There’s been a breakout on the Dow Jones Transportation Average (a typical bull market indicator) and as evidence of the index’s strength, United Parcel Service, Inc. (UPS) bolted 10 points higher to a new all-time record high around $100.00 a share.
The company’s third-quarter revenues grew 3.4% to $13.5 billion, and earnings per share improved 9.4% to $1.16.
UPS expects its full-year earnings will be three to seven percent higher than those of 2012. The company is expensively priced on the stock market, but Wall Street analysts have been increasing their estimates for this year and 2014.
FedEx Corporation (FDX) has also been a very strong performer on the equity market. The company was at $100.00 a share at the beginning of July; it’s up another 30% since then, which seems a bit much. The company’s average consensus is for earnings to grow 25% next fiscal year.
But UPS and FedEx aren’t exceptions; so many stocks have traded like these two companies. They already appreciated considerably since the beginning of the year, but third-quarter earnings were a catalyst for more bidding by investors.
This market is clearly overbought, but it’s likely to stay that way without a catalyst galvanizing a major change in investor sentiment.
There are always trades in any market, but it is difficult to be a buyer when most stock market indices are trading at record highs.
But genuine buy low/sell high trades are also difficult in this kind of market. If a company’s shares haven’t participated in this year’s positive trading action, that company must have significant operational issues or is suffering from commodity-related weakness.
My best guess, given current information and recent trading action in equities, is that the main market indices will probably close out the year higher than their current levels. With the continuance of monetary policy almost a certainty, institutional participation is significant.
I’m a big believer in large-cap, dividend-paying stocks. But new money or dividends for reinvestment can stay in cash for the time being, especially as there isn’t much value currently.
There are select income plays in the energy sector, which remain attractive, but finding good entry points for new positions in traditional blue chips is much more difficult because of the run-up.
A portfolio of blue chips is a hold, but new money and dividend income should be taken in cash. A catalyst is required to knock the horns off this bull market. It could come out of nowhere, but a lot of blue-chip dividend-paying stocks have strong balance sheets, pricing power going into 2014, and a monetary environment that is still motivating institutional investors to bid. Blue chips are attractive investments in this stock market right now, but for new money and dividend income, the smart move is cash.