Article by Investment U
Yep, it’s officially earnings season.
And Monday afternoon, Alcoa (NYSE: AA) kicked things off announcing a net loss of $2 million and that revenue fell nearly 10%, to $5.96 billion, compared to a year ago.
The largest U.S. aluminum producer did manage to beat analysts’ estimates. However, shares are still down 4% since Monday.
The fact that Alcoa still managed to beat estimates is a testament to how much corporate outlooks have fallen over the past few months. Reuters even reports that growth estimates are now “… at their most negative in nearly four years…”
The Associated Press also says this month’s earnings announcements will likely mean “… the end of record corporate profits.”
I’m an optimist at heart. But news like this is hard to ignore and increasingly frustrating for investors.
Especially when the reasons behind it all are the same old thing:
- Europe is still a mess.
- China’s economy keeps slowing.
- And the United States isn’t close to getting out of the woods.
In times likes these, there’s no use fixating on all of the red ink. Instead, it’s ever more important to focus on areas of the market that are continuing to experience growth.
Because, despite all the gloom and doom, there are certain sectors of the market that are still chugging along.
In fact, since the beginning of April, two industries actually increased their growth forecasts instead of lowering them.
I’m talking about the telecommunications and technology sectors.
Defying the Odds
It doesn’t matter where you live or how much money you have today.
Around the globe, more and more people are becoming reliant on better technologies and ways to communicate.
As an investor, it’s crucial that you pay attention.
For instance, regardless of the global economy going nowhere, shares of major telecom players such as Verizon (NYSE: VZ), AT&T (NYSE: T) and Sprint (NYSE: S) have increased 17%, 13% and 40% so far this year.
In addition, China’s largest mobile provider, China Mobile (NYSE: CHL), is up 12%.
Meanwhile, some of world’s largest technology companies including Apple (Nasdaq: AAPL), Microsoft (Nasdaq: MSFT) and Samsung (KSE: 005930) have ticked up 49%, 12% and 30%.
But I must admit, even though both of these sectors have numerous opportunities to profit, there’s one set to perform much better than the other.
And the Winner Is…
For the rest of this year, don’t be surprised if the telecom sector ends up the best-performing area of the stock market.
The reasoning behind this is actually pretty simple.
In times of uncertainty, investors always look to recession-resistant industries. These industries will have solid cash flows, and products and services that people can’t live without.
And when it comes to cash flow, according to MarketWatch, revenue in the S&P telecom sector just hit a four-year high last month.
Another big plus, especially among telecom service providers here in the United States and Asia, is that they have very little or no exposure to the Eurozone.
So no matter what happens there, these firms will be the least likely to drop from financial turmoil.
Bottom line: This earnings season, don’t let flailing sectors of the market drag down your portfolio performance.
Instead, pick up a few shares of telecom providers mostly doing business in either Asia or the United States and give yourself a chance to capture some nice gains in what could be the best performing sector for the rest of 2012 – and beyond.
Good Investing,
Mike Kapsch
Article by Investment U
