Everybody “knows” that first quarter earnings growth for U.S. stocks will be anemic this year. The projection for year-to-year earnings growth on the Standard & Poor’s 500 stocks is just 0.93%, according to Standard & Poor’s Capital IQ. That compares to 19.68% earnings growth in the first quarter of 2011.

Logically this means stocks are headed for a correction as companies report their first quarter results beginning with Alcoa (AA).

“Logically,” that is, for most realms outside the stock market. In the logic of the stock market, however, the result is by no means so certain. What everyone knows is frequently discounted in share prices. But sometimes what everyone knows in his or her head isn’t really believed by investors. Intellectually, investors may know that projections for first quarter earnings growth are extremely low, but in their heart—and in their investment actions–they may remain much more optimistic. And, anyway, the earnings results of last quarter are history. For stock prices going forward, the important numbers are companies’ projections—guidance–for the second quarter and the rest of 2012. It’s expectations for future growth that make investors buy or sell.

So what will it be—Up? or Down?—for the market this earnings season?

And what strategy do I recommend? Read more

Sell Middleby (MIDD)

I’ve owned Middleby (MIDD) in my Jubak’s Picks portfolio since May 20, 2008 and I think it’s now time to take some profits.

Nothing unusual about these shares. And that’s exactly the point. At this stage of the rally I’d like to keep close watch on valuations and sell individual stocks when a specific price seems to be getting out of line. I’d rather leave a few dollars on the table now than risk a major loss.

So how do you tell if a stock is a sell now rather than a rocket with more gains ahead? I’d suggest taking a look at historical valuations. Read more

Update Middleby (MIDD)

On November 10 Middleby (MIDD) reported third quarter earnings of 83 cents a share, four cents a share better than Wall Street projections, but still 19% down from the third quarter of 2008. Revenue fell 7.5% from the third quarter of 2008. At $154 million revenue was about $10 million below the Wall Street consensus.

If you used a magnifying glass, you could find signs of improvement in the revenue number. In the second quarter of 2009 revenue was down 8.6% from the second quarter of 2008. In the third quarter of 2009 the year-to-year decline was just 7.2%.

And in the earnings number too. Gross margin climbed to 40.3% in the quarter from 38.9% in the third quarter of 2008.

Middleby continues to do what it has always done. Read more

Update Middleby (MIDD)

On August 12 Middleby (MIDD) reported second quarter earnings of 74 cents a share. That was 7 cents a share below Wall Street expectations. Revenue also came in light at $159 million versus the $170 million Wall Street had projected.

Middleby has attempted to keep growing its business by acquiring smaller competitors and targeting potential top tier customers with a new sales team.

That strategy is sound in the long run the company operates in a fragmented industry and many of its competitors in the commercial kitchen equipment/cooking unit business are currently stressed by a combination of tighter lending standards and slower business.

 But that long term strategy has short-term costs because the company has to keep on spending even its own revenue comes under pressure in the recession. Read more