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Companies To Watch To Track The Economy

Posted: Apr 22, 2009 13:41 PM by Eric Fox

Tickers in this Article: UNP, BNI, NSC, SLB, AXP, CSH, RHI

Since the conventional wisdom is rapidly pronouncing that an economic bottom has been reached, upcoming earnings season will be an excellent opportunity to gauge the strength of any recovery. Investors should monitor companies in a range of industries to understand trends that are not always captured in government statistics until it is too late.

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Certain companies provide an excellent peek at the economic cycle. Their management's commentary/guidance should be reviewed to determine if business is still in "free fall", as bears like to refer to it, or just sluggish and even perhaps at a bottom.

The Railroad Industry
Railroad traffic and volumes always provide a good look at the economy. Norfolk Southern (NYSE:NSC) reported after close on April 21, followed by Union Pacific (NYSE:UNP) and Burlington Northern (NYSE:BNI) the following day. Investors might want to brace themselves for the worst, as the latest industry report shows that weekly rail shipments fell 24.5% in the week ending April 11. The industry, however, is still solidly profitable due to cost cutting and pricing.

Employment Trends
Robert Half International (NYSE:RHI) reports on April 22 after market close with expected earnings per share of 6 cents, according to Thomson Financial Networks. The staffing company provides insight into employment trends in the economy. Robert Half provides both temporary and permanent staffing services in the U.S. and globally, and management may help the market understand if corporate layoffs are flattening out. Also, the recession accelerated the trend of companies hiring temporary workers, and investors may be able to discern this trend from the earnings report. (These tools put the market and any evaluations in your hands; read Economic Indicators For The Do-It-Yourself Investor or our Economic Indicator Tutorial.)

Pawn Shops, Financial Services And Loans
Cash America International (NYSE:CSH) reports April 23, and while some investors may not see the value in tracking this name, this operator of pawn shops and financial services and loans has benefited from the weak economy and may see a reversal as that contraction ends. It raised guidance for the current quarter just two weeks ago, and a leveling out in the recession could be reflected in the company's business.

Financials
Switching to financials, American Express (NYSE:AXP) reports on April 23 and usually provides an enormous amount of detail on credit trends in its card business, including delinquencies and balances. Consumers' leverage worries are at the forefront of the recession, and no recovery is certain until these trends peak. The company is also a bank holding company, and it may report on results of the government stress test conducted by the Obama administration on the largest U.S. banks.

Oil Services
Schlumberger (NYSE:SLB) will release earnings April 24, and the world's largest oil services company will allow investors to look at trends in the energy business. The company's conference calls are notable for extensive management commentary on conditions and demand in North America and elsewhere.

Determining Economic Trends
The old saying that the market has predicted nine of the past five recessions can be turned on its head to say that the market has predicted nine of the past five economic recoveries. Instead of listening to the market, investors should pay attention to more rational and reliable sources of information on economic trends.

Breeze through consensus estimates like the biggest Street forecasters; see Strategies For Quarterly Earnings Season.

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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