Finally Some Good News on Earnings—This Market Needs It

First-quarter earnings season has been disappointing so far and it’s mostly because of the financial sector. Individual investors won’t be crying for Wall Street, but the fact is that a healthy banking sector is good for the economy. It’s fair to expect the financials to continue lagging for the next few quarters. However, there is some good news here and there. For example, large-cap Johnson & Johnson just reported good quarterly financial results that topped estimates based on prescription drug sales. That’s a good sign for the economy and Johnson & Johnson. One of the best benchmark companies to follow is Johnson & Johnson (NYSE/JNJ). This $175-billion pharmaceutical and consumer products giant sells all kinds of products that you probably have in your home right now. The technology sector is important in this economy and so are the financials, but it’s a business like Johnson & Johnson that you can think of as a staple Dow company.

Paying a solid dividend yield of just under four percent, this stock hasn’t had a good year. But, then again, the great thing about large-caps like this is that investors didn’t lose their shirts. The company just reported good quarterly financial results that topped estimates based on prescription drug sales. That’s a good sign for the economy and Johnson & Johnson. This stock has a great long-term track record of wealth creation for shareholders. If you pull up a long-term stock chart on the company, you’ll see that, if you had bought the shares in the early 90s, you’d now be up a least sixfold, and that’s not counting all those dividend payments. Would you have been better off investing in real estate back then? Very likely. Like a lot of stocks over the last 10 years, JNJ hasn’t done much, but it didn’t go down in value either. The company has paid a solid dividend to shareholders religiously and, at the very least, over the last 10 years, shareholders would have beaten the rate of inflation.

Large-caps always have the benefit of being established businesses with mostly professional management. They can fall just like a smaller company, but it’s not as common. That’s why long-term investors buy stock in companies like Johnson & Johnson; it pays a great dividend and the business has a long track record of growth. In any long-term equity portfolio, a pharmaceutical consumer products company like Johnson & Johnson is a worthy addition.

First-quarter earnings season has been disappointing so far and it’s mostly because of the financial sector. Individual investors won’t be crying for Wall Street, but the fact is that a healthy banking sector is good for the economy. It’s fair to expect the financials to continue lagging for the next few quarters.

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Oracle Corporation (NASDAQ/ORCL) reported its numbers early this season and it started the positive trend in the large-cap technology sector. But, like the economy, not every subsector within the industry is doing well. Results from Texas Instruments Incorporated (NYSE/TXN) illustrate this point. We’re in a market with no clear trend and this reflects the underlying state of the economy. There’s growth out there, but it’s selective and uneven.

As I’ve been writing, this makes taking on new equity positions quite difficult. Over the next few months, I don’t expect any major tailwinds from the broader market. Successful stock picking will be based on corporate events alone.