Stock Market Investing When Sales Go South

Stock Market InvestingWhile corporate earnings are managed and the whole Wall Street “consensus” game is kind of a misnomer, financial reporting is the backbone of business. And it’s valuable information when it comes to stock market investing in a variety of companies.

Early corporate reporting is often from mature, brand-name companies that can crunch the numbers and get them to the marketplace much faster than smaller businesses with fewer resources.

So far in this second-quarter earnings season, the numbers have been very modest with international businesses producing a comparable decline in sales, largely due to currency translation.

Also Read: Stock Market Investing: Timing Really is Everything

Stock Market Investing Now: What Benchmark Companies Are Saying

There are lots of benchmark companies to follow, even if you don’t want to own their stocks. Oracle Corporation (NYSE/ORCL) and FedEx Corporation (NYSE/FDX) are good benchmarks regarding institutional information technology and consumer spending.

Earnings reports from the railroads are absolute must-reads. They are excellent benchmarks, even if the majority of their business is resource based. Statistical data from the Association of American Railroads is also highly useful.

CSX Corp. (NYSE/CSX) reported results that reflect the current environment. Second-quarter sales were down comparatively, but operating income and earnings per share (EPS) hit an all-time record high on lower fuel costs.

Coal shipments remain an issue for railroad companies. Low natural gas prices have been pummeling demand for coal.

Even so, CSX expects to deliver mid to high single-digit EPS growth this year, which is what the Street is looking for. (See “Stock Market Analysis: PepsiCo Stands Out Among Dull Earnings Growth.”)

Any Bright Lights in a Slow-Growth World?

This is so reminiscent of the numbers this year. Sales are flat to down on a comparative basis while earnings are holding up due to strong cost controls.

It’s not only a slow-growth world; currencies are wreaking havoc with multinationals.

Not surprisingly, it makes for a highly cautionary investment stance with very low expectations for the rest of the year.

Stocks have been in consolidation since January after two solid years of capital gains. This market is due for a material price correction but is still holding up due to monetary policy.

Following benchmark companies is a great way to hone your market view in regards to both the equity market and the economy.

There’s a definite slowing in business conditions as reported by large corporations. It’s expected, of course. And even with declines in comparative sales growth, the Street is still welcoming decent earnings.

But the numbers aren’t good enough so far to justify bidding this market. If the main market indices are going up, it’s based on a sentiment rebound regarding Greece/China.

In this market, dividends matter. An average yield of say 2.5% may just be the only return available this year from equities.

But, this is still a reasonable development considering where stocks have come from.

The most important news near-term is what companies actually say about their businesses. Caterpillar Inc. (NYSE/CAT) is on deck. So are the airlines.