Mixed Outlook for Fourth Quarter

11/02/2011 11:30 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

MoneyShow’s Jim Jubak sees some industries are doing well, but he suggests you keep a close eye on the areas he thinks are not doing as well as we move toward year-end.

One of the worries going into the third-quarter earnings season was that third-quarter earnings would be pretty good, but guidance for the fourth quarter would be weak. Basically, companies would say, "Hey, things are great now, but looking out, we’re seeing that they’re not so great."

What we’re getting is kind of a mixed bag. We’re getting some companies that say, “Hey, the fourth quarter looks just fine.” We’re getting other companies in particular sectors who are pointing to macro weakness. These are companies that you ought to pay attention to.

You ought to pay attention to where they’re talking about in the economy, because it’s not an economy-wide story. So, for example, all the steel companies that have reported so far have talked about the fourth quarter being a bad quarter for steel, that it looks like the margins are going down. It looks like the volumes are going down. It looks like the revenues are down.

So, this is an area of the economy which is pretty weak, and you can think about what this means in terms of white-goods makers and cars, maybe. But all the people who are using steel—who would be driving demand for steel—would be places that I would watch as an investor.

We’re also seeing some of this in electronics—not in all electronics—but we’ve recently gotten reports from 3M (MMM) and from Corning (GLW) that both point to weakness in display glass and displays itself. That part of the electronics industry that’s involved in producing large-screen flat TVs and things like that.

What they’re all saying is, it may just be an inventory correction. It may be that demand is not keeping up with supply, but they’re seeing unexpected weakness. They can’t really tell you how long it’s going to last, but this is again not a part of the economy that you necessarily want to be in. This wouldn’t be a time when, after reading the 3M report, you’d want to go right out and buy Best Buy (BBY), for example.

But across other parts of the economy, you’re not seeing that. Cummins (CMI) went out and lowered its guidance for the fourth quarter, but they pointed to China and they said power generation and construction in China seems to be slowing…but "Hey, if you look at our North American demand for trucks, diesel engines"—which is what they make—"they’re going like gangbusters. We see no weakness there at all."

It’s a good sign if you’re in the trucking industry, or looking at trucking stocks or freighting stocks, because it argues that that part of the economy is going really well.

I think what you get when you get a kind of weak economy, which is what we have now, is you get a spotty economy. There are parts of the economy that are strong, parts that are weak.

What you can do with fourth-quarter guidance is go through it and kind of build up a picture of where the strength is, where the weakness is. Obviously, you’d like to put your money where the growth is.

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