Stock Market Churns, but Business at These Companies Couldn’t Be Better

As much as the economic analysis and news dominate the headlines, it’s important to follow what’s really happening at real companies in order to gauge the current state of things. Mitchell always follows a number of what he calls "benchmark companies,” and their trading action helps define his overall stock-market view. Find out which stocks he's followingEconomic data continue to be lackluster, and that’s why share prices are retreating. You can argue, however, that the current retrenchment in stocks is really just the consolidation or correction that the market’s been needing for a while. Regardless of how you call it, the reality at this time is that economic news isn’t a strong enough catalyst for investors to be buying stocks with any fervor.

However, as much as the economic analysis and news dominate the headlines, it’s important to follow what’s really happening at real companies in order to gauge the current state of things. I always follow a number of what I call “benchmark companies,” and their trading action helps define my overall stock-market view.

I always follow International Business Machines Corporation (IBM) (NYSE/IBM), which is a super large-cap, technology-services powerhouse. If business is good at IBM, then it’s generally healthy in the rest of the information-technology industry. This stock is trading just a few points below its all-time record price high, and looking at its chart, it seems very reasonable to conclude that it could handle a correction—especially considering how well it has done since last September. Yielding just under two percent, Street analysts are still increasing their earnings estimates for the company this year and next.

Another company that I like to keep an eye on is E. I. du Pont de Nemours and Company (NYSE/DD), which is always known as just DuPont. This $48.0-billion company has been a solid dividend payer (currently yielding about 3.2%), and I like following this business because it operates in agriculture, chemicals, communications, safety and protection, apparel and construction. It’s a well-managed company with the pulse of the industrial economy.

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In its first quarter this year, DuPont’s revenues grew an impressive 18% over the comparable quarter to $10.0 billion, based on a nine-percent increase in volumes and an eight-percent increase in prices. Earnings per share grew to $1.52 from $1.24 during the quarter, and the company increased its 2011 earnings guidance to a range of between $3.65 and $3.85 per share from the previous range of $3.45 to $3.75 per share, excluding the impact of acquisitions.

The stock has been really solid, no doubt due to its higher dividend, and over the next five years, the company’s earnings are expected to grow about 10% annually.

Finally, I find it very useful to follow a railroad company, because whatever’s happening in the economy, the railroads see it first. CSX Corporation (NYSE/CSX) is a good one to follow because its business is located throughout the more heavily populated eastern U.S. and Canada. Business conditions at CSX are a good indicator for the rest of the economy.

This stock has been a powerhouse wealth creator (with the exception of the stock market’s collapse during the financial crisis), and the stock is trading just a few points below its record high. The company reported that it expects annual double-digit growth through 2015 and that the fundamentals for the industry couldn’t be better.

So, if IBM, DuPont and CSX were the economy, you would say that business is great. It makes me think that the current trading action in stocks is just the usual lull between earnings seasons. With corporations not saying much, investors tend to focus solely on the bad news. According to my benchmarks, these businesses are going full steam ahead.