How Earnings Season Could Save the Dow From Falling

As investors deal with risk in the market again, favorable views for the coming earnings season could prevent a big drop.

Jul 10, 2014 at 12:00PM
Longview

The Dow Jones Industrials (DJINDICES:^DJI) reminded investors this morning that the stock market can go down as well as up, with the average falling 1% early and remaining down by 0.6% as of noon EDT. Most market commentators blamed the decline on trouble in Europe, with lawmakers in Portugal raising concerns over the health of the country's largest bank and reawakening fears from the continent's 2010 sovereign debt crisis. Yet even as many investors seem to expect a long-awaited correction in the Dow, others look forward to the coming earnings season to provide more evidence of fundamental support for the long-term prospects of the index's member companies.

The mood coming into earnings season
From a broad-based perspective, the recent mood among investors about earnings for Dow Jones Industrials components has been fairly positive. Predictions for full-year 2014 operating earnings have remained largely unchanged, and we've actually seen a net jump over the past four weeks in expected 2015 operating earnings for the overall Dow.

Intc

Source: Intel.

Intel (NASDAQ:INTC) has led the charge, with investors expecting 6% to 7% higher operating earnings than they did a month ago. Interestingly, Intel's brighter prospects have come from an unexpected source: its PC business, which many investors had written off for dead years ago. The long-term downward trend for PC sales has been in place for quite a while, as more customers moved toward smartphones, tablets, and other mobile-device options rather than relying on traditional desktop computers. While the transition away from the popular Windows XP operating system has prompted a recent short-term bump in PC sales, Intel believes the rise in interest in PCs could last a lot longer, and that has helped send its shares to levels not seen in more than a decade.

Dd

Source: DuPont.

Of course, not all of the news on the earnings front has been positive. Typically, you'd expect companies to provide negative warnings in the run-up to earnings season, and that's been the case with DuPont (NYSE:DD) this time around. The chemical giant surprised investors by cutting its full-year earnings outlook by roughly 5% to 7%, but the real shock was that the shortfall originated from DuPont's agricultural division, which has seen much better results in recent years than its traditional performance chemicals business. Some of DuPont's troubles appear isolated to the current growing season, with the company mistakenly expecting larger plantings of corn than actually occurred. Bad weather also deferred growing season and hurt sales of other ag products. Yet shareholders are nervous about potential long-term impacts as well, having cut 2015 earnings projections by about 3%.

Nevertheless, from a long-term perspective, the Dow Jones Industrials continue to see solid prospects for earnings growth. Investors expect about 9% higher operating earnings in 2015 than they project for 2014. If that growth rate holds, any decline in the Dow would make stocks look even more attractive, especially if earnings stay strong this quarter.

Earnings season starts in earnest next week for the index, and as the market goes through some choppy times, investors should keep their eyes on long-term fundamental trends among the companies whose shares they own. By staying focused on the big picture, you can better position yourself to make smart, well-informed portfolio decisions to maximize your returns in the long run.

Don't be afraid of these stocks
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers