|Forbes.com, Fall, 2012. This article was written with Oliver Pursche, the Co-Portfolio Manager of GMG Defense Beta Fund. It was part of a series of articles developed under an agreement with forbes.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site, forbes.com is one of the top 500 sites in the world with nearly 10 million subscribers and nearly 100 million page views a month.|
With earning season officially off and running with last Tuesday’s release of Aloca (AA) earnings, information is more plentiful, and I would say more confusing than ever.
Companies like Cummins (CMI) and Advanced Micro Devices (AMD) issued warnings. The aforementioned Alcoa and J.P. Morgan Chase (JPM) beat estimates. With conflicting reports sloshing around in a sea of data, it’s more difficult than ever to tease out useful information.
That’s why I like the Purchasing Manager’s Index (PMI). It’s clean, simple, and I think a pretty reliable gauge of what is really happening with the economy. After all, if the purchasing managers are ordering goods and services, or not, it says a lot about what the executive suite thinks is going to happen in the next few months.
The PMI reflects the percentage of purchasing managers who reported better business conditions than during the previous month. After contracting slightly during June, July and August, the September PMI was 51.5%, an increase of 1.9 percentage points over August, and indicating continued economic expansion.
Meanwhile the Chinese PMI has showed 11 consecutive months of deterioration. The German PMI in particular, and the euro zone’s in general, have also continued to contract. The latter indicates a likely recession in Europe, not a “big surprise,” I suspect, but I like to check the facts with data as opposed to my “gut.”
Based on this information, I would avoid companies that sell into or rely on Europe and South-East Asia for their business. The annual reports released by companies to the Securities and Exchange Commission (SEC) known lovingly as “Form 10-K” can be unwieldy documents with many sporting more than 200 pages.
Nonetheless, almost all of them have sections titled “Segment Information” or “Segment Data” where revenues are broken out by geographic regions, among other data. This will prove useful to investors looking for companies with little or no exposure to Southeast Asia and Europe.
Here’s a starter list of U.S. centric companies that I think should outperform some of their multinational competitors: Verizon (VZ), Peco Energy (PE PA) preferred shares, Southern Company (SO), United Health (UNH) and Lowes (LOW).