Page 40 The Dispatch/Maryland Coast Dispatch December 13, 2013 MONEY SENSE Corporate Earnings Remain Healthy OCEAN CITY – Investors are ly, which should stimulate capital looking at another strong year of spending. This leads us to believe equity returns, with the S&P 500 up that the sales growth we saw in the more than 28 percent at the end of third quarter is sustainable. November. A more contentious point for A key feature of this year’s equity many investors is the direction of market gains has been multiple ex- profit margins. Much of the growth pansion – the increase in the price/- in earnings following the 2007-2009 global financial crisis has been drivearnings ratio. However, with the Federal Re- en by the dramatic growth in corposerve likely to start tapering in early rate profit margins. The operational leverage gained 2014, we believe the future path of equity prices will be increasingly from massive cost-cutting initiatives dependent on corporate earnings has allowed companies to maintain rather than on valuation re-rating. strong earnings even in the face of To that extent, third-quarter earn- revenue growth that has often been modest. ings provide cause for optimism. A reversion to the mean from current levels would EPS of S&P 500 commean a potentially subpanies continued their stantial knock to earnings. positive trend in 3Q13, inTo what extent is this probcreasing 6.5 percent yearable? While an improving over-year (YOY) to $27.68 labor market and rising and generally exceeding rates could potentially analysts’ expectations. pressure margins, we do This earnings season not believe there will be an has offered solid signs of imminent collapse in profit improving fundamentals. BRIAN SELZER margins barring a recesGrowth in overall earnings and in sales ticked up 5.4 percent sion. Part of this argument is that marand 3.6 percent YOY, respectively. Both represent upturns from previ- gins could be undergoing a structural shift. Over the past decade, an ous quarters. increasing share of S&P 500 comEncouragingly, these growth pany profits has come from overtrends are being exhibited across a seas, where the effective tax rate is broad range of sectors. Nine out of lower. We don’t believe companies’ 10 sectors grew their earnings over share of foreign profits will drop subthe prior year, with financials and stantially nor do we expect domestic consumer discretionary leading the corporate taxes to rise. pack. Critically, all 10 sectors postFinally, EPS growth can be suped revenue growth in the third quarported by buybacks, which reduce ter, with consumer discretionary and the number of shares outstanding. health care leading the way. BofAML Equity Strategy estimates We find these developments such actions boosted EPS growth encouraging for equities going into by 1 percent in 2013 and will have a 2014. However, there are concerns similar impact in 2014. as to whether earnings can continue Taken together, BofAML Global to climb, particularly as interest Research forecasts EPS to grow 7 rates do. In that context, we believe percent in 2014, in line with the it might be helpful to break out the long-term growth trend, to $118 a three components of EPS growth – share. The cyclical sectors – enerrevenue, margins and buybacks. gy, technology and industrials – are For the first time since 2010, expected to display the strongest Bank of America Merrill Lynch (Bof- earnings growth in the year ahead. AML) Global Research sees a coor– Brian Selzer dinated acceleration in global ecoSpecial To The Dispatch nomic growth for 2014, with nominal (A Merrill Lynch Wealth ManageU.S. and global growth to be around ment Advisor who can be reached at 4 percent and 7 percent, respective- 410-213-8520.) this week’s open houses CALL AGENTS FOR DIRECTIONS View more open houses at www.mdcoastdispatch.com/open_houses.php OCEAN CITY Makai Condominiums 42nd St. Bayside Sat & Sun 10-4 New Construction 2BR & Studio Condos Ben Dawson The Fritschle Group/ Condominium Realty 410-603-2205 OCEAN CITY Eleven 11 Edgewater 1111 Edgewater Ave Open Daily 10-4 New Bayfront Condos 3BR/2.5BA/1700+SF Kevin Decker The Fritschle Group/ Condominium Realty 443-235-6552 OCEAN CITY OCEAN CITY Sunset Island The Gateway Grand 67th St & The Bay Two 48th Street Open Sat & Sun Oceanfront Condos, Townhomes, Daily 10-5 Single Family Homes Fully Furnished Luxury Resort Living Penthouse Residences Terry Riley The Fritschle Group/ Vantage Resort Realty Condominium Realty 443-880-0512 877-260-2710 WEST OCEAN CITY Villas at Inlet Isle Mon-Fri 11-3 Sat&Sun 10-4 Waterfront THs 3BR/4BA PJ Aldridge The Fritschle Group/ Condominium Realty 410-251-7562 BERLIN 408 South Main St Auction Preview Tues 3-4:30 15,795 sqft lot with 3BR/1BA Home & Detached Bldg Pete Richardson Auction Sales 410-546-2425 OCEAN CITY The View 57th St. Bayfront Daily 10-4 New Construction Direct Bayfront 3BR/2BA Condo Dan Clayland Coldwell Banker 410-726-5108 BERLIN 218 Barbary Coast Decatur Farms Sat 12-2 Single Family Home 3BR/3BA/2442SF Backs to Woods Lauren Bunting Bunting Realty, Inc 410-422-9899