Like the Chinese curse says: may you live in interesting times.
For now it seems as if the major macroeconomic and socio-political obstacles have been navigated, for better or worse, but the hugest of these issues — from the Wall Street bailout to the failure of the Greek economy — have put massive pressures on trading markets both up and down, both in the U.S. and around the world, for the past couple years.
Following the two most recent pieces of big news — the GOP recapturing the House of Representatives and the Fed’s announced $600 billion in quantitative easing (QE2), both of which analysts seem to agree reflect positively on Wall Street — it feels as if we may be in for a breather. But does this mean after two years of heavy turbulence we can expect to float along at current levels?
If not, what can be seen as potential upward or downward pressure on the markets going forward? Even more importantly, how can the individual investor profit from a little forethought at this stage? After all, we are currently trading around the highs reached back in April of this year, before the world thought Europe was about to crumble into the Mediterranean. So where to now?
Stock Plays for This Environment
One place to start would be to look at our stubbornly consistent slow economic growth and high unemployment levels. While GDP chugs along modestly in the low single-digits, unemployment continues to threaten the 10% mark each month.
Thus, a company like Manpower (MAN) warrants serious consideration. Companies in need of additional work resources who are not yet confident enough in the economy to take on more full-time employees often turn to temp service agencies, and Manpower is a market leader. The stock has had a Zacks #1 Rank (Strong Buy rating) since October 23rd, and 12 of the 13 analysts covering Manpower have upwardly revised earnings estimates for the December quarter.
Also, one might want to make sure he or she is invested in stocks whose companies have made it through the Great Recession unscathed — or have roared ahead despite the overall economy. Apple, Inc. (AAPL) comes to mind immediately. While consumers have been cutting back on their overall spending, Apple has managed to sell enough handsome gadgets over the past two years to become the second-largest company in the world by market cap.
What? You say you don’t own any shares of AAPL? Rise and shine, Rip van Winkle. Though Apple, Inc. shares carry a Zacks #3 Rank at present, the mixed earnings estimate revisions of the past month tilt the scales to the upside: 28 analysts have raised estimates for the December quarter and 5 have lowered theirs. Also, keep in mind that Apple, Inc.’s guidance is predictably overly conservative.
Finally, although the finance industry was Ground Zero for the economic meltdown, and over 100 banks have gone bankrupt in 2010 alone, being underexposed to the financials is not a good idea at this juncture. There are simply too many ways for companies like JPMorgan Chase & Co. (JPM) to turn a profit quarter over quarter, year over year.
JPMorgan has posted positive earnings surprises that have averaged more than 26% over the past four quarters. Earnings estimate revisions are again mixed — 15 upward revision, 2 downward in the past month — but JPM is as solid a Zacks #3 Rank financial institution as one can find. And JPMorgan will most likely be at the forefront of the major banks to restore a “normal” dividend in the coming quarters.
So — everyone feeling a little bit better now? We seem to have tiptoed around the abyss, and we can once again begin looking forward to profitability and growth. And even if it seems for awhile like we’ve escaped turbulence only to find ourselves adrift in a flat market, solid bedrock stocks will help you feel more grounded.
By Mark Vickery