Last week, the major indices surged to a multi-year high as investors celebrated the latest round of bond buying from the Fed. This week, some of the wind has been taken out of the market’s sails as investors focused on the first ripples of earnings announcement season. The big news is that FedEx Corp. (FDX) reported a 1% drop in profits despite an increase in shipping rates. Even worse, the delivery giant has cut its 2013 earnings guidance to a range of $6.20 to $6.60 per share—the Street forecasts earnings of $7.04 per share. Meanwhile, RBS Capital downgraded Intel Corp. (INTC) on ongoing concerns about the PC market.
Unfortunately, the way things are going, we’ll probably see more of this from other bellwethers—analysts expect S&P 500 profits to decline nearly 2% for the third quarter. So this earnings season could bring choppy trading activity as some companies sink after reporting lackluster earnings while others stay afloat by topping estimates.
But I’m not going to sit here and tell you that now is the time to cash out—in fact, that’s the last thing I want you to do. With the right know-how and a bit of discipline, you can weatherproof your portfolio, no matter what happens to the general market this earnings season. Readers of my newsletters can tell you that now is the time to stick with fundamentally strong stocks as a way to protect your portfolio. I’m talking about those companies that are swimming against the current—those expected to report double- or even triple-digit earnings growth despite the overall softness.
Take Apple Inc. (AAPL), for example. This time last year, the bears were saying that it was the end of Apple due to the untimely passing of Steve Jobs. Of course, now, shares have crested over the $700 mark as Apple announced a record two million first-day orders for the iPhone 5! Considering that the iPhone accounts for nearly two-thirds of Apple’s bottom line, the company should have no problem topping the 24.4% consensus earnings estimate when it announces quarterly earnings at the end of the next month.
And many my Blue Chip Growth and Platinum Growth Club readers couldn’t be happier to be on the Apple bandwagon—especially considering that they have enjoyed a total return of 269% and 125% on this stock respectively! Apple is exactly the kind of fundamentally strong stock that you should stick with during the uncertainty to come.
Now you may be wondering why today is the day to start weatherproofing your portfolio. And that’s because right now I see the market as very overbought. The major indices have been on quite a run and it’s very likely that they’ll take a breather. Since the Dow bottomed out at 6626 points in March 2009 to today, it has surged 88%! And in just the last three months the Dow has advanced 12%.
With investors looking to lock in gains ahead of a tepid earnings season, now is the time to make sure your stocks are fundamentally sound. Only stocks with a strong foundation of sales and earnings growth, cash flow, margin expansion and the like are going to do well when the market turns. If you currently subscribe to one of my newsletters, I will continue to guide you through this new market environment. If you’re not yet a reader, my proprietary stock grading system Portfolio Grader is a great place to start. If you’d like to use this tool to gauge the strength of your portfolio, you can click here to find out how to get started.
And you can always turn to this daily blog for stock information and market updates as I’ll continue to keep an eye on the latest market trends and report my findings.