A lot of earnings news got ignored by this stock market, and I believe it’s a genuine sign that this is very much a market that’s tired out, with investors not particularly enthused about bidding.
There continues to be an ongoing presentation of conflicting economic data. While orders for durable goods (including transportation) grew 2.8% in January, existing-home sales came in lower than expected.
It’s kind of like we’re in a no-win market for stocks with the main indices having already gone up on modest earnings and mediocre economic fundamentals (thank you, extreme monetary policy).
And because of the lack of uniformity in this economic recovery, it’s tough to be a buyer.
What Investors Should Look for in a Slow-Growth Market
The importance of dividend income comes to my mind when thinking about the fundamental backdrop investors have in which to operate.
There’s always been a disconnect between the Main Street economy and Wall Street’s perception of reality. That’s the way capital markets have always operated and it’s unlikely to change.
So what can you do if you’re an equity investor with money to be put to work? Things have been good if you’ve owned stock on the S&P 500 the last several years. But in a super-low-interest-rate environment with very little in the way of uniform economic growth, dividends are king.
I believe portfolio creation and risk management should be a simple endeavor.
If you’re retired and need income, yield and preservation of capital are critical. If you’re saving for retirement (or something else), you certainly can own dividend-paying stocks. You can employ dividend reinvestment to boost your returns over time and you can pepper your portfolio with more speculative issues in the search of capital gains.
Mixing up a portfolio of stocks with different strategies can go a long way to reducing your exposure to risk, while participating in capital gains if the equity market provides them.
Johnson & Johnson, Union Pacific, 3M Company: Reliable Stocks to Watch
When stocks broke out of their price consolidation in early 2013, institutional investors chased earnings safety, and liquidity. Companies like Johnson & Johnson (JNJ), Union Pacific Corporation (UNP), and 3M Company (MMM) provided that earnings safety, and they did tremendously well.
In a slow-growth environment, I still believe that investors will bid reliable earnings among the companies that offer it and for that reason, the market’s blue-chip existing winners can still be considered by new money.
Of course, it’s not a great time to be buying a market at its high. Which is why there is no rush.
One trend I’ve noticed among Wall Street earnings estimates for a lot of dividend-paying blue chips is that both earnings and comparable sales growth forecasts for 2016 are being bumped higher.
A cursory look at a number of brand-name companies shows the expectation for an acceleration over the modest sales and earnings growth currently forecast to be achieved this year.
The currency translation issue with the stronger U.S. dollar is now well accepted by the marketplace, and this is less of a worry among international corporations.
Previously in these pages, we looked at some of my favorite stocks to watch going forward. (See “4Q14 Earnings Season Uneventful; Fie Stocks to Consider for Steady Returns.”) While sentiment is quite lackluster currently, a positive backdrop remains.