Earnings season is in full swing with major U. S. companies reporting mixed results and highlighting the contrast between consumer pressure and demand for global travel. Procter & Gamble reported a decline in earnings and lowered its annual outlook, while GE Aerospace exceeded expectations due to strong aftermarket and servicing activity.
Justin Elliott, portfolio manager at Caldwell Investment Management, spoke with BNN Bloomberg about the market’s reaction to these earnings reports. He also shared his optimistic view on equities for the coming years and suggested potential stock ideas that align with long-term structural growth.
Key Takeaways:
– Procter & Gamble’s results showed a reliance on pricing rather than volume growth, reflecting pressure on lower-income consumers and limited organic growth momentum. – GE Aerospace benefited from strong aftermarket demand as airlines extend the life of existing fleets amid ongoing aircraft delivery delays. – Equity markets remain supported by expected rate cuts, resilient earnings growth, and improving liquidity, despite geopolitical and policy-related volatility. – Market leadership is broadening beyond mega-cap technology stocks, with valuations outside the largest names viewed as reasonable on a longer-term basis. – Select opportunities exist in automated brokerage platforms and aerospace suppliers positioned to benefit from global trading activity and long-term industrial demand.
When asked about Procter & Gamble’s earnings, Elliott noted a continuation of recent trends where the company’s growth has been driven by pricing rather than volume. This is due to a challenging market for lower-income consumers, who are trading down to more affordable options. While there were some bright spots, such as growth in China, the overall outlook for P&G remains muted unless there is a significant increase in organic growth.
Elliott also commented on GE Aerospace’s earnings, pointing out that while there were a few concerns, such as a relatively flat margin outlook, there is a strong long-term outlook for the company. This is due to a 10-year backlog of aircraft orders for both Boeing and Airbus, which will support future growth. In the meantime, airlines are keeping older planes in service longer, leading to higher-margin aftermarket and service revenue for GE Aerospace.
Elliott also shared two potential stock ideas. The first is Interactive Brokers, a fully automated brokerage platform that caters to both retail and sophisticated investors. The company recently reported strong growth in its user base, driven by its technology-focused model. Elliott sees a long runway for continued market share gains, given the low penetration rate among sophisticated investors globally.
The second stock idea is Howmet Aerospace, a key supplier in the aerospace industry. The company has seen strong demand for its spare parts business, as airlines extend the life of existing fleets due to production delays for new aircraft. Howmet also has a growing business in power generation, supplying turbine blades for gas turbines used in data centers. Elliott sees strong visibility for the company over the next five years and is optimistic about its overall outlook.
In conclusion, Elliott remains positive about the equity market, citing expected rate cuts, resilient earnings growth, and improving liquidity.