Posted by: Howard Silverblatt on January 12, 2011
The market set another 28 month high today, closing at 1285.96, last seen on August 28, 2008, which is also the last time it closed above 1300, 1300.68 (there’s a potential for tomorrow). Earnings have leveled off at a respectable level, posting low single-digit consecutive quarterly gains, although most of what we hear and read about is strong year-over-year quarterly double-digit gains. Sales, however, have had very little growth, regardless of how you look at them.
The bounce back from the four consecutive quarters of double-digit sales decline has been minimal, at 12.7% from its low in Q1,’09 (through Q4,’10 estimate). Companies have reacted to events in order to survive and protects their business; the government has bailed-out, bought out, subsidized, credited, and stimulated; housing is bad, with foreclosures waiting to increase inventories, and consumers have spent on what they need, with much less of the unneeded not purchased. Earnings are expected to grow at a double-digit rate in 2011, yet sales are expected to be in the mid-high single digits. The implication is that costs will be reduced or efficiencies found, with both hinting at more job reductions. So for me, at this stage of the recovery, something just doesn’t add up - how do you get double-digit bottom growth with single-digit top line growth? Companies have been drastically cutting for years now, so it’s hard to believe that they were not serious (or diligent) in their effects. Either earnings estimates are too high, sales estimates to low, or Princeton, we have a problem. So I’m hoping its sales. The new depreciation schedule (estimated to be worth $21B) may push companies to do some long-delayed maintenance (but where will the new equipment come from - the US or abroad; or another way to put it, where will those jobs be created), and while the unemployment numbers remain terrible (regardless of which set or assumptions you use), employment continues, and people are spending. So for me, when I start to get those Q4 reports, I’m heading straight to the text (well, maybe I’ll play with a few numbers first), to see what the company is forecasting about their 2011 sales. And since the new U.S. postal 100 year stamp for 2011 won’t have the quote, I’ll say it, “trust, but verify”.
Link through for tables, charts, and files