Earnings Season
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.
Wanted: Market Seeking Catalyst in 2Q13 Earnings
By Mitchell Clark, B.Comm. for Profit Confidential
This week marks the unofficial beginning of second-quarter earnings season as Oracle Corporation (ORCL) reports. Next week, it’s NIKE, Inc. (NKE).
These two benchmark companies offer the first glimpse of business conditions for multinational corporations. What they report is material.
Last quarter, NIKE surprised Wall Street with excellent relative growth in revenues and earnings, particularly in the North American market. Oracle came in just under consensus. The stock’s been treading water for the last several months.
Corporations have been coy with their earnings guidance, both out of the collective uncertainty regarding the economy and to make it easier to beat the Street. It’s always a delicate dance that corporations play with investors. Earnings are definitely managed, which is why it’s important to look at cash flow and other financial metrics to get a better understanding of a company’s performance.
If there’s one trend apparent in the financial results of large corporations, it’s that balance sheets have been getting stronger. And this bodes extremely well for dividend-seeking investors. I have a strong inclination this earnings season that we’re going to see continued increases in dividends and expanded share buyback programs to pay for them.
Generally speaking, I wouldn’t be buying this market, but I wouldn’t sell blue chip positions either. Market timing is always extremely difficult, but it’s pretty tough to make the case that stocks aren’t due for a break.
While there’s been some peculiar trading action over the last week in global capital markets, there is still an appetite on the part of big investors to buy stocks if earnings meet or beat consensus.
First-quarter earnings season saw … Read More
Action in Dow Jones Transports, Utilities Signaling Caution
By Mitchell Clark, B.Comm. for Profit Confidential
The equity market and other capital markets are gyrating on the rise in 10-year Treasury yields. There’s been a lot of unusual movement in currencies as well.
Speculation regarding what the Federal Reserve is going to do about quantitative easing and the lull between earnings seasons are definitely factors.
There is always equity market uncertainty in the weeks before the end of a quarter (though the Dow Jones industrials have held up well). Investor sentiment reflects the collective ambiguity of whether earnings will hold up. In a sense, there’s not enough data to keep equity market speculators happy with their bets. When speculators can’t justify their positions, capital markets get cranky.
Both gold and oil prices have been bouncing off the weaker U.S. dollar. There’s always churn before a quarter ends.
I repeat my view that an equity market sell-off could occur at any time and that investors who are long should not be surprised by some pronounced downside (I wouldn’t sell Dow Jones blue chips).
The correction that both Wall Street and many investors expected did not transpire. The willingness of institutional investors to be buyers has been robust.
The equity market was led this year by a pronounced breakout in blue chips and components of the Dow Jones Transportation Average. It’s still very much worth following these companies and transportation stocks for overall market direction.
The Dow Jones Transportation Average is well off its high of 6,568.41, and this is meaningful. The retrenchment, while well deserved, is a sign that the rest of the equity market is ahead of itself.
Alaska Air Group, Inc. (NYSE/ALK) is down … Read More
Crash, Down Quarter, Major Correction—It’s All in the Cards
By Mitchell Clark, B.Comm. for Profit Confidential
The appetite that institutional investors have had to bid the stock market is diminishing.
Earnings estimates for the second quarter are actually being trimmed by corporations and Wall Street. It makes for a genuinely peculiar environment for the stock market—share prices at their highs on declining expectations for corporate earnings.
The lesson is clear: it doesn’t pay to fight the Fed.
Being a leading indicator, the stock market went up after employment numbers came in just slightly below consensus last week. Share prices going up on bad or weaker-than-expected economic news is powerful.
This has been going on for a number of months now. Even on days when equities open lower based on weak economic data or on technical metrics, the market has often fought its way back up.
The powerful stock market action since the beginning of the year has been a combination of renewed confidence, relative monetary certainty, the slow investment of new cash inflows, and good corporate health (strong balance sheets and solid earnings maintenance). (See “Stock Market Fake-Out: Where Is the Retrenchment?”)
But with the stock market now gyrating on the end of quantitative easing, it is distracted until second-quarter earnings season begins.
A massive stock market pullback is due anytime. Expect it. Be prepared for it. Equities have been due for a significant retrenchment for months.
The fact that stocks didn’t sell off during first-quarter earnings season really surprised me. It increases the likelihood that institutional investors will use this as the catalyst to book profits during or right after second-quarter earnings season.
Monetary policy will always be the great arbiter for … Read More
How the Old Economy Can Pay More Than You Might Think
By Mitchell Clark, B.Comm. for Profit Confidential
With all the financial engineering that’s been going on over the last several years, it’s great to actually find good businesses that are growing based on their own fundamentals.
There’s always a continuing flow of earnings reports, and one company I’ve followed for years just beat the Street again.
Earnings growth rates might not be as robust as they once were, but modest business growth is out there.
One growing company that continues to execute well is AAON, Inc. (NASDAQ/AAON) out of Tulsa, Oklahoma. This company manufactures and installs heating, ventilation, and air conditioning (HVAC) equipment for commercial and residential customers.
The company was founded in 1988 and now has approximately 1.5 million square feet of office and manufacturing facilities, with over 1,300 employees at two plants.
AAON’s first-quarter revenues grew three percent to $66.8 million, mostly based on higher prices. Earnings grew a substantial 56% to $7.1 million, or $0.29 per diluted share, compared to earnings of $4.6 million, or $0.18 per diluted share.
The company said that both its revenues and earnings made new records in the first quarter of 2013.
AAON’s cash balance tripled and the company’s backlog increased 22% to a record $71.7 million comparatively.
On top of this modest but successful business growth, the company boosted its semi-annual cash dividend by 25% and declared a new three-for-two stock split.
I like these kinds of small businesses.
AAON is a company making real products that the marketplace requires. The HVAC industry isn’t the fastest-growing sector, but AAON’s ability to grow its business in a diligent and consistent manner is demonstrable.
The company’s stock market performance is … Read More
Equity Flux: The Stock Market’s Latest Problem
By Mitchell Clark, B.Comm. for Profit Confidential
Blue chips need a big retrenchment.
I never root for losses, but with equities having gone up so much, a correction would be beneficial from a technical perspective.
Action in the stock market and blue chips, specifically, has been spectacular this year. But it’s time for a break.
While history proves it’s not wise to fight the Fed or the ticker tape, the stock market is most definitely a leading indicator.
As a fan of dividend-paying blue chips, utilities and consumer staples are good multiyear investment themes. But being at their cyclical highs, I would not be a buyer right now. These stocks are frothy.
I think it’s probable this year that the U.S. economy will outperform other developed economies. I also see the formation of an equity universe, in which big investors are still buying blue chips.
Corporations do have to perform. But with excellent balance sheets among most blue chips, the stock market can finish the year higher than its current level (save for a shock).
The end of quantitative easing is slowly being priced into the stock market. While more news on the subject from the Fed would result in a sell-off, this is not an unexpected reality.
The one shock that this market is not ready for is a rise in short-term interest rates. This is a possibility, perhaps even by the end of this year, depending on economic news.
Long-term cycles are in a state of fluctuation. (See “Stock Market Fake-Out: Where Is the Retrenchment?”)
I remember Black Monday on October 19, 1987. It was an accident waiting to happen. The stock … Read More
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