Earnings is Good: WIll We Continue?
It’s hard to say that earnings season starts with Alcoa (AA) as they have amongst the most convoluted reports of any company. Tons of one time charges that somehow seem to linger on for a lot longer than ONE quarter.
So for me, Tuesday night marked the real start of earnings season with two quality reports. First off was the large railroad, CSX Corp (CSX). Nice beat on revenue and profits with shares up 2-3% afterhours. Next up was Intel (INTC) which had a modest beat of their own. More importantly they gave solid guidance for the future. So even though shares rallied non-stop into the report they tacked on another 1%+ after the close.
Neither one of these announcements gives the market impetus to rage higher today, Wednesday. But just as important, they provide evidence of healthy corporate earnings with little sign of a double dip on the horizon. So no need for stocks to go down either. After the big run up the past month, just staying at this level for a while is a victory. If the next reports are better, then yes, we will retest the recent highs around Dow 11,300.
So far, so good.
Just a quick note about the action on Tuesday. International markets were soft overnight which got US stocks started in the red Tuesday. All day long they kept chipping their way back. Then at 2pm ET the Fed released minutes from their latest meeting which showed increased likelihood of them embarking on a second round of Quantitative Easing (QE2). Many see that as good for stocks. I do too in the short run. NOT in the long run.
That’s because if we really need QE2, then the economy is in bigger trouble than we may realize. And since QE2 has low odds of working, then that's not good for the economy or the market in the long run.
Note there is growing debate that all the Fed is doing is “talking rates down”. Meaning that they are threatening to do QE2 to lower Treasury rates. Immediately after those conversations started, rates headed lower on their own. So it’s possible that the Fed does not need to actually do QE2 because investors took care of what they wanted to happen…lower rates. We all need to keep our eyes on this situation and adjust our strategy accordingly.
My Two Cents
(During the day I read many other investment articles of interest. Here are links to some new ones with my 2 cents added underneath).
Not a big beat. Yet given that shares traded up to $24 earlier in the year, this announcement should lead to modestly increased estimates. Then shares would be likely to trade higher on this news through year's end.
Analysts keep ratcheting up estimates into the 10/18 earnings announcement. The consensus is $4.02 for the quarter, but the most recent estimates are all north of $4 with many in the $4.05 to $4.15 range. Should be a big beat for Apple (AAPL) and nice bounce above $300. Heck, if Netflix (NFLX) and Amazon (AMZN) can carry PE's of 40, then can't Apple at least have a PE of 20???
Google (GOOG) has a lot of "Wow!" type projects right now like the RoboCar. The windfarm. The new inflation index. etc, etc, etc. Some of them will pan out and many won't. You could say they are throwing a lot of "stuff" up against the wall to see what sticks.
Over the years, they have shown good judgement in previous initiatives as can be seen by their continued earnings growth. A lot of folks are expecting big stuff from this earnings report. It could be too soon for that, given how much they have ratcheted up investment expenses. But long term minded investors will be hard pressed to find a better large cap growth stock than this one.
Over the years, they have shown good judgement in previous initiatives as can be seen by their continued earnings growth. A lot of folks are expecting big stuff from this earnings report. It could be too soon for that, given how much they have ratcheted up investment expenses. But long term minded investors will be hard pressed to find a better large cap growth stock than this one.
Comments