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3 Stocks That Stole Wall Street's Spotlight in July

By Sean Williams – Aug 12, 2014 at 6:45PM

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Want to know where the stock market could be headed next? Wall Street suggests you watch these three stocks for clues.

The stock market's most iconic indexes, the Dow Jones Industrial Average and S&P 500, may have hit a minor speed bump over the past week, but for the better part of a year now they've been barreling through psychological barriers one after another.

The primary reasoning behind the stock market's ascent is a steady improvement in a number of key economic indicators. The U.S. unemployment rate is essentially near a six-year low, manufacturing activity is expanding at a brisk pace, and historically low lending rates are fueling mortgage lending and corporate expansion.

Of course, Wall Street and investors are no dummies. The U.S. economy is inherently cyclical due to a bevy of factors, including the effects of monetary and fiscal policy on the economy, meaning there will be another recession in the U.S.' future at some point.

Source: Dennis Crowley via Flickr.

To that end, Wall Street tends to hone in on some of the nation's largest companies in order to discover clues about growth and economic trends that might otherwise be lost in the release of the government's monthly or quarterly figures.

Between earnings season and the potential for the economy to hit this inflection point, a number of large-cap stocks are piquing Wall Street's interest. Here are three companies, according to Bloomberg, whose Wall Street readership -- i.e., analysts' interest in reading news stories on their ticker-specific feeds -- was among the highest in July.

1. Apple (AAPL -1.76%)
Should it come as any surprise that the world's largest company hogged Wall Street's attention?

Apple has suffered a number of corrections throughout the years when its innovation has been questioned and its future growth prospects have been skewered from every angle. Yet Apple continues to foil naysayers with exceptional cash flow, mobile devices that fly off the shelves, and shareholder incentives that grow every year.

The infatuation with Apple last month likely had to do with the company's third-quarter earnings release. During the quarter, Apple reported revenue up $2.1 billion to $37.4 billion year over year and a quarterly net profit of $7.7 billion, or $1.28 per share, which represents Apple's highest EPS growth rate in seven quarters. These results slid well past the $36.2 billion in sales and $1.23 in EPS that the Street had expected.

iPhone 5c. Source: Apple.

Wall Street has to like what it has heard from Apple on the innovation front, specifically with regard to the iPhone 6 remaining on track for a September debut and sporting a number of key features, including larger displays, improved fingerprint-reading technology, faster WiFi capability, and a new A8 processor, which should yield faster processing speeds.

Don't expect Apple to drop out of the top readership spot for Wall Street firms anytime soon, but for now it's business as usual.

Citigroup (C 0.04%)
Similar to Apple in the technology sector, Citigroup's second-quarter earnings results in July were viewed as a barometer to gauge the health of, and form expectations for, the remainder of the banking sector. It's no wonder Wall Street was eager to read about this stock.

For the quarter Citigroup reported that its adjusted revenue fell 3% from the year-ago period to $19.3 billion, and it delivered an adjusted profit of $1.24 per share, which trounced Wall Street's expectations for $1.05 in EPS.

But the banking sector has been about much more than just profits, losses, loans, and deposits in recent years. Scandals and settlements have rocked the sector, and Citigroup has found itself to be front and center in a number of allegations.

During the second quarter, for example, Citigroup announced a whopping $7 billion mortgage-backed securities settlement with the government, resulting in a $3.7 billion pre-tax charge against GAAP earnings. This settlement could be one of a number of settlements that large banks face in lieu of their actions during the housing bubble. Rival Bank of America is also nearing a settlement with the government that could be more than twice as large as what Citigroup wound up paying.

Between Citigroup's capital-disbursement rejection, its disclosure of accounting fraud from a subsidiary in Mexico in February, and its settlement with the government, Citigroup is becoming a veritable mill of bad news. For investors this has the double-edged effect of getting bad news out of the way early while making Citigroup less predictable than perhaps any other money center bank.

International Business Machines (IBM 0.10%)
Lastly, Wall Street had its keen focus on hardware and software giant IBM last month. Although IBM's actual results do matter, the implications of its ongoing transition from hardware to cloud software are more important and serve as a model for a lot of hardware firms currently undergoing a similar transition.

Source: IBM.

For the quarter, IBM recorded revenue of $24.4 billion, down about 2% from the year-ago quarter, while adjusted earnings jumped an impressive 21%. There were a number of highlights, including mobile revenue more than doubling and cloud-computing revenue rising better than 50%.

But the company's existing hardware and software services business continues to be a drag. Emerging markets could play a key role in IBM's infrastructure growth, but the past quarter demonstrated that spending from overseas firms wasn't on par with expectations.

From the perspective of Wall Street, this could be a sign that the static hardware space is overcrowded and/or that IBM is having a tough time differentiating its product in overseas markets. On paper IBM shouldn't be having any issues with its hardware or software services in emerging markets, but its results suggest otherwise. This could be a sign for Wall Street and investors to temper their growth expectations for software service providers, at least in the near term.

Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Apple and Bank of America. It also owns shares of Citigroup and International Business Machines. 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.

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