The stock market is holding up pretty well due largely to a good start to the third-quarter earnings season, which in the past has always provided some excitement and nervous times.
For the third quarter, estimates call for earnings to rise 13% as of October 18, flat versus the 13% as of October 3, according to Thomson Reuters. Of the 52 S&P 500 companies that have reported, 67% exceeded estimates and 21 fell short. These early results are somewhat off from the second quarter in which 71% of S&P 500 companies beat estimates and 19% fell short. This may or may not indicate a weaker third quarter, but I do think that the top stocks will likely be in the technology area and perhaps the banks. For the stock market to advance into a bull market, it will require leadership from technology and banking.
So let’s see what we have so far.
Internet star Google Inc. (NASDAQ/GOOG) demonstrated why I love technology stocks. In the third quarter, Google blew away on revenues and earnings by a wide margin. The company’s addition of Motorola Mobility Holdings, Inc. (NYSE/MMI) will help Google in aggressively pushing sales of its “Android” phones.
The biggest surprise early on in the stock market was a revenue and earnings-per-share (EPS) shortfall by Apple Inc. (NASDAQ/AAPL)—the first quarter to be reported after the recent death of Steve Jobs. The soft results were not a big deal in my view. Apple blamed the softer results on the late timing of its highly successful “iPhone 4S,” which sold over four million units in the first three days. In the quarter, the company delivered strong revenue growth of 39% and earnings jumped 54%. I expect the late revenue flow from the record iPhone 4S to produce a strong fourth quarter. You might want to look into taking the opportunity to buy Apple on the current weakness. My view is that the company is on fire and there is no stopping the momentum now, as Apple is in its own bull market.
Another reason to look at technology stocks: chipmaker Intel Corporation (NASDAQ/INTC) also delivered after beating on revenues and EPS. The company also increased its share buyback program. Intel is the dominant chipmaker in the world and its concerted move into more mobile applications should pay off.
Yahoo! Inc. (NASDAQ/YHOO) also beat on EPS with revenues inline. The company needs a change of direction and may be on the verge of a potential takeover by private equity.
A disappointment was International Business Machines Corporation (NYSE/IBM) after the company beat on EPS by a small margin, but its revenues came in slightly below estimates at eight percent year-over-year growth.
Going forward, I continue to believe that technology—and technology stocks—will be the driver of the stock market going forward into the next several years. Take any opportunity to buy on weakness.
I want to see revenue growth. In my article Why Technology’s Still at the Top of My Investment List), I suggested the importance of growing revenues and discussed how much I like technology stocks.
I also continue to believe that an Apple a day will do wonders! Take a look at article, My Tribute to Steve Jobs—Visionary and Leader. Jobs had the vision to make Apple a dominant global powerhouse in technology and has made many investors rich.