Thomson just released its aggregate data for earnings pre-announcements by companies with quarters ending in May, June, and July -- and it's not so rosy. Across the 744 companies profiled, the majority -- 55% -- pre-announced results below forecast. The effect was particularly pronounced for consumer staples firms, where 13 of the 16 are going to come in low.
Energy, on the other hand, continues to roll, with 14 of 17 companies looking to do better than forecast.
So what does this macroeconomic data tell us?
Learn from larger trends
For one, it tells us that energy prices are high. Energy firms are doing better than expected, while consumer staples companies are seeing their raw materials and production costs rise -- cutting into margins and earnings.
Combine rising costs and disappointing results with investors made timid by war and inflation, and we could see a downturn going forward.
The Fool's way
All of this could make for a bumpy summer, lending credence to the old investing aphorism "sell in May and go away." And that may not be bad advice. After all, I'm happy to let consumer staples get crushed for a while because there will be a nice buying opportunity eventually.
Think about it: Consumer staples. These are companies that by their very nature are selling products that we all need. They're not risky highfliers, and they're not going anywhere despite a little short-term underperformance. Examples include stable firms such as 3M (NYSE:MMM), Church & Dwight (NYSE:CHD), Constellation Brands (NYSE:STZ), General Mills (NYSE:GIS), Johnson & Johnson (NYSE:JNJ), J.M. Smucker (NYSE:SJM), and Fortune Brands (NYSE:FO).
I invite the market to let stocks like these get cheap. That's because these companies can anchor your portfolio and be among the best to hold for the long term. They all boast diverse lines of business, strong brands, and notable competitive advantages, and they all pay dividends. These characteristics mean that while these stocks may fall with the market, they tend not to fall too much.
The Foolish bottom line
While the market may not be kind to consumer staples in the near term, that's all the more reason to keep your eye on them. If you'd like some help picking out the best of these stable businesses, consider joining analyst Mathew Emmert at Motley Fool Income Investor with a free 30-day trial. Mathew specializes in finding stable companies with lots of financial strength that trade at reasonable prices and pay investors along the way.
Like I said, these are the kinds of companies that can anchor your portfolio -- and they may just be getting cheap. Click here to learn more.
Tim Hanson owns shares of 3M. 3M is an Inside Value recommendation. Johnson & Johnson is an Income Investor pick. No Fool is too cool for disclosure.
