As the final corporate earnings reports for 2011 trickle in, we can say with confidence that 2011 was another good year for corporate profits. Corporate profits are very healthy. In fact they have more than doubled since the 1st quarter of 2009. We should be aware however, now that earnings reports are over we will likely see the markets focus their attention to the many worries that still face investors. Unfortunately tensions with Iran, rising oil prices, recession in Europe, and political gridlock in Washington, D.C. may bring the emotion of fear back to the forefront of peoples psyche.
Fortunately, however for investors, market fears do not always materialize. Improving economic data in the U.S. is starting to make “double-dip” recession worries fade. The hard landing in China doesn’t appear to be happening either-unless you call economic growth of 7.5% a hard landing. The European break-up also doesn’t look like it will happen as leaders appear to be finally showing some resolve across the pond.
Stocks are always subject to occasional pullbacks, especially after advancing more than 100% since the March 2009 low. But surprisingly stocks are still trading at just 14 times earnings-still 20% cheaper than they were coming out of the recession. Even though stocks are at a four-year high, Bloomberg stated that the valuations are lower than any 52-week peak since 1989. To magnify this position, profits are forecast to rise another 12% in 2012.
Hang on for more volatility, but we believe mostly to the upside.
Please call us with any questions or concerns. Feel free to forward this to others who might be interested.
Have a great day!
Bob and the All Star Team