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 vital in this economy and so are the financials, but its a business like Johnson & Johnson that you can reckon of as a staple Dow company.
Paying a solid dividend yield of just under four percent, this stock hasnt had a excellent year. But, then again, the fantastic thing about large-caps like this is that investors didnt lose their shirts. The company just reported excellent Quarterly Financial results that topped estimates based on prescription drug sales. Thats a excellent sign for the economy and Johnson & Johnson. This stock has a fantastic long-term track record of wealth creation for shareholders. If you pull up a long-term stock chart on the company, youll see that, if you had bought the shares in the early 90s, youd now be up a least sixfold, and thats 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 hasnt done much, but it didnt 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 its not as common. Thats why long-term investors buy stock in companies like Johnson & Johnson; it pays a fantastic 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 its mostly because of the financial sector. Individual investors wont be crying for Wall Street, but the fact is that a healthy banking sector is excellent for the economy. Its honest to expect the financials to continue lagging for the next few quarters.
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. Were in a market with no clear trend and this reflects the underlying state of the economy. Theres growth out there, but its selective and uneven.
As Ive been writing, this makes taking on new equity positions quite hard. Over the next few months, I dont expect any major tailwinds from the broader market. Successful stock-picking will be based on corporate events alone.
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The first-quarter earnings season is upon us again and, depending on the results, it could help to drive trading over the next several months. Traders are looking for direction and reasons to invest, but the overseas risk in European debt and higher interest rates in China are not making it simple.
As was the case in the fourth quarter, there are some high hopes of seeing Revenue Growth in addition to earnings acceleration as the economy recovers. Whether they are penny stocks, micro-cap stocks, or blue-chip stocks, you want to see growth.
The fourth quarter, in my view, showed promise. What was disappointing was the lack of strong revenue growth in the fourth quarter, an indication that spending is still sluggish.
I reckon that the key in the first quarter and beyond will continue to be the ability of companies to report higher revenues, which is what you want to see during an economic recovery, as it indicates increased spending.
The reality is that earnings can be made to look better via cost cuts and control. In addition, you must watch for guidance going forward, as this will also be a key factor.
Two key sectors will be Technology and banking. Traders are looking for leadership from these groups.
The NASDAQ has been struggling in recent weeks, but I continue to believe that the technology area will be a critical area, since this sector has provided much of the leadership over the last several years.
The start did not look promising.
Texas Instruments Incorporated (NYSE/TXN) announced a shortfall in both its Q1 revenues and earnings, but it was largely due to the production halts in Japan resulting from the earthquakes. The upper end of the Q2 earnings per share (EPS) guidance was also small of estimates, yet we need to see what the impact of the situation in Japan is going forward.
We then saw an impressive blow-out quarter from Intel Corporation (NASDAQ/INTC), which was the huge winner after blowing away Street estimates on revenues and earnings. The strong results from Intel are critical, as they indicate strong chip demand.
Technology companies also delivering better than expected results were Yahoo! Inc. (NASDAQ/YHOO) and International Business Machines Corporation (NYSE/IBM).
The area to watch for in technology will be mobility applications for tablets and smart phones, as users shift away from the more cumbersome PCs and laptops. Apple Inc. (NASDAQ/AAPL) is the best of breed in my view. Research In Motion Limited (NASDAQ/RIMM) has launched its PlayBook tablet, but, based on the reviews, the iPad 2 has nothing to worry about.
In banking, Wells Fargo & Company (NYSE/WFC) beat by a penny in its EPS, but fell small on revenues. On the plus side, The Goldman Sachs Group, Inc. (NYSE/GS) beat on adjusted EPS and revenues and State Street Corporation (NYSE/STT) also beat on revenues and EPS.
These are just some of the companies and areas to watch for during the First-Quarter Earnings Season.
As I have said, the key will be revenues, especially organic growth. We want to see revenues grow to drive earnings instead of cost cuts. Without revenues growing, it is hard to imagine a healthy economy and its my worry that this could hamper growth.
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