Can one make the case for easing back into the U.S. stock market?

The U.S. recession continues, and it's likely to continue through at least Q2, and probably through Q3. Meanwhile, credit market conditions, while they've improved since last fall, they're still constrained.

Further, the U.S. Treasury Secretary Timothy Geithner announced Tuesday that the United States government will commit up to an additional $2 trillion to encourage new lending and remove toxic assets in an effort to end the credit crunch.

Want another sign of the slowing economy? How about technology spending.

Forrester Research estimates that purchases of IT goods and services will drop by 3% to $1.66 trillion this year, reversing an 8% gain from last year. That ends seven straight years of gains in IT spending.

"For IT vendor strategists, the global IT market will be a gloomy one in 2009, with prospects of improvement in 2010," said Andrew Bartels, Forrester's principal analyst in a press release. "Unlike in past years, there are no significant growth markets to offset the weak ones."

For tech investors, there is little to cheer about.

• Software products will be an estimated $388 billion in 2009, the same as in 2008;
• Purchases of routers, switches, private branch exchanges (PBXs), videoconferencing equipment, and unified communications equipment will likely fall to around $353 billion in 2009, a 3% decline from $364 billion in 2008;
• Purchases of personal computers, servers, storage devices, and peripherals will slip by approximately 4% to $434 billion in 2009, from $450 billion in 2008;
• Governments and businesses will buy an estimated $484 billion of IT consulting, systems integration, and outsourcing services in 2009, 3 percent less than in 2008.
  

IT budgets are going to be tight as a drum. There is going to be little room for companies to purchase the latest version of a piece of software or hardware that does little to add to its bottom line. CIOs don't want gee-whiz technology when "good enough" technology will do.

What technology purchases will be made will come at a steep price for hardware and software companies in terms of discounts and freebies for things such as software and services.

It is not a good time to be on the sales staff of any technology company.

Many investors know about the key metrics that provide clues regarding the U.S. economy's health, and where it's likely to head, near-term.

Retail sales, housing starts, UPS (NYSE: UPS) / Fed Ex (NYSE: FDX) deliveries and, of course, those infamous corrugated box orders, all provide clues about demand at the retail and wholesale levels, and are positively correlated with increases in U.S. GDP.

Then there are those lower-profile metrics that experienced investors monitor -- and new investors are highly recommended to do so, as well. One such metric: Stanley Works (NYSE: SWK) and on Thursday the hardware and tool giant provided yet another bearish data point for the U.S economy and stock market.

New Britain, Conn.-based Stanley lowered 2008 full-year earnings guidance to $3.30-$3.40 per share, down about 35-45 cents from previous guidance, and also announced it would lay-off 2,000 employees, or about 10% of its work force, citing rapidly deteriorating business conditions. Further, Stanley said "economic conditions remain too variable to warrant issuing formal 2009 guidance at this time."

The Reuters 2008 EPS consensus estimate for Stanley is $4.30. Stanley's shares Thursday closed down $2.02 to $32.30.

Sectors of the economy may be coming apart at the seams, but Fastenal Company (NASDAQ: FAST), distributor of nuts, bolts and all kinds of tools, is holding together nicely. Fastenal reported strong numbers for 2Q 2008. Net sales increased 16% to $604,000. (Hey, I never said this stock would topple Home Depot). More importantly, net earnings increased 26% to $76,000 and diluted EPS increased 25% to $0.51. As part of its "Pathway to Profit Initiative," Fastenal opened 112 new stores in Q1 & Q2, bringing total store locations to over 2100.

Like most other businesses, Fastenal has been hit by both the slowdown in the construction industry and the rapid rise in fuel costs. The company is reorganizing its freight service to take advantage of fuel and cost savings by using its own trucking network rather than external service providers. Additionally, the company established a centralized call center to manage accounts receivable company-wide. As a result, accounts receivable increased 14% at the same time the company reduced its bad debt expense. Fastenal repurchased 200,000 shares with plans to buy back more. The company also declared a quarterly dividend of $0.27 per share. YTD the stock has gained 14% and currently trades around $46. This one is worth a look.

Grainger (NYSE: GWW) supplies all manner of facilities maintenance products to all types of businesses. The company just posted great 2Q numbers. Sales gained 10% to $1.8 billion. Net earnings increased 8% to $113 million and EPS turned out a healthy $1.43. Grainger posted these good numbers and gained market share in a slowing economy. Nice work.

Grainger operates in the U.S., Mexico and is beginning to establish a footprint in China. The company is expanding both its product line and its market reach in each of these markets. Sales in the U.S. grew 9% and the company opened 6 new full service locations. Sales in Mexico grew 25% and the company opened one new full service location. China sales doubled to $2 million from the company's one location, with big expansion plans for the future. Grainger has added another 100,000 products to its catalog and repurchased 800,000 shares of stock for $75 million. CEO James Ryan forecasts FY2008 EPS in the $5.80-$6.10 range, not a bad return on a stock that currently trades right around $86.

