Since the current bear market began back in 2007, many of the talking heads have tried to call an economic recovery - with no success. While there is nothing wrong with this, the reality is that economic bottoms and recoveries can be difficult to identify. However, when economic recoveries do commence, it is imperative for investors to be positioned properly.
Recent evidence of a possible recovery was disclosed when Federal Reserve Chairman Ben Bernanke said, "We continue to expect economic activity to bottom out, then to turn up later this year. Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters." Furthermore, consumer spending, which was down in the second half of last year, grew in the first quarter of this year along with a pick up in consumer sentiment. This is causing many investors to look for ways to profit from any kind of economic recovery.
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Once it is clear that an economic recovery is taking place, the next step is identify those stocks that can benefit from initial increases in consumer spending and confidence, such as:
Visa (NYSE:V) reported better-than-expected numbers compared to one year ago. The company reported earnings per share at 71 cents in comparison to 39 cents for the same time last year. In addition, the company confirmed previous guidance. In comparison to Discover (NYSE:DFS), which reported earnings at 25 cents in comparison to 50 cents a year ago, Visa also reduced its dividend. Clearly, Visa is the strongest among the two companies, with improving year-over-year earnings and confirmation of its earnings forecast. Being able to provide this confirmation during challenging economic conditions is a sign of strength and a signal that Visa is well-positioned to benefit from the coming economic recovery. (For more, read Using Consumer Spending As A Market Indicator.)
Health Care REIT (NYSE:HCN) reported better-than-expected earnings at 56 cents per share versus 34 cents one year ago. In addition, the company announced that it will pay a dividend of 68 cents, the same amount which was paid out this time last year. By comparison, Healthcare Realty Trust (NYSE:HR) reported earnings of 49 cents per share in comparison to 39 cents for the same period last year. In addition, the company announced that it will pay the same dividend amount of 38.5 cents, which also was paid one year ago . When a side-by-side comparison is performed of the two different REITs, two things are clear: 1) Both show increasing earnings; and 2) Both have maintained dividend payouts during difficult financial times. These are signs of strength, meaning that both companies are positioned to benefit from the economic recovery. (For more, read Add Some Real Estate To Your Portfolio and What Are REITs?)
Clearly, the preliminary comments and economic numbers show that the economy is improving. To make money off of the economic rebound, investors must find companies that have improving year-over-year earnings and either confirmation of previous guidance or a consistency in dividend payments. While there still needs to be more consistency in the economic numbers, the fact that you are seeing improving results is a positive development. (For further reading, check out Investopedia's special feature Economic Recovery: Get Ready.)