The first thing that consumers do when a recession or financial crisis hits is cut discretionary spending. That’s why a benchmark stock like Harley-Davidson, Inc. (NYSE/HOG) feels the pain immediately. HOG’s stock market value plunged in the last half of 2008, as the recession took hold. Then the financial crisis hit and it took three years for the shares to recover. HOG used to be a stock market darling.
As a kind of benchmark stock for discretionary (luxury) spending, the company’s first-quarter earnings report was excellent. It reported a 20% increase in total retail sales of new Harley-Davidson motorcycles worldwide. In the U.S. market, retail sales grew an impressive 25.5% and more than a third of motorcycle sales were to riders who were new to the brand. First-quarter revenues grew 20% to $1.27 billion and net income grew 45% to $172 million.
On the stock market, HOG is trading at a new 52-week high, but is only now back to the price it was trading at in August 2000—that’s almost 12 years ago! As a benchmark stock in the consumer goods sector, the company’s earnings and visibility are positive indicators. International sales are a growing portion of revenues, but that’s the case with most large-cap companies nowadays.
Another benchmark stock that is worth following is Caterpillar Inc. (NYSE/CAT), which reported another record quarter for earnings and raised its guidance for the rest of this year. The company’s total revenues grew 23% in the first quarter to $15.98 billion and earnings grew 29% to $1.59 billion.
After reporting some softness in its business during the third quarter last year, the stock market sold the shares to a low of $67.54, down from around the $100.00 per share level. Amazingly, the stock experienced a big reversal in October last year and the stock market bid up the shares from $67.54 to a high of $116.95. That’s an impressive performance for such a large-cap company. It shows just how unpredictable investor sentiment can be.
Another benchmark stock, The Boeing Company (NYSE/BA), announced better-than-expected first-quarter earnings. Revenues grew a solid 30% to $19.4 billion, beating consensus of $18.5 billion. Excluding a one-time gain, earnings were $1.11 per share, also beating consensus of $0.96 per share. (See My Favorite Benchmark Stocks That Lead the Stock Market.)
Like Harley-Davidson and Caterpillar, Boeing also increased its guidance for the rest of 2012. Yet, for all the success that these benchmark stocks are achieving, the good news seems to already be priced into the shares. So, in my estimation, it will mostly take an expansion of stock market valuations to see these share prices move higher in a material way and that’s a tough thing to achieve in a slow growth environment.
Corporate earnings are good. The stock market has already appreciated in anticipation of this and the equity market is appropriately valued. More benchmark stocks will have to report better-than-expected earnings in order for the S&P 500 Index to break 1,400 again.