Debt Crisis Aside—Let’s Get Down to Business with the Real Numbers

The big story is obviously the progress on the debt crisis and, because of this, a lot of stock market investors are being distracted from the good news. The European debt crisis has not gone away. The fix comes only at the end of the debt crisis’ beginning. Frankly, I’m kind of annoyed it took this long for policymakers to act. The domestic stock market has suffered long enough because of a lack of firm action on the European sovereign debt crisis. It isn’t going away anytime soon, but thankfully, the debt crisis is now being addressed.

Stock market earnings continue to pour in and, for the most part, they are coming in as expected, with a slight bias to upward surprises. The big story is obviously the progress on the debt crisis and, because of this, a lot of stock market investors are being distracted from the good news. All I can say is that, with a very slow economic backdrop, large-cap corporate earnings are impressive and I think it’s a theme that’s going to stick for the next several quarters. With the stock market breaking out of its correction trading range, the likelihood of more near-term upside is strong.

It’s up to the Europeans to fix their debt crisis and that’s that. I don’t want to sideline the issue, as we all know stock market investment risk has been a lot higher because of their fiscal problems. But, it is third-quarter earnings season and I want domestic stock market investors not to forget just how well some companies are doing right now. It might not seem like good times on Main Street, but, at the corporate level, things are looking good—debt crisis or not.

Consider the outstanding performance being produced by pharmaceutical powerhouse Bristol-Myers Squibb Company (NYSE/BMY). Stock market investors in this high-dividend-paying stock are being well rewarded with solid financial results that beat the Street and a stock price that just hit a new 52-week high with a four-percent dividend yield. All this and a stock market price that continues to be reasonably valued.


Bristol-Myers sells the blockbuster blood thinner known as “Plavix,” along with a number of other big name successes. The company’s third-quarter net income came to $969 million, or $0.56 per share, up from $949 million, or $0.55 per share, in the same quarter last year. Excluding an after-tax charge of $75.0 million for one-time items, adjusted net income was $1.0 billion, or $0.61 per share, topping Street consensus of $0.58 per share on an 11% gain in revenues to $5.35 billion.

Stock market owners of Bristol-Myers have been solidly rewarded over the last two years and it’s not only because of the capital gain. Bristol-Myers has averaged a five-percent dividend yield, which is quite a lot when you think about it. A five-percent dividend yield adds up pretty fast, especially in a stock market that’s been anything but consistent. The debt crisis might have held the stock market back over the last several quarters, but not in BMY shares.

Moving to the agriculture sector, fertilizer giant Potash Corporation of Saskatchewan Inc. (NYSE/POT), which is an important stock market benchmark in this burgeoning sector, reported its second highest third-quarter earnings ever. According to the company, “Although customers prudently managed inventory risk, the undeniable need for potash, phosphate and nitrogen ensured our products moved through the system to reach farmers around the world. Our third-quarter performance reflected the unrelenting pressure on global food production…”

The company’s stock market performance has mimicked the broader market this year, but technically, Potash looks very healthy, with a long-term upward trend seemingly intact. The company reported third-quarter earnings of $826 million, representing an impressive gain of 147% over last year. Revenues grew to $2.32 billion in the latest quarter, up from $1.58 billion last year, and management said it is on track to grow its earnings by around 85% for all of 2011.

The stock market has certainly been in a bad mood lately and it’s no wonder with the European debt crisis and declining expectations sapping any positive investor sentiment. Of course, you can’t say that the debt crisis is now over and you can’t say that the stock market won’t be subject to major shocks in the future; but, over the near term, I’ll take the good news over the bad. This is a stock market that’s poised for further short-term gains.

The biggest worry among institutional stock market investors and the European debt crisis isn’t a Greek default. It’s the cascading default risk to the big European banks and the resulting instability this would create with the euro currency. The debt crisis has no doubt created a permanent investment risk for domestic stock market investors. I’m just glad that European policymakers figured out that they needed to act boldly on the debt crisis issue. It just goes to show you that policymakers are always behind the action in capital markets.