By Mitchell Clark, B.Comm. For Profit Confidential
So far this earnings season, there’s no big revelation among earnings results from brand-name companies yet. With reduced expectations, financial metrics are currently being met.
Earnings from The Charles Schwab Corporation (SCHW) came in solid. The company reported third-quarter earnings of $290 million, representing solid growth of 17% over the comparable quarter.
Sales grew 15% to $1.37 billion, with double-digit growth being experienced in all three of the company’s main revenue sources. Quarterly sales are at a record high, with the exception of the heights reached during the Internet bubble.
Company management sees its profit margins expanding into 2014. The stock jumped on this positive report, but it was already expensively priced.
Johnson & Johnson (JNJ) came in slightly ahead of consensus on both revenues and earnings. Third-quarter sales grew 3.1% to $17.6 billion. Domestic sales grew 1.7%, while international sales grew 4.2%. Diluted earnings per share grew to $1.36, representing another solid gain around 8.8%.
Investors have come to expect outperformance from Johnson & Johnson, and the position just consolidated on its earnings report. This company is worthy of a look for any long-term equity market portfolio, especially during a market correction or when the position is down on its own.
The Coca-Cola Company (KO) performed as expected, announcing a two-percent gain in global volume growth, but a three-percent decline in revenues. Diluted earnings per share grew eight percent to $0.54.
Dominos Pizza, Inc. (DPZ) has been a huge winner over the last three years. In its latest quarter, domestic same store sales grew 5.4%, with earnings coming in at $30.6 million compared to $26.0 million.
The company’s bottom line was lower than the Street expected, and the position sold off considerably. Given its current earnings, Domino’s is expensively priced on the stock market, but its recent track record is impressive.
So once again, current numbers are basically meeting expectations, but genuine economic growth is lethargic. Of course, we’ve only been talking about earnings from large corporations so far. Smaller companies are typically faster growing and don’t report until quite a bit later in the season.
In my mind, current earnings combined with current monetary policy justify the stock market’s current level, but that doesn’t make the case for buying it.
Once again, this plays into my investment theme of owning shares in existing winners that have very strong balance sheets and the prospect for increasing dividends over the next two quarters. (See “If You’re Looking for Rising Dividend Income…”)
At the speculative end, junior energy and energy services continue to be attractive. Select biotechnology and pure play technology stocks offer potential.
There’s value in precious metals, but this value might be present for quite a while longer, with spot prices continuing to drift.
All in all, given current earnings and sales growth, I don’t believe there’s enough justification for a rising stock market. But then again, it’s been like this for quite a while, and the key stock indices continue to climb on nothing.
