Stock Market Investing for Reduced Expectations: A Top Stock to Watch

Stock Market Investing for Reduced ExpectationsTrading action isn’t particularly rosy these days and new stock market investing requires tempered expectations.

Of course, it’s useful to keep in mind where stocks have come from. It’s been a tremendous five and half years. And even if a couple of those were flat, the environment was still very favorable for equities.

I think it’s reasonable to keep a positive outlook for stocks for the next several years. Even with a change in monetary policy, interest rates are low enough that rising rates could still be considered an exercise in posturing.

The Most Important Outlook for Stock Market Investing Now

No doubt, economic data has been soft lately, which is also the case with corporate earnings. Currency translation is going to continue to affect financial results. What matters most in this market is actually what corporations say about their businesses.

In the first quarter, international companies dealt with a stronger U.S. dollar and a softening of business conditions abroad. Winter also had a material effect on many domestic businesses.

But even with the expectation of rising interest rates, which makes the cost of borrowing money more expensive, there are countless positive outlooks for 2016. Management reports from many companies seem to have positive expectations for next year.

The Toro Company (NYSE/TTC)

One business that stands out in the domestic market is The Toro Company (NYSE/TTC). Toro makes specialized irrigation and turf maintenance equipment. Most of its products are sold to professional markets. It’s just the kind of esoteric small-cap company that’s outperforming while the general economy sputters.

Very often, unique businesses that don’t make the headlines actually can be very good stock market investments. (See “Stock Market Investing: A Little Company that Can Beat the Market.”)

Toro pays a small dividend (current yield is approximately 1.4%) and is more reasonably priced than a lot of stocks in this market. The position’s been ticking higher since the beginning of the year. Its long-term track record is impressive.

The company’s most recent quarter was its second of fiscal 2015 (ended May 1). Second-quarter revenues improved 11% comparatively to $826 million.

Second-quarter earnings per share grew 8.6% to $1.64, a new record for the company.

Citing good spring conditions, Toro should be able to produce another solid year of growth. At the very least, it’s reasonable to expect this company will grow at a rate far faster than the general economy.

As trading action in the broader market wanes (which it often does this time of the year), expectations continue to fall. The malaise is likely to continue for a while. But reduced expectations very well could turn into a lot of buying come the fourth quarter.

It won’t be too long before the next earnings reporting season is here. Most importantly, corporate outlooks will be better honed for how the rest of the year is likely to play out. And this is the most material information of all.

A stable business like Toro should be able to keep its outperformance over the coming quarters. There’s no tailwind anymore from the broader market. It’s only what you own that makes the difference now.