An earnings warning from FedEx (FDX) is telling more that what investors care to admit. As an economic bellweather, FedEx already revealed what we already know: China’s growth is slowing. FedEx said that economic problems in Europe and in the U.S. are slowing trade around the world. China is more than investors wish to admit.
China’s slowing growth story is a story that extends beyond an infrastructure building slowdown. Lower iron ore prices and flat electricity demand in China already affirmed the state of the economy for China in 2012. With the FedEx warning, lower volumes of shipments for FedEx reveal that consumption and manufacturing are also slowing.
FedEx cut its forecast for global growth in 2012 and 2013. The company said that the global economy was slowing, and that 2013 would likely get worse. FedEx reduced its earnings forecast after reporting first-quarter results. FedEx now expects earnings per share of $1.30 to $1.45 for the second quarter. Guidance for the year was lowered to $6.20 to $6.60 per diluted share.
Another company warning investors that the economy in China was weak was Caterpillar (CAT). The company cut working hours in China, and reduced the rate of production at its main Chinese factory.
Why is China so Important for the United States?
China has an effect on world trade. The country is an export economy, which drove consumer economies for many countries that includes the United States. Lower trade numbers should be expected. Renewed quantitative easing and recently announced infrastructure spending in China will support a rebound, but a bigger issue remains: China’s consumption. During its conference call, Frederick Smith, the CEO of FedEx, said that:
Consumer consumption in China is not increasing at a significant rate, contrary to everybody’s hopes. While exports from, say, the United States into China have grown, they are dwarfed by the exports from China into the United States. And as the big economies in Europe and the U.S. have grown or contracted — grown at a far lesser rate or, in the case of certain European countries, have contracted, that’s reflected in the numbers in China. And you can’t escape that. I’ve been somewhat amused watching some of the China observers, I think, completely underestimate the effects of the slower exports on the overall China economy.
Business Section: Investing Ideas
Companies discussed in this article were:
1. FedEx Corporation (FDX, Earnings, Analysts, Financials): Provides transportation, e-commerce, and business services in the United States and internationally. Market cap at $26.51B, most recent closing price at $84.39.
2. Caterpillar Inc. (CAT, Earnings, Analysts, Financials): Manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. Market cap at $59.92B, most recent closing price at $91.72.
Companies in the commodity sector that will provide investors with a leading indicator on a global economic recovery include:
3. Talisman Energy Inc. (TLM, Earnings, Analysts, Financials): Engages in the exploration, development, production, transportation, and marketing of crude oil, natural gas, and natural gas liquids. Market cap at $14.42B, most recent closing price at $13.97. A rebounding economy will lead to higher energy prices. This exploration firm will be one of the first to recover.
4. Suncor Energy Inc. (SU, Earnings, Analysts, Financials): Operates as an integrated energy company. Market cap at $52.04B, most recent closing price at $33.83.
5. Potash Corp. of Saskatchewan, Inc. (POT, Earnings, Analysts, Financials): Produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. Market cap at $37.81B, most recent closing price at $44.0. Fertilizer demand will be strong as global economies improve.
6. Vale S.A. (VALE, Earnings, Analysts, Financials): Engages in the exploration, production, and sale of basic metals in Brazil. Market cap at $96.B, most recent closing price at $18.64. Vale has a low P/E and a high dividend of nearly 6%. Renewed demand in China will reflect in stronger earnings from Vale.
To interact and discuss these picks with users, attach your watch list or portfolio to your friends on Kapitall. Message the author. He is ranked sixth (by points) on the all-time leaderboard. The leaderboard is located on your score icon -> Leaderboard. Members on Kapitall earn free points, and even more points with every Kapitall Generation trade. These points may be redeemed at the Kapitall store.
Analyze These Ideas: Getting Started
- Read descriptions for all companies mentioned
- Access a performance overview for all stocks in the list
- Compare analyst ratings for the companies mentioned
- Compare analyst ratings to annual returns for stocks mentioned
- Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, Filings
- FedEx Corporation (FDX, Chart, Download SEC Filings)
- Caterpillar Inc. (CAT, Chart, Download SEC Filings)
- Talisman Energy Inc. (TLM, Chart, Download SEC Filings)
- Suncor Energy Inc. (SU, Chart, Download SEC Filings)
- Potash Corp. of Saskatchewan, Inc. (POT, Chart, Download SEC Filings)
- Vale S.A. (VALE, Chart, Download SEC Filings)
New to Kapitall?
1. New to the site? Click here to register for a free account, and gain access to more tools and data
2. Looking for more investing ideas like this? Click here to sign up for your free copy of Kapitall Weekly
3. Follow us on SeekingAlpha, Motley Fool, Nasdaq and Twitter
ABOUT KAPITALL WIRE
Kapitall Wire, which is not a broker/dealer, offers free cutting edge investing ideas, lively commentary and timely analysis of companies enhanced by interactive tools. And the Investing 101 section breaks complex concepts down to their basics, offering education to novices that doubles as a refresher course for more seasoned investors.
Kapitall Wire is a division of Kapitall Inc. Securities products and services are offered by Kapitall Generation, LLC, member FINRA/SIPC . Kapitall Generation, LLC is a wholly owned subsidiary of Kapitall, Inc.
