Profits are good for companies obviously, but increasing profits on a consistent basis is even better.
So S&P Capital IQ, a division of McGraw Hill Financial, went to work earlier this week, according to MarketWatch, finding companies that managed to increase their gross profit margins for 10 consecutive quarters.
In an era of declining earnings, tight consumer spending and scant inflation, that is no small feat. In fact, in the entire S&P 500 – excluding banks and insurance stocks because the financial services sector uses different metrics – just 22 stocks met that lofty standard.
The top five performers include two specialty retailers, an alcoholic beverages conglomerate, an airline and an Internet behemoth.
Constellation Brands (STZ), best known for Corona beer and Robert Mondavi wine brands, is the top stock on the Capital IQ list, growing gross profits to better than 45% while posting average annual stock growth of 48.7%.
O’Reilly Automotive (ORLY) and Sherwin-Williams (SHW) are the next best. O’Reilly sells aftermarket automotive parts and Sherwin-Williams sells paint and other finishes. Both businesses focus on the do-it-yourself market, which might say more about cash-strapped consumers than anything.
Budget airline Southwest (LUV) comes next. Southwest increased gross profits by almost 10 points during the past year, according to the study, and shareholders have enjoyed a 29.6% average annual advance over the last five years.
Finally, Amazon (AMZN) stretched its profit margins to 35.2% and rallied 28% on average for the last five years.
Just goes to show that fundamentals do matter to investors – it’s not all about central banks and interest rates.
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Take Full Advantage!
One year from today, you could be cracking open a bottle of Dom Pérignon and feasting on caviar to celebrate the outrageous gains you’ve made in the bull market of a lifetime … profits that could let you retire early and rich! OR you could be kicking yourself, muttering, "I wish someone had told me this would happen and how to take full advantage of it." Well, that’s exactly what I am going to tell you in this report! Click here for information! -Larry Edelson
STICKING TO THE SCRIPT
Stocks are following the script of a typical May so far, according to an analysis by Bespoke Investment Group. Equities have generally fared poorly at this time of year, but should turn higher soon.
The chart below, created by Bespoke, shows the historical intraday performance of the S&P 500 during the month of May going back to 1983, and throughout the current bull market. The black line on the chart shows the current year; the green line is the average intraday path of the market benchmark of the current bull market (2009 to present); the blue line is all years (1983-20015).
After starting off this month higher, the S&P 500 sold off for the remainder of the first week of May and then rallied back for a few days. From there, however, it was all downhill as equities have slumped, just like they normally do in the middle of the month, the Bespoke analysts point out.
On an average basis, from 2009 through 2015, the S&P 500’s intramonth high has occurred at 4 p.m. on 5/10. This year, the high for the month occurred two minutes earlier at 3:58 p.m. You can’t get much closer than that, they note. Since that intramonth peak on 5/10, the S&P 500 has declined by 2.8%, which is not much more than the typical mid-month decline of 2.5%.
So where to go from here? Since 1983 and even during the current bull market, May has historically closed the month on a positive note with the S&P 500 bottoming out right as we enter the last week of the month. On an average basis going back to 1983, the S&P 500 has finished off the last week of May strongly, averaging a gain of 0.81%, the data shows.
So while there hasn’t been much to write home about for bulls so far this month, the historical data suggests a finish with a flourish. Something to look forward to this week, with any luck.