Earnings, Earnings, Earnings—They’re All This Market Needs
There is value in this stock market, but there’s not a lot of earnings growth. There’s also not a lot of certainty regarding the fiscal cliff, the sovereign debt crisis in Europe, and the economic slowing in China. Select dividend paying stocks are attractive, but I still see no compelling reason why investors should be buying stocks in this market.
Interest rates are low (artificially), and we’re now in a traditional strong period for the stock market. Corporate balance sheets are solid, so we have a situation where the potential for earnings growth is significant, but underlying economies are stagnant. (See “Blue Chips—How They’re Looking in This Market.”)
Oracle Corporation (NASDAQ/ORCL) is always a good benchmark in the enterprise technology sector. The company reports a little earlier than most; its latest numbers were emblematic of the current state of things. Generally Accepted Accounting Principles (GAAP) earnings grew 11% in the company’s most recent quarter, but revenues slipped about two percent. It will be interesting to read what Oracle reports about business conditions. The company is a benchmark in terms of corporate spending on information technology.
Chart courtesy of www.StockCharts.com
On the stock market, there’s been a good bounce-back among leading technology companies. Amazon.com, Inc. (NASDAQ/AMZN) sold off to $220.00 a share, but recovered to the $250.00 level just in the last two weeks. The stock’s 52-week high is $264.11 per share.
Chart courtesy of www.StockCharts.com
What I’d really like to see is International Business Machines Corporation (NYSE/IBM) come back on the stock market. International Business Machines (IBM) has been a standout among technology stocks, but the company looks like it’s rolling over here. The stock recently crossed its 50- and 200-day simple moving averages (SMAs). The company reports its next quarterly earnings on January 21, 2013.
If I were a buyer in this stock market, I would look to large-cap, dividend paying consumer stocks with a large percentage of sales coming from the domestic market. I don’t particularly care for exposure to Europe, but you can have some exposure to China through multinationals.
Regardless of what happens in the broader stock market, earnings growth is key, and it’s something that’s tough to come by these days. Corporations themselves are very well positioned to accelerate their earnings when growth rates in the largest economies improve. We’ll probably have to endure another recession before this happens, but then it could be a very good period for stock market investors.
About the Author | Browse Mitchell Clark's Articles
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 30, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 30, 2015
|Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)||$1014.15|
|Trailing 12-month Price/earnings multiple (Most Recent Quarter)|
|Dow Jones Industrial Average Dividend Yield||2.71%|
|10-year U.S. Treasury Yield||2.14%|