Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Two Great Stocks Worth Considering When They’re Down

Friday, November 30th, 2012
By for Profit Confidential

Two Great Stocks Worth Considering When They’re DownThe stock market continues with its consolidation, unsure of its direction, bouncing off daily changes in investor sentiment. This is a very tough stock market to place your bets in, because everything could just come off the rails due to the sovereign debt crisis in the eurozone or the fiscal cliff/debt ceiling negotiations in the U.S. The good news is that corporations are, for the most part, in extremely good financial shape and stock market valuations are reasonable. These two factors go a long way towards tempering the current price consolidation.

We know that earnings expectations for the fourth quarter have been reduced. The market now knows that revenue growth is a difficult thing for large-cap companies to achieve; therefore, fourth-quarter earnings season isn’t likely to be that great. But, very soon, the stock market will be focused on the first half of 2013, and if corporations provide improved visibility for the first quarter, the stock market will take off.

We’ll probably see the broader market continue with its consolidation right up until fourth-quarter earnings season begins. Progress on the fiscal cliff and the sovereign debt crisis will be met with buying in the stock market. Fourth-quarter earnings from the retail sector are likely to surprise to the upside.

One large-cap company that’s outperforming in this market is The Procter & Gamble Company (NYSE/PG). The company’s third-quarter earnings report was solid and multiple Wall Street analysts recently increased the company’s earnings expectations for its current and next fiscal years. The company’s stock chart is below:

Procter & Gamble Co. Chart

Chart courtesy of www.StockCharts.com

Trading right at its 52-week high, Procter & Gamble was a great buy this past summer when the shares dipped below $60.00. Procter & Gamble has experienced its share of volatility on the stock market, but its long-term track record is excellent—the operative words being “long-term.”

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Colgate-Palmolive Company (NYSE/CL) is another consumer products company that has distinguished itself on the stock market. This company’s earnings growth has been very consistent, and so has its share price appreciation over time. (See “Want a Stock Hitting a Record High? Bring on the Dish Soap.”)

Colgate-Palmolive Co. Chart

Chart courtesy of www.StockCharts.com

I would like to see a further pullback of the main stock market indices, which would provide an attractive new entry point for blue chip investors. Many large-cap dividend-paying companies are worth buying when they are down, even if the U.S. economy faces another recession.

Valuations remain reasonable at this time, and while the outlook for corporate earnings is pretty flat, it is not in decline. Dividends are now very much an important part of expected returns from the stock market. With revenues and earnings growth expected to be modest next year, dividends will be a big component of total performance.

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Mitchell Clark - Equity Markets Specialist, Financial AdvisorMitchell Clark, B. Comm. 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, such as Income for Life and Micro-Cap Reporter. Mitchell, who has been with Lombardi Financial for 17 years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. Add Mitchell Clark to your Google+ circles

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