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Black & Decker is worth a review.

The Black & Decker Corporation (NYSE: BDK) is a global manufacturer and marketer of power tools and accessories, hardware, home improvement products, and fastening systems.

In general, analysts like BDK's recent restructuring to improve productivity and operating margins. For the most part, analysts are forecasting low-single-digit sales growth for 2008 and 2009, weighed down by the housing sector's doldrums.

The market's recent pullback has created several moderate-risk, bargain-basement-price stocks, and one worth an evaluation is Black & Decker.

The Black & Decker Corporation (NYSE: BDK) is a global manufacturer and marketer of power tools and accessories, hardware, home improvement products, and fastening systems.

Analysts expect BDK's recent restructuring to improve productivity and operating margins. In general, analysts are forecasting low-single-digit sales growth for 2008 and 2009, weighed down by the housing sector's doldrums.
Meanwhile, BDK's fastening/assembly unit business should improve somewhat, offsetting housing's likely sub-par performance, and register mid-single-digit sales growth. The Reuters FY 2008/FY 2009 EPS consensus estimates for BDK are $1.14 to $1.57.

Blue Coat Systems, Inc. (Nasdaq: BCSI), the Web appliance company "working to make the Web safe for business", posted stellar earnings today beating the Street's estimates by $.06 and raised guidance for it's third quarter.

BloggingStock's Georges Yared had a good write-up in August on the company's wide-area-network (WAN) optimization product. Yared has had a good call on this one and indeed, it's the company that keeps on giving with continued stock growth (it's up 200% so far for 2007). Yared has named Blue Coat to his list of "Top 25 Stocks for the Next 25 Years".

In a research piece issued last week, ThinkEquity analysts said that recent checks with US-based retailers suggest sustained growth in Blue Coat's WAN optimization and Web-security appliance in the US and increased sales momentum overseas. "We believe the WAN optimization growth secular trend continues to be strong and Blue Coat's differentiated unified offering continues to drive demand for Blue Coat in the U.S. and increase momentum overseas," said Jonathan Ruykhaver, a ThinkEquity analyst.

Boy, were they right. Net revenue for the second fiscal quarter of 2008 was $73.4 million, an increase of 85% compared to net revenue of $39.7 million for the same quarter last year and an 18% increase compared to net revenue of $62.4 million in the prior quarter.

Things are certainly humming for Blue Coat.

Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author holds no positions in the stocks mentioned above.

With the markets in a choppy/consolidation mode (or perhaps worse), it's best to consider including a few defensive stocks in your portfolio. The Stanley Works (NYSE: SWK) is worth a review.

Stanley manufactures tools for professional, industrial, and consumer use, and has built a business model that's been successful for more than a hundred years. A security solutions unit accounts for about 20% of revenue, but the key revenue driver here is tools: hammers, screwdrivers, pliers, sockets, saws, and measuring instruments, among other products.

Stanley has endured due to the company's diversified product line, outstanding pricing framework (matching value to price), discipline regarding costs, and durability of its products. That, not surprisingly, has led to a superior brand reputation, which the company has adeptly marketed abroad: about 40% of sales are international-based. The Reuters F2007/F2008 EPS consensus estimates for SWK are $4.01 to $4.50.

Demand for new residential and commercial construction continues to be weak in many parts of the country, though that will change shortly in California. But maintenance of existing facilities continues to be a growth industry. W.W. Grainger (NYSE: GWW) is the leading supplier of facilities maintenance products. The company posted record numbers in its most recent earnings report. Sales increased 9% to $1.9 billion, operating earnings increased 15% to $174 million, and EPS increased 11%. Based on these figures, CEO Richard Keyser has revised FY 2007 EPS guidance from $4.75-$4.90 to $4.85-$4.95.

Grainger is pursuing a market expansion strategy and a product line expansion simultaneously. The company has added 70,000 new products in its U.S. locations, opened four new U.S. locations, and continues to exit existing low margin contracts as they expire in 2007. Daily sales have increased each month for July, August, and September. Sales in the U.S. increased 9%, dwarfed by the 24% increase in sales in Mexico and the opening of two more locations. Grainger is also entering the facilities maintenance market in China, a smart move given the massive amount of construction in progress in China.

But current numbers are not the only reason to check out Grainger. Motley Fool lists Grainger as a stock to own for the rest of your life, based on Grainger's dividend pay out record. The current dividend yield is 1.5%, with a payout ratio of 26% and YoY quarterly dividend growth in excess of 20%. In order for a company to pay out increasingly higher dividends over the long haul, it must be able to generate sufficient amounts of cash regularly and repeatedly. Grainger has certainly demonstrated it can do that. The stock traded recently at $89.05, up 16 cents.

