March 14, 2013 at 06:17 AM EDT
Tills Ringing for Costco, Cabela’s—Obama Effect or Big New Trend?

Tills Ringing for Costco, Cabela’sThe action in the stock market has been pretty good the last little while, and nobody knows what’s going to happen with first-quarter earnings season. I suspect it will be similar to the last two earnings seasons, with big-cap companies showing single-digit growth in constant currency revenues and just a little earnings growth. Current aggregated data on consensus earnings for the first quarter of 2013 are indicating no growth.

First-quarter earnings season can’t come soon enough. No more talking heads; we need to hear from corporations themselves. One of the first companies to report its earnings is Oracle Corporation (NASDAQ/ORCL), which is a company I like for long-term investors who want exposure to the huge spending-spree that large companies will soon unleash on enterprise information technology (IT).

Corporations don’t want to hire, and they don’t need to. But big-cap companies and government will be spending more money on enterprise IT. Large corporations have the cash, and for them, spending it on efficiency is better than spending it on new employees. Oracle should be a major beneficiary.

Costco Wholesale Corporation (NASDAQ/COST) announced very good numbers in its second fiscal quarter, ended February 17, 2013. Quarterly sales grew eight percent to $24.3 billion. Earnings were $547 million, or $1.24 a diluted share, up nicely from $394 million, or $0.90 a diluted share. Costco is a super cash machine. (See “Show Me the Money? Just Ask Costco.”) There was further good news in the numbers: membership fees, which are 100% total gravy, grew a solid 15% to $528 million.

Oracle is the unofficial start to earnings season. One Wall Street firm recently lowered its estimate for the upcoming quarter, but two raised their estimates for this year and next.

Sentiment is strong enough for the stock market to tick higher in the near term, but big gains aren’t likely over the coming weeks. Investors have already bought stocks in anticipation.

I haven’t heard any earnings warnings so far; corporations have been extremely conservative with their forecasts in order to show outperformance. One of my favorite stores, Cabela’s Incorporated (NYSE/CAB), blasted higher after it announced that its first-quarter earnings will come in above consensus. The company forecasted it would beat consensus by $0.10–$0.15 earnings per share, and management said that sales were strong across most categories, though they didn’t break it down.

If you’re in the stock market, the vibe from corporations in terms of the first quarter’s performance is decent right now. There is a sea of noise out there, and we have to back away from it and listen to what corporations are saying.

There is lot of money sitting on the sidelines (including corporations’ cash hoards), waiting for more certainty in the economy. Even though I expect a major correction this year, there’s room for further expansion in valuations, especially if the revenue picture brightens. The stock market can go a lot further into record territory before it corrects.

For stock market investors, corporations and valuations are the only things worth paying attention to. There is no support from politicians, and the Fed has played all its cards.

The current cycle still favors stocks, and corporations are holding positive. Expect more upside ahead, followed by a correction. The only way the Fed can withdraw monetary stimulus without crashing the stock market is for the U.S. economy to create accelerated growth. And that’s a tall order.

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