These Safest Names Still Offer the Best Returns

Same Old Trend to Continue Despite Improved Earnings NumbersThe earnings are beginning to flow and it’s a total mixed bag out there again.

Carnival Corporation (CCL) beat the Street with its second-quarter numbers, with cruise line sales growing four percent over the second quarter of 2013.

Guidance, however, was mediocre and the position sold off on its earnings results.

Walgreen Co. (WAG) has been very strong on the stock market over the last 12 months. The drugstore chain produced a six-percent gain in sales to $19.4 billion, and a 16% gain in earnings to $722 million.

But the company is getting squeezed both by health insurers and pharmaceutical manufacturers, so its business model is getting pressured.

Walgreen is considering reincorporating overseas to reduce its tax burden, but it won’t have details on any potential plan until later in the summer. The stock went up on the news.

Second-quarter earnings results were actually a bit better than expected and once we get into blue chip numbers, I think the market will be a bit more appeased.

It is important to remember where stocks are coming from. It’s been an exceptionally good last few years for equities; 2013 was outstanding.

The first quarter was a tough one, both due to the weather and general business cycle conditions. The market isn’t expecting second-quarter numbers to be strong, and that goes for both gross domestic product (GDP) and corporate earnings.

All that corporations have to do is meet or beat on one financial metric and either affirm or improve existing full-year guidance. With this backdrop, institutional investors will keep buying.

Monsanto Company (MON) soared to a record 52-week high after releasing a modest earnings report, but the company announced a new $10.0-billion share repurchase program and slightly improved guidance for the future.

Herman Miller, Inc. (MLHR) is a manufacturer of office furniture and related items. The company’s earnings beat consensus but missed on revenues (still producing a six-percent gain) and near-term guidance was lowered below consensus.

The stock sold off on the news, and one might view the company as a benchmark play for office furniture systems. It still produced growth, however, just not up to what Wall Street was looking for. This doesn’t mean this isn’t still a growth business.

Bed Bath & Beyond Inc. (BBBY) announced flat earnings per share on a 1.7% gain in comparable quarterly sales. The stock took a beating and has actually been having a very difficult time since the beginning of the year; it didn’t recover like the broader market.

Of course, it’s very early days in the current earnings season and the second calendar quarter isn’t over just yet.

Earnings have not been uniform for a number of quarters now and it’s part of the reason why institutional investors have been so interested in buying dividend-paying blue chips. (See “Top Stock to Watch Among These Three Winning Techs.”) The safest names offer the safest earnings and also some of the best reliability in terms of corporate outlooks.

While I expect this earnings season to be decent, the same old trend should continue to prevail. Blue chips should continue to be the market’s favorites and existing winners should continue to produce relative outperformance.