Record profits. So what?


Corporate profits are about to rise to a record. Again. With nearly 92 percent of companies in the S & P 500 reporting third-quarter earnings, they’re on track for a total of $23.78 per share. That would top last quarter’s record of $22.24 per share, according to S & P Indices.
The last time profits were that high was in the second quarter of 2007, when they peaked at $21.88 per share, before the recession.
Earnings are rising because the U.S. economy grew more strongly than expected last quarter, says Citi economist Steven Wieting. China and other developing countries also keep growing.
Consider Intel. It earned a record $3.5 billion in the third quarter after stronger sales of notebook PC chips raised revenue by 29 percent. Tempur-Pedic International made a record $61.9 million as mattress and pillow salew grew around the world.
But although profits are at their highest levels, stock prices are not. The S & P 500 is still 21 percent below its closing high of 1,565.15 set on Oct. 9, 2001, as of Thursday.
That’s because investors are worried about Europe’s debt crisis. They’re also concerned about the U.S., where the unemployment rate has been at least 9 percent since April.
But financial analysts expect profits to keep rising. They forecast S & P 500 profit growth of 15 percent in the fourth quarter from the previous year, according to FactSet.
“This remains the strongest corporate earnings recovery on record,” says Linda Duessel, stock strategist at Federated Investors. And investor demand for stocks over the long term depends on corpare earnings.

Source: Oregonian, Saturday, November 12, 2011; FactSet

Learn more about Ron Sloy.


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