So oil has shed nearly $8 on high stockpiles of gasoline. A material theme so far this earnings season has been that the potential second-half earnings recovery has been somewhat hamstrung by lower oil and gas capital spending. The "book and ship" industrial distributors' results were soft, with net reductions to organic revenue and earnings growth for the balance of 2016.
Offsetting this is, well, continued stabilization. OK, so we aren't seeing a brisk acceleration on "easier" comps on second-half guidance, virtually across the board; but we also aren't seeing wholesale guidance reductions. Orders and backlogs have appeared to be stable going into this second half. So what to do in this environment? From General Electric (GE) and Caterpillar (CAT) to United Technologies (UTX) to Danaher (DHR) -- the stabilization is real. Backlogs support current expectations, plus or minus. (General Electric is part of TheStreet's Action Alerts PLUS portfolio.)
We are no longer in "oversold" conditions in industrial land -- so "buying lower and selling higher" is a guiding strategy as we enter the second half, barring anything further exogenous. This is a departure from a few months ago, where we saw opportunities to "buy absolutely low."
Watch for outsized yield: Caterpillar is the poster child for this, sporting a dividend yield of almost 4%, while sucking wind in virtually all segments globally. Capex retrenchments for CAT's equipment globally may stabilize, even as the company trimmed sales and earnings guidance this morning.
Look for under-earning franchises: Pockets of the cyclical economy are still quite weak. After this quarter, we have still seen certain decent "franchise" companies suggest a tepid outlook for the back half. Included in this theme are National Oilwell Varco (NOV) , under-earning in energy and rig with a strong aftermarket; Lindsay (LNN) , under-earning in agriculture; and Whirlpool (WHR) , which is under-earning in Europe and Latin America.
Value is still outpacing growth: Take the restaurants. After three years of comp acceleration, the specter of excess capacity and slowing compares is starting the multiple compression and expectations rationalization into the second half. See McDonald's (MCD) and likely many others.
Juxtapose that with the potential for a better second-half retail environment. Gap (GPS) , Nordstrom (JWN) , Urban Outfitters (URBN) and Coach (COH) are solid examples of this subsector rotation as expectations rejigger themselves. Holy Coach! Wow.
Stay away from lofty expectations: I still am wary of the arbitrary growth multiples applied to the companies that are currently executing flawlessly. Ulta Salon (ULTA) , Danaher, Acuity Brands (AYI) and Lennox International (LII) are on this list. Of course, these are among the best of the best at the moment; I just have a tough time putting new money to work here.