Some people you just can’t make happy.
Like the proverbial rain that falls on a parade, a host of gloom-meisters are out dissing the current earnings season. Sure, earnings are way better than expectations. Sure, Ford, AT&T, and Caterpillar earned way more than anyone expected. Sure they’re in economically sensitive industries. But what about sales?
You see, most of these bottom-line gains have come from cost-cutting. If the economy remains in recession, a lower sales number will make future earnings growth really hard. So these perma-bears keep carping about revenues.
But this is what happens in recoveries. First the companies cut costs. Then revenues start to pick up. The lower cost structure allows margins to expand, and once the improved earnings picture is confirmed by increasing sales, the companies can begin to hire people back.
So why not wait for sales to pick up to invest? By then, the market will have already anticipated the recovery and gone up. In fact, that’s what’s happening now.
Even if some folks want to worry, it’s time now to enjoy the beginnings of the recovery.
Douglas R. Tengdin, CFA
Chief Investment Officer
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