Earnings Outlook
A company reports its revenue and earnings on a quarterly basis. The company will then issue guidance of where they see the market in the future, along with any possible developments in either the goods or services they produce or the market in general. This information is then used by analysts, who then make an estimate of where they believe the earnings outlook will be for the company in future quarters. Investors will use this information, in addition to other criteria they may have, to make investment decisions.
What This Tech Stock’s Saying About the Stock Market
By Mitchell Clark, B.Comm. for Profit Confidential
We all know that corporate earnings are managed, but in a sense, it works, because an investor is better off having some ballpark earnings outlook over nothing. Earnings estimates for mature, large-cap businesses are typically more accurate over traditional growth companies, and you can use these estimates for your buy and sell decisions on the stock market.
One company that has a long history of providing decent guidance is Automatic Data Processing, Inc. (NASDAQ/ADP) out of Roseland, NJ. Automatic Data Processing (ADP) is a payroll processing and human resources outsourcing firm that is actually considered a technology stock. The company belongs to the NASDAQ 100 index, and I view it as a great barometer on the stock market, investor sentiment, and employment.
On the stock market, ADP has been doing great for years, though it did get ahead of itself in the late 1990s, as did so many other stocks. The “overperformance” produced underperformance in the 10 years following 2001; but normalized stock market long-term returns from this business have been good, especially with the addition of dividends.
Chart courtesy of www.StockCharts.com
In its latest earnings report for the second fiscal quarter of 2013, ended December 31, 2012, ADP reported revenue growth of seven percent to $2.7 billion. Earnings were down slightly during the quarter, but management says the company can produce top-line growth between eight percent and 10% this year, with five to seven percent in diluted earnings-per-share growth from continuing operations.
Combined with dividends, an investor could expect a high single-digit rate of return from this stock, with the position now fully valued on the stock market…. Read More
Things Are Looking Up! Let’s Hope They Don’t Wreck It
By Mitchell Clark, B.Comm. for Profit Confidential
I’ve been looking at all the earnings to date (they often aren’t a calendar quarter, but a fiscal quarter), and so far, I would say that the majority of companies are beating consensus expectations. Corporate earnings are definitely managed, but this is a good development. If the reduced earnings outlooks in the third quarter are partly responsible for the “outperformance,” then the revenues figures are the real good news. It’s too early to tell whether this early trend will become a reality this fourth-quarter earnings season.
There was some good economic news last week, but the stock market didn’t really react to it. I suppose investors are content to sit on the sidelines until the earnings really roll in. There are a lot of stocks that aren’t performing that well in this market, and this is troublesome; but I have to admit, the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite are holding up well.
It’s a very good sign that the Dow Jones Transportation Index (or Average) has broken out of its long consolidation. Dow theory might be “old-school,” but I believe in it. FedEx Corporation (NYSE/FDX) is looking strong on the stock market, and so are Union Pacific Corporation (NYSE/UNP) and JB Hunt Transport Services, Inc. (NASDAQ/JBHT). The airlines, as a group, are still way down, but they recently saw a significant turnaround on the stock market. The one exception in this group is Alaska Air Group, Inc. (NYSE/ALK), which has been doing outstandingly well over the last few years.
So far this earnings season, I see a lot of potential. Looking at the numbers to … Read More
My Near-Term Outlook for the Market as We Start 2013
By Mitchell Clark, B.Comm. for Profit Confidential
The S&P 500 had a pretty good year in 2012, up approximately 11.5% not including dividends. But, as is the norm in the current stock market, trading action remained choppy without any real trend.
The S&P 500 began 2012 strongly, rising consistently until May, when the index gave up all its gains. Then, with equal fervor, the S&P 500 moved solidly higher until September, before consolidating and pulling back on worries over the fiscal cliff. A lot of Wall Street analysts are saying to sell the current mini rally; but I’d wait until we get a look at fourth-quarter earnings to determine whether this turns out to be worthwhile.
