Go With Best-in-Class Stocks
I won’t sugarcoat it — we are in the middle of the worst corporate earnings season in almost four years. In particular, big multinational players have been hit hard by slowing economic growth in Asia, Latin America and Europe. And the weaker U.S. dollar doesn’t do much to help bottom lines either. So nearly 90% of these multinational companies are lowering their fourth-quarter guidance.
Understandably, the stock market is nervous: We’re in the middle of what I like to call the “Dow Washing Machine.” But while the indices sometimes feel like they’re stuck in a spin cycle, there are still profit opportunities to be made in this market. In this low-interest-rate environment — there’s nowhere to go that yields higher than stocks — investors are transferring their money to the fundamentally strongest stocks. This is why I’m urging my readers to stick with those companies with only the best earnings prospects right now.
I expect that this choppiness will settle down after earnings season. Analysts expect much stronger sales and earnings for the fourth quarter. And the holidays tend to make consumers and investors alike more optimistic, which should fuel increased spending on Main Street and higher trading volumes on Wall Street. Finally, once we figure out who will be in the Oval Office come Jan. 21, that’ll remove some of the uncertainty that has been plaguing the markets.
So while this earnings season has hit some big names hard, I’m still bullish for the rest of 2012.