Public companies, firms that have their shares trade on an exchange, must make their financial reports available for investors to research every quarter, or four times a year. In an earnings report, a firm must supply revenue, expenses, net income, earnings per share, and all of the details in an income statement, cash flow, and balance sheet. Usually the months following the quarter-end are busiest, as this is when most companies will report their earnings.
When I read the newswires each morning, I scour for trading opportunities; but the one thing that I have been noticing lately is the lack of moderate revenue growth among the reporting companies. I’m not saying that I would like to see revenues growing at 30%–40% or more, but even growth in the low double digits would suffice at this point, given the global stalling.
The market is all giddy about the first-quarter earnings season early on, but I really don’t understand why investors are that happy. I’m clearly not seeing the same things.
As of Monday, about 104 S&P 500 companies have reported during the earnings season, and their results have been in line with the previous quarters, in which about 67.3% beat earnings-per-share (EPS) estimates, according to Thomson Financial.
Again, the first-quarter earnings are encouraging—but not exactly something to get euphoric about.
The reality is that while two-thirds of the S&P 500 companies are beating estimates during the earnings season, the revenues side is another story—a story that I feel is being ignored by investors.
Companies are beating the earnings estimates assigned by Wall Street. In some cases, the earnings estimates are lower than previous estimates; in this regard, the companies are, in some cases, actually only meeting or beating reduced estimates during this earnings season.
Moreover, we are also seeing legitimate earnings manipulation by companies that want to please Wall Street and investors. This is not illegal and can often return business intelligence (BI) for shareholders.
By pursuing aggressive cost cutting and containment, companies can reduce the cost side and present a much better earnings picture, even … Read More
Apple Inc. (NASDAQ/AAPL) finally broke below $400.00 last Thursday, an occurrence that I recently discussed in Investment Contrarians. As I said, the short term will generate volatility for the stock, but I continue to believe there is still hope the company can turn around going forward.
The problem with a momentum company like Apple is that with its rapid rise in share price to over $700.00, there’s immense risk for investor mistakes to occur if the company does not consistently deliver. And I’m not talking about delivering just average results; momentum companies such as Apple have to deliver exceptional results to the market and please investors.
In the case of Apple, soft growth over the last several quarters has proved devastating to the stock and can cause investor mistakes.
After beating Thomson Financial earnings-per-share (EPS) estimates by 22.5% in the fiscal 2012 second quarter, Apple came back and offered up three straight dismal quarters in which the company fell short on earnings in two of the three quarters and barely beat in the most recent. Ignoring these falls inevitably led to investor mistakes, as demonstrated by the share price.
The same is said for the overall stock market. Traders gave investors strong gains in the first quarter, but that has not been the case in April, as global growth concerns are surfacing. The aftermath has been selling pressure and the greater likelihood of more selling down the road.
The two cases of Apple and the overall stock market demonstrate the need to be careful with momentum stocks to avoid potential investor mistakes.
The reality is that once the market euphoria … Read More
Apple Inc. (NASDAQ/AAPL) has been punished in the financial media and on Wall Street, having lost its edge. Trading above $705.00 in September 2012, the stock has snapped back to reality, recently declining to a two-week low of $419.00 on March 4, 2013.
At the current price, there are arguments on both sides regarding whether Apple is worth a gamble or if it is the beginning of a new downtrend below $400.00.
In my view, the business landscape for Apple has become much more competitive. You have “Android”-powered devices accounting for a large portion of the smartphone market. This is mainly thanks to the overwhelming success of Samsung Electronics Co. Ltd.’s “Galaxy” series of smartphones and tablets. I have both an “iPad” and a Galaxy phablet (a large smartphone with the capabilities of a tablet). I must admit after using the iPad for a few years, I actually find it much better than the Galaxy.
Yet the market is still mixed.
While the iPad remains the dominant tablet, Apple’s reign in the tablet sector is clearly in jeopardy; but in my view, until a better tablet surfaces, the company will continue to produce the top tablet.
Investment manager Ken Fisher increased his holdings of Apple by 58.12% at prices ranging from $420.05 to $549.03, with an average price of $467.05. (Source: “Ken Fisher Buys Apple Inc, American Express Co, Coinstar, Sells America Movil, Petrobras, Visa,” Forbes April 11, 2013.)
The chart of Apple below shows a bearish descending triangle. The $400.00 level is a key support level. Yet a good quarter could easily turn the tide and drive the share … Read More
Aluminum maker Alcoa Inc. (NYSE/AA) reported its earnings results on Monday, officially kicking off the first-quarter earnings season. While some in the media touted the fact that Alcoa beat earnings estimates, in reality, it’s nothing to get excited about. The stock market looks to be agreeing with me, as Alcoa was under some selling pressure after it reported.
Alcoa remains a key global company, but it probably doesn’t carry the weight it used to have on the market. However, the company does still offer some insight into the global economy.
The company only managed to narrowly beat earnings-per-share (EPS) estimates, reporting adjusted earnings of $0.11 per diluted share, above the Thomson Financial consensus estimate of $0.08.
It was a decent reading, but as I have said in the past, what I want to see is revenue growth to drive earnings—not cost control or some other variable.
Let’s take a closer look at Alcoa.
Revenues came in at $5.8 billion in the first quarter, down three percent year-over-year, which the company blamed on lower prices on the London Metal Exchange and some issues with its production in Europe.
That’s fair, but I want to see revenues grow in the global economy. Companies that expand revenues to drive earnings are what you want to see. In my view, those companies that are reporting solid revenue growth are important, especially given the somewhat stagnant state of the global economy. My thinking is that once the global economy begins to take off, especially in Europe and the emerging markets in Latin America and Asia, these same companies will likely be ready to deliver much … Read More
I think maybe it’s time to start putting your money in the piggy bank to avoid any major investor mistakes.
With the Dow and the S&P 500 at record highs, I’m trying to find reasons to want to buy in this market. However, I’m finding it difficult to even want to buy, as I still feel a stock market correction is on the way.
I’m sorry, but I can’t tell you when this will happen or by how much. All I know is that you need to be careful to avoid possible investor mistakes.
We have the first-quarter earnings season that started on Monday, and if you believe the early estimates, there will not be many happy traders and investors out there.
FactSet estimates earnings will contract by 0.7% in the first quarter, followed by an overly optimistic second half, predicting an explosive earnings rally of 10.1% and 15.6% for the third and fourth quarters, respectively. I’m not sure why FactSet is this giddy, but in my view, for these growth metrics to emerge, all of the stars will have to align.
I’m still not convinced corporate America is set for another growth spurt. The Federal Reserve knows this. Based on the recent non-farm payrolls reading showing a dismal 88,000 new jobs, I just can’t comprehend how the country is set to achieve revenue growth.
I may sound like a downer, but I consider myself more of a realist who wants to avoid investor mistakes.
And Main Street has also appeared to have forgotten the debt, while the government and Congress are still battling it out to come up with … Read More