Earnings, Earnings, Earnings—They’re All This Market Needs

All This Market NeedsThere is value in this stock market, but there’s not a lot of earnings growth. There’s also not a lot of certainty regarding the fiscal cliff, the sovereign debt crisis in Europe, and the economic slowing in China. Select dividend paying stocks are attractive, but I still see no compelling reason why investors should be buying stocks in this market.

Interest rates are low (artificially), and we’re now in a traditional strong period for the stock market. Corporate balance sheets are solid, so we have a situation where the potential for earnings growth is significant, but underlying economies are stagnant. (See “Blue Chips—How They’re Looking in This Market.”)

Oracle Corporation (NASDAQ/ORCL) is always a good benchmark in the enterprise technology sector. The company reports a little earlier than most; its latest numbers were emblematic of the current state of things. Generally Accepted Accounting Principles (GAAP) earnings grew 11% in the company’s most recent quarter, but revenues slipped about two percent. It will be interesting to read what Oracle reports about business conditions. The company is a benchmark in terms of corporate spending on information technology.

ORCL Oracle Corp Nasdaq stock market chart


Chart courtesy of www.StockCharts.com

On the stock market, there’s been a good bounce-back among leading technology companies. Amazon.com, Inc. (NASDAQ/AMZN) sold off to $220.00 a share, but recovered to the $250.00 level just in the last two weeks. The stock’s 52-week high is $264.11 per share.

AMZN Amazon.com Nasdaq stock market chart

Chart courtesy of www.StockCharts.com

What I’d really like to see is International Business Machines Corporation (NYSE/IBM) come back on the stock market. International Business Machines (IBM) has been a standout among technology stocks, but the company looks like it’s rolling over here. The stock recently crossed its 50- and 200-day simple moving averages (SMAs). The company reports its next quarterly earnings on January 21, 2013.

If I were a buyer in this stock market, I would look to large-cap, dividend paying consumer stocks with a large percentage of sales coming from the domestic market. I don’t particularly care for exposure to Europe, but you can have some exposure to China through multinationals.

Regardless of what happens in the broader stock market, earnings growth is key, and it’s something that’s tough to come by these days. Corporations themselves are very well positioned to accelerate their earnings when growth rates in the largest economies improve. We’ll probably have to endure another recession before this happens, but then it could be a very good period for stock market investors.