Visit AOL Money & Finance for more earnings coverage

Yesterday, Newell Rubbermaid Inc (NYSE: NWL) raised third quarter revenue and profit guidance. Revenue growth is expected to come in at the high end of the previously announced range of 5% to 7%, citing strength in Home & Family, Tools & Hardware segments, as well as favorable forex. Also, Newell said gross margins are expected to jump by 125 to 175 basis points, another big increase for the company, which showed good gross margin improvement earlier this year.

We blogged last week that investors should jump into Newell stock at $25 as it had gotten too cheap. Newell, which has been showing signs of beginning a sustainable turn around, has gotten hit hard in the recent stock market correction, with shares dropping from $30 to around $25, for a 17% decline.

However, we thought recent comments by Mark Ketchum, Newell's CEO, to analysts indicating it could meet its growth targets held some merit. Ketchum bought 20,000 shares of stock, according to a SEC filing a week ago Friday. Since blogging last week that investors should scoop up shares, Newell is up 12%.

Lowe's (NYSE: LOW) implied volatility of 38 above 26-week average of 33 into EPS. LOW is expected to report EPS of .61 cents on 8/20, according to Thomson First Call. Deutsche Bank said on 8/16, "while we are slightly reducing our 2Q and FY EPS on a weak environment, we note that consensus already reflects conservative sales and EPS views." LOW September option implied volatility of 38 is above its 26-week average of 33 according to Track Data, suggesting larger price fluctuations.

Pep Boys (NYSE: PBY) September implied volatility Elevated at 61 into EPS. PBY, an operator of automotive retail and service chains, has a market cap of $784 million. PBY is expected to report EPS on 8/22. Morgan Joseph CO says, "update on potential sale/leaseback of property possible. During its last conference call, PBY confirmed a 2004 appraisal that valued its owned property as around $900 million and belief that today it is worth in excess of $1 billion." PBY September option implied volatility of 61 is above its 26-week average of 38 according to Track Data, suggesting larger price risk.

Daily options update is provided by stock specialist Paul Foster of theflyonthewall.com.

International Business Machines Corp. (NYSE:IBM) isn't on Wall Street's good graces these days. Big Blue posted decent fourth-quarter results yesterday but Wall Street expected better than the 11 percent profit growth and 7.5 percent jump in revenue.

Think Equity analyst Eric Ross told clients that IBM's results were helped by a lower-than-expected tax rate and that investors were expecting the technology giant to "handily beat consensus estimates," according to Reuters. Shares fell 4 percent.

Hardware was an area of concern to investors. Revenue from IBM's Systems and Technology group, which includes servers, storage and its Microelectronics business, rose 3 percent to $7.1 billion.

Since companies can now upgrade their systems with software, they have less need for expensive hardware. That's causing sales of large computers to slow, which is a negative trend for the company, IBM shareholder Pat Becker of Becker Capital Management told Bloomberg News.

As Eric Buscemi points out, investors also are worried about IBM's services business, which had long-term bookings that were disappointing.

IBM has been tops in patent awards for years.. Now, would be a good time to lock some of those geeks in a room to inspire them to come up with the next big thing.

Until then, Wall Street will be keeping its distance from IBM.

International Business Machines Corp. (NYSE:IBM) has weathered the storm about the SEC investigation into its first-quarter earnings disclosure pretty well. Shares of Big Blue have jumped 32 percent over the last six months, keeping pace with other tech heavyweights such as Microsoft Corp. (NASDAQ:MSFT) (up 38 percent) and Hewlett-Packard Co. (NASDAQ:HPQ) (up 38 percent).

Bloomberg News reports The company said last January that it was facing a formal SEC investigation, which makes the stock performance all that more remarkable. Still, you can bet that the earnings call following the release of earnings on January 18 will be lively. I'm sure analysts will be interested to hear the company's thoughts on technology spending and any update on the investigation.

Wall Street is skeptical that IBM shares will go much higher. Their average target price is $99.67,about where the shares are trading today. Analysts are expecting the Armonk, NY-based company to have earnings of $2.19 on revenue of $25.66 billion, according to Thomson Financial.

IBM is a bellwether for both the tech sector and overall confidence in the economy. Since becoming the head of IBM in January 2003, Sam Palmisano wisely decided that IBM should focus on businesses. He got rid of the underperforming notebook computer division and acquired the consulting business of PricewaterhouseCoopers LLC. Some critics of the company have claimed -- wrongly I think -- that IBM makes its hardware and software hard to use so that customers need to hire an IBM consultant to help them out.

Also check out some other earnings reports that we're following, and let us know your thoughts on earnings expectations.