Current Stock Market Not a Good Play for New Money?

Current Stock Market Not a Good Play For MoneyWhich DOW stock just hit a home run with its earnings? It was The Walt Disney Company (DIS), reporting another strong quarter in terms of its parks and resorts, consumer products, and media networks. It was a solid quarter for the company and the stock soared on the news, helping out the Dow Jones Industrial Average tremendously on a down day for the broader market.

The company’s fiscal first quarter of 2015 (ended December 27, 2014) produced nine percent in total sales growth, reaching $13.4 billion. But earnings were the big story here; the bottom line improved 23% on a diluted per-share basis.

So there is some decent growth out there, but it is nowhere near universal. Wall Street earnings expectations for the first quarter of 2015 continue to be on the decline.

That is why individual stock selection remains crucial. The stock market doesn’t look like it can meaningfully accelerate anytime soon. A selection of blue-chip winners (that pay dividends) is still my favored strategy in a slow-growth environment. Disney falls into this category, but for a stock like this, you really need to try and catch it on a major price retrenchment.

There’s not a lot of growth out there and institutional investors are herd investing in those businesses that do provide it. The result is stretched valuations and not a lot of new opportunities at this time.

It very well could be a year of dividends, only in terms of rate of return. Everything has already gone up and earnings expectations are ticking lower (the energy sector is contributing greatly to this).

Most stock market indices aren’t showing a breakdown yet, but they are in consolidation. Don’t let anyone sell you anything in this market. It’s going to be tough slogging for stocks this year, and there’s no need to rush into any positions.

One sector where both sales and earnings expectations remain strong is with the railroads. (See “Airline and Railroad Stocks Reporting Record-Highs on Weak Oil Prices.”) Of course, not every investor is willing to consider this industry, but business conditions are holding up well. In fact, earnings expectations have been going up for Union Pacific Corporation (UNP) for its upcoming quarters, this fiscal year, and next year.

This is a solid benchmark industry for investors to keep an eye on. What’s happening in rail freight is material to the economic outlook.

But in many cases, Street analysts are adjusting earnings expectations lower for the next few quarters, and a lot of it has to do with the stronger dollar and stagnant growth abroad.

So, there’s not a lot to get excited about after two years of capital gains. Investment risk is creeping higher with European sovereign debt problems once again becoming an issue and with China’s slowing economic growth as that economy matures.

I like very few stocks in this market for fresh money to consider. The pickings are slim, with earnings expectations on the decline and valuations stretched, and too few Walt Disney-type businesses.