In this era of serial macroeconomic instability, it’s easy to forget that stock prices are ultimately driven by earnings. And while structural weakness in the eurozone was the crisis du jour this spring — set against a backdrop of tighter Chinese monetary policy and waning stimulus spending in the U.S. — profits have been soaring for the vast majority of domestic corporations.
As always, much of the growth was immediately reflected in stock prices. Still, surging corporate earnings can give long-term investors the encouragement they need to stay the course amid near-term turbulence.
For a summary of the corporate bottom line and other key metrics, go to Standard & Poor’s website, click on S&P 500 under Featured Indices, scroll to the bottom of the destination page and download the latest “Market Attributes: U.S. Equities” PDF.
There you’ll find information on quarterly earnings growth (overall and by sector) as well as recent trends in dividend payouts, share buybacks and cash utilization.
The monthly publication also includes data on the S&P SmallCap 600 and its components. The data isn’t company-specific, but it nonetheless provides a clear snapshot of how most publicly traded U.S. businesses are faring. If overall stock prices are weakening while corporate finances are strengthening, the divergence could signal a significant buying opportunity once global risk-aversion returns to normal levels.
Additional insights into the earnings environment are available from Zacks Investment Research, which specializes in tracking changes in analyst earnings estimates. Those revisions form the basis of Zacks’ individual stock recommendations for paid subscribers.
Some of the information is free, however; click on Earnings Trends under the Insight heading on the Zacks Research page for a summary of the latest news and outlook for company profits.
Finally, examine a metric known as internal funds for a slightly different look into the corporate coffers. Internal funds measures the ability of companies to spend money without taking on additional debt. This makes it a good harbinger in uncertain times for capital spending, which generally helps technology companies and mergers and acquisitions.
Rising levels of share buybacks, capital spending and mergers and acquisitions are all bullish signs, particularly for companies looking to buy growth and those that are potential takeover targets.
The Bureau of Economic Analysis includes the latest reading on internal funds as part of the corporate profits summary section included in its regular gross domestic product reports.
Go to the BEA website, click on Corporate Profits under the National heading, then on Corporate Profits again. You’ll find information on internal funds — as well as detailed profits data — included near the bottom of the report.
Of course, corporate profits and stock prices can decouple, especially over short periods. When global markets are in crisis mode, correlations between all stocks tend to rise. In other words, in these times investors treat good and bad companies more or less the same. That is, badly.
But for long-term holders of solid, steadily growing companies, fear-gripped markets can be your best friend because they often create attractive entry points for owning a stock. Especially if the company you’re considering is sitting on buckets of cash and its management has a proven record of spending cash wisely. Websites of InterestStandard & Poor’s
(“Market Attributes: U.S. Equities”)Zacks Investment Research
(earnings trends)Bureau of Economic Analysis