US reporting season not great, but not all gloomy either

Investors who have taken a hammering on US equities – or who have had their local portfolios hit by the knock-on effects of that country’s stockmarket woes – can take some comfort in the conclusion of a Stateside reporting season that went more smoothly than expected.

In the last three weeks, 422 S&P500 companies have announced their results for the third quarter.

Goldman Henry Capital Management analyst Alan Goldman said 59% of these have beaten market estimates, 10% are in-line and 31% delivered results below expectations.

“The market was pricing in a 30% drop in earnings this year for the third quarter versus the third quarter last year, but many stocks have shown good growth in earnings and have given positive guidance, so it is not all doom and gloom.”

Star performers like Exxon Mobil and McDonald’s, which derive a large part of their revenues from outside the US, have been able to use that global presence as a buffer against the US’s troubled economy.

Exxon Mobil’s earnings were up 52.35% and the company provided positive guidance for the period ahead.

“McDonald’s surprised the market and grew earnings by 26.5%, reflecting the success of their new strategy,” Mr Goldman said.

Other companies that have delivered strong earning growth include IBM, Procter and Gamble, Apple and Marvel Entertainment.

Mr Goldman said Marvel, which is one of the world’s most prominent character-based entertainment companies, delivered a blow out report with very strong earning growth of 42.55%.

“This was a big surprise for the market since the consensus earnings forecast was actually down on last year, so analysts were expecting a decline in earnings.”

Mr Goldman is more bullish than most on the year ahead, saying that the GDP growth outlook for many emerging market economies is in actual fact not a gloomy one and this will help sustain earnings growth for many of the US’s global corporations.

“Inflation can often be a far higher risk than slowing GDP growth for emerging market economies. In 2009, tighter fiscal policy should keep inflation contained while GDP growth remains strong in many of these countries, albeit slower than in previous years.”

The most recent Global Economic Outlook issued by the International Monetary Fund for 2009 indicates a slowdown from the soaring GDP figures experienced over the past three years, but growth forecasts for 2009 remain reasonable in the emerging market nations.

“The IMF forecasts GDP growth of 9.8% for China and 7.73% for India and this bodes well for US companies with exposure to those countries,” Mr Goldman said.

The key factors that Goldman Henry looks for when picking stocks include low debt, a low price relative to future earnings growth, solid forward organic growth, strong profit margins and high productivity and innovation.

“We prefer companies with organic growth where their earnings are growing as a result of growth in sales and margin expansion rather than from acquisitions and cost cutting.

“Organic growth is more likely to be sustainable so it offers investors better value,” Mr Goldman said.