Another Solid Earnings Season Ahead for Existing Winners?

Solid Earnings SeasonOne large-cap that always reports early is Costco Wholesale Corporation (COST). The company’s numbers came in solid.

Costco hit a wall not too long ago and was hard pressed to produce growth. But the company’s latest quarter beat the Street with considerable sales strength in the month of September.

In its most recent quarter, there was considerable growth in the company’s cash position and shareholders’ equity improved significantly.

For the 16 weeks ended August 31, 2014, Costco’s total sales grew nine percent to $35.5 billion, which is an impressive performance in retail. Of these total sales, membership fees (which are total gravy) grew 7.3% to $768 million.

Comparative store sales in the most recent quarter grew six percent in the U.S. market and the same internationally. If it weren’t for weaker gasoline prices and the stronger U.S. dollar, international comparative store sales would have improved by eight percent.

Earnings in the company’s fiscal fourth quarter grew to $687 million, or $1.58 per diluted share, representing a 13% gain on a per share basis compared to the same quarter last year.

Costco has been consistently ticking higher on the stock market since this time in 2010. The position hit a high in late 2013, then retreated commensurately with its financial growth. It’s only in the last couple of months that the company’s stock has reaccelerated.

For a new price trend, the stock needs to convincingly break out above $130.00 a share, which I think is probable.

The company’s latest quarter was very good and a reflection of solid management execution.

On the day that Costco reported, the Federal Reserve released the minutes of its latest meeting indicating that the central bank was in no rush to raise interest rates, especially with global economic activity softening.

The news sent stocks (which have been suffering from weakening sentiment) sharply higher and the central bank continues to be extremely accommodative to Wall Street and the equity market.

Two themes have emerged from the early reporting from corporations. One is that corporate balance sheets and financial results continue to be pretty good. The second is that currency translation is affecting the bottom line.

Therefore, in a market that has already gone up tremendously, individual stock selection is the key to outperformance going forward. (See “Large-Cap Tech Doubling in Price and Headed Higher.”)

The Federal Reserve is clearly on board to be super accommodative going into 2015, and as I’ve said before, it doesn’t pay to fight the central bank.

With this backdrop, corporate financial results are the best indicator going forward. What a company says about its business is the most useful information out there.

Costco looks to have broken out of its recent lull and that’s good news for shareholders. The company’s latest quarter represented an acceleration of comparative growth, greater than its recently completed fiscal year.

With the Federal Reserve still onside (right or wrong), even with the stronger U.S. dollar, there’s good potential for another solid earnings season. The market still looks good for existing winners.