4Q14 Stock Summary: Fourth-Quarter Earnings Season a Bore
We’re now in the lull between earnings seasons, and stocks will trade off economic news and geopolitical events.
Fourth-quarter earnings season was fairly uneventful. It seemed that investors basically ignored the results, unsure of whether to buy a market that’s already gone up.
There’s been continued strength among technology stocks, and the NASDAQ Composite recently broke out convincingly over 4,750, where it had been in consolidation since last November.
This price strength, combined with strength in the Russell 2000 index of small-caps, still bodes well for the broader market in a low-interest-rate environment.
I feel that this is a difficult environment for equity investors to be buyers. A full-blown correction in stocks, while always painful, would help with valuations and present a much more attractive entry point for new positions.
There isn’t a lot of value around and market risk is high because of where it has come from. Major price retrenchments do create opportunities, and there are some attractive stocks within the energy sector, presuming, of course, that oil will eventually appreciate in price.
This is a market where I think new money should be very patient and highly deliberate when considering positions. Because the broader market has already gone up, there shouldn’t be any rush to buy; if anything, investment risk should be the focus.
Dividends Key to Securing Returns This Year?
As mentioned previously in these pages, I do like blue-chip equities that pay solid dividends. For the investment risk, I do believe this is still the best asset class and that dividend reinvestment can be a very useful return accelerator over time.
Things started out tough for stocks at the beginning of last year and instead of following the “sell in May and go away” trend, prices accelerated with a solid surge at the end of the year.
Predicting where stocks will go this year is just guesswork. Currency translation will continue to be an issue for global corporations.
Because this market is tired out and sentiment has been affected by oil prices, fourth-quarter earnings results were followed by yawns. But even with the stronger U.S. dollar affecting financial statements, many companies reported pretty decent numbers. And there remains plenty of cash on balance sheets to help with share repurchases and rising dividends. (See “These Dividend-Paying Stocks Your Best Bet Right Now?”)
Market earnings have been hurt in the energy sector, and this will likely last a few more quarters. But I still look at corporate outlooks as the best guide for investors and many of the forecasts are quite positive for 2015.
I still favor portfolio benchmark stocks, such as The Walt Disney Company (DIS), Kinder Morgan, Inc. (KMI), Wells Fargo & Company (WFC), PepsiCo, Inc. (PEP), and NIKE, Inc. (NKE), for long-term investing. They are the kind of positions you build over time and can employ dividend reinvestment if you are saving or use the income if required.
I still like the market’s existing winners in a slow-growth environment. Dividend income remains key because it may just be the only return investors see this year.