Fundamentals Better Than Most Think

10/14/2011 2:30 pm EST

Focus: MARKETS

Tom Hudson

Former Co-Anchor and Managing Editor, Nightly Business Report

Despite the concern over the economic recovery, the Nightly Business Report’s Tom Hudson sees some bright spots in companies’ earnings and balance sheets, as he explains in this exclusive interview with MoneyShow.com.

What are the fundamentals driving the market? Let’s ask Tom Hudson. Hi Tom.

How are you?

I’m great and glad to have you here.

Thank you so much.

Now I know investors and traders are reacting to the short-term volatility. Once you peel back the layers, don’t the fundamentals look rather good for corporate America?

They do, and they’ve looked it for quite some time. Several quarter-on-quarter double-digit growth that we’re seeing for S&P 500 companies.

Some of that is driven by lower comparison in the financial sector, some of that driven by higher energy prices that we had in the early and middle part of 2011, but all in all, we’re seeing strong corporate top-line revenue growth.

We’re seeing operational efficiencies continue. This has meant unfortunately not a lot of hiring, but it has meant pretty good profit margins in many industries, and you’re seeing a significant cash position on the part of corporate America.

Of course, more people would like to see that cash get out into the economy to create jobs, but for investors, at least, that’s a nice cushion.

Companies aren’t going to hire people until they see some sort of demand. Right now, what are they doing with their cash?

Well, they’re sitting on it. It’s yielding next to nothing in those bank accounts, but they learned the lesson in 2007 and 2008 when many companies were cash-starved at that point.

You are seeing some companies begin to invest in a couple of different things. Research and development—we know in the pharmaceutical and biotech industry, it is R&D that fuels future growth. You need to have a drug pipeline in order to attract investors and in order to attract business in the future.

Secondly, technology efficiencies. These are capital investments that happen today that increase worker productivity and increase profit margins in the quarters to come.

I think thirdly, you’re also seeing companies invest in their own stock. We’re seeing this with stock buybacks and/or dividends, and this is a key area that investors should pay attention to.

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