There’s been quite a bit of consistency in the performance of the S&P 500 index since the stock market broke out of its low, set in March 2009. Solid rallies are met with solid retreats. The stock market advances, and then consolidates for a gain for the year. The year 2013 is likely to yield the same kind of trading action for the simple reason that investment risk is so high. The eurozone is in recession, and U.S. economic growth is really low. China and other Asian countries are export-driven, so their economic news shouldn’t surprise to the upside. Featured below is a three-year chart of the S&P 500 index:
Chart courtesy of www.StockCharts.com
The next major hurdle for the stock market in terms of policy action (or a lack thereof) is related to the debt ceiling. Previously, the stock market experienced a mini correction after policymakers were unable to extend a government shutdown due to the rising deficit. … Read More
The Debt Demon Lurks—It’s Still Out There Waiting to Strike
By Mitchell Clark, B.Comm. for Profit Confidential
The stock market is very much in consolidation mode, and it’s still highly vulnerable to all the risks out there. The sovereign debt crisis isn’t over; the eurozone has just backstopped sovereign debt with additional debt. And while the U.S. housing market is showing signs of improvement, this really isn’t a surprise. Enough years have elapsed that home sales and prices should be improving. Risk is very high in this stock market, and prices may soon become expensive relative to earnings.
You can’t really say that the stock market isn’t holding up well. Large-cap technology stocks have taken a hit, but this group has been one of the strongest performers since the 2009 low. Intel Corporation (NASDAQ/INTC) has really been hit hard, now trading below $20.00 a share. This company illustrates the problems faced by many international businesses. You can’t grow your earnings if there’s recession in Europe and China is slowing. Intel’s stock chart is below:
Chart courtesy of www.StockCharts.com
What I did see this third-quarter earnings season was a lot of improvement in small- and mid-cap technology-related companies whose businesses are mostly in the U.S. market. I read countless earnings reports that showed a significant turnaround in revenues among software companies, in particular.
One business that stood out to me is AZZ Incorporated (NYSE/AZZ). This is exactly the kind of business that can do well in a sluggish economy. AZZ manufactures electrical equipment and sells components to the power-generation industry in the U.S. and Canada. According to the company, its third-quarter revenues improved 34% to $153 million. Earnings grew to $15.9 million from $9.6 million in the comparable … Read More
Will AMD Get Bought Out?
By Sasha Cekerevac, BA for Profit Confidential
A recent report by Reuters indicated that Advanced Micro Devices, Inc. (NYSE/AMD) has hired JPMorgan Chase & Co. (NYSE/JPM) to explore options, which is code that it’s getting ready to put itself up for sale. When it comes to technology stocks, Advanced Micro Devices (AMD) has been around for a long time, but its earnings outlook looks increasingly unfavorable. (Source: “Exclusive: AMD hires bank to explore options,” Reuters, November 13, 2012.)
Technology stocks change at a rapid pace. Even before the current shift away from the traditional personal computer (PC) to tablets and smartphones, AMD was losing the battle against Intel Corporation (NASDAQ/INTC). Now both of those traditional technology stocks are losing market share to smartphone- and tablet-based chip companies like ARM Holdings plc (NASDAQ/ARMH).
All one needs to do is look at the charts for these technology stocks to realize where the earnings outlook is brightest. AMD initially rose on hopes that it will be able to sell itself. However, following this report, AMD came out and denied these rumors. Frankly, considering where the share price is in relation to other technology stocks, one would think AMD would be happy to see any move upward in the stock.
Chart courtesy of www.StockCharts.com
The problem for AMD is that it is running out of money. To move into new markets, extensive research and development must be undertaken to compete with other technology stocks in this market sector. Without the ability to create new and innovative products, the earnings outlook can only be negative. When looking at the requirements by mobile phone and tablet makers, AMD needs to spend a … Read More
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