointed the stock market with its fiscal second quarter ended November 30. The company’s software revenues grew only two percent in the latest quarter and missed the consensus estimate. Earnings (excluding some items) came in at $0.54 per share, coming in weaker than the consensus estimate of $0.57 per share. This doesn’t bode well for the large-cap technology sector.

I follow a number of benchmark stocks, which I view as very helpful in honing my own stock market view. Like a broad, stock market index, I keep a weekly eye on about a dozen big-cap companies (most pay dividends) from a variety of industries. I follow several conglomerates, consumer products companies, technology firms, oil and gas, and pharmaceutical and railroad companies. As benchmark stocks, I keep track of their corporate developments and I can tell you that this process is very helpful in defining my stock market outlook. It also helps keep track of which industry sectors are doing better than others.

Right now, I would avoid the technology sector. While some companies are doing relatively well on the stock market, such as International Business Machines Corporation (NYSE/IBM) and Apple Inc. (NASDAQ/AAPL), a lot of other benchmark stocks within the sector are not. This would include: Hewlett-Packard, Dell Inc. (NASDAQ/DELL), Advanced Micro Devices, Inc. (NYSE/AMD), Juniper Networks, Inc. (NASDAQ/JNPR), and Research In Motion Limited (NASDAQ/RIMM) to name a few. The stock market, in my view, reflects the choppiness of the real economy. Some industry sectors are doing better than others, with only a handle of companies really outperforming.

This is why it’s important to follow benchmark stocks like Oracle, Intel Corporation (NASDAQ/INTC) and Hewlett-Packard. These three companies alone will give you a tremendous insight into the health of the technology sector, both at the retail and corporate level.

Whatever you might consider to be benchmark stocks, it pays to keep following them, even if you aren’t very interested in taking on a position. The strategy behind keeping track of your benchmark stocks is to discover the real economic trends that are taking place in important industries. Like railroad carloading rates or hard disk drive shipments. All these data are extremely useful because, for the most part, the headlines don’t report it. Media reports generalities about the stock market and corporate developments, but they rarely dig past the headlines. (See Debt Crisis Aside—Let’s Get Down to Business with the Real Numbers.) This is how you can be confident taking on or avoiding positions in the stock market.