Performance of Corporate Earnings Strong in Q1, Glenmede Analyst Says

Earnings per share appear better than last quarter, says Jason Pride.

The markets were down slightly on Monday on news that two companies -- Advanced Micro Devices and Johnson Controls – released Q1 earnings that beat estimates but also shared their less-than-rosy outlook on 2011.  

Also on Monday, one investment analyst said that the markets’ leading indicators are showing the first signs of an “inflection point,” but this situation could be “temporary.”

Corporate earnings appear stronger than last quarter, says Jason D. Pride (left), CFA, director of investment strategy for the Philadelphia-based investment-management firm Glenmede, which has about $20 billion in assets under management.

“Even if the rate of growth is decelerating, the economy is still expanding,” Pride notes.

More than 75 % of S&P 500 companies have beaten three-month-ago expectations for EPS and revenues, up from below 75% last quarter. Plus, 56% and 59% of Russell 2000 companies have beaten three-month-ago expectations for EPS and revenues, respectively, vs. 54% and 58% for the same time period of the previous quarter.

Still, there are lots of earnings left to come: Only 148 of the S&P 500 and 212 of the Russell 2000 have reported earnings so far for the first quarter 2011, Pride points out.

Other Factors

The two major sources of recent market uncertainty – Japan and the “Arab Spring” – “seem to have calmed,” the analyst shares. Nonetheless, both regions “retain the ability to immediately spook markets if events take a turn for the worse,” he explains.

Oil prices appear to have factored Libya into the equation at current levels, Pride says, though Japan’s nuclear issue is still “a question mark.”

He also says the debt ceiling, which is set to be reached on May 16, will required much deeper compromises in order to be achieved.

Meanwhile, “Unease in bond markets is likely to increase as we approach the deadline,” Pride said

Globally, even with tightening monetary policy in emerging markets, these regions “are still experiencing strong growth and inflation pressures,” he adds.

In the developed world, even with the ECB’s recent rate hike [in Europe], supportive monetary policy is the norm.

Investment Ideas

Pride shares the following strategic advice:

  • Underweight low-yielding investments such as cash and Treasuries
  • Utilize non-traditional risk control: hedge funds, secured options strategy
  • Emphasize relative value opportunities within asset classes, such as U.S. large cap quality, and European and Japanese Multinationals
  • Position to benefit from growth in emerging markets from the growing middle class by making direct emerging-market investments or investing in multinationals that sell into these markets, and  
  • Protect against inflation and developed currency devaluation by looking at emerging- market currencies and a broad/active commodity basket.
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