Oh yes,
The air is crisp (with fear), the green is around us (perhaps leaving our bank accounts), and blue skies (or blue faces) are never ending.
Yes, earnings season is here. One of the four periods of the year, spanning about 3 weeks, where every company's CEO has to get on a conference call and fess up to the shareholders the fact he/she has spent way too much time on the golf course. This week we are going to find out about Google, Ebay, Microsoft, AMD, Apple, IBM, Citigroup, Coca-Cola, JPMorgan, US Bancorp, Wells Fargo, State Street, and much more.
Generally, you see sell offs before an earnings week because day traders pull all their investments out to avoid any major surprises.
What did you think - the Dow hitting 11,000 on Friday was for no reason?
The value investors (such as Intigril Capital Management) stay in because earnings reports validate our predictions (and our total assets). I can't wait to listen to the conference calls of the above mentioned companies and find out what .0005% shortfall in some obscure earnings metric causes a company's stock to plummet by 33%.
So below are a few of my predictions for select companies/sectors:
Microsoft:
I expect results that would have normally sent the stock going up. However, with the YHOO-MSFT merger any good news is probably going to be obscured by uncertainly surrounding the Icahn proxy fight.
Verdict: It's definitely not going down, but it may not go up, even with stellar results.
Google:
It's going to move. Hard and fast. Right now, Google has become a speculative short target because Google has never had to face a recession. However, their results last quarter blew the doors off and everyone shorting Google lost a lot of money. However, economic conditions have deteriorated significantly. Google may not be invincible. I wouldn't be surprised if the stock moved down, hard and fast. But with the best nerds and a determined management, its likely to go up.
Verdict: Big move. Likely up 8-13% , but a fall is still a possibility, and if it does happen, were talking about 15-20%
Coca-Cola
A energy drink company called Hansen Natural reported weak sales at convenience stores. I expect Coca-Cola to be hit by this trend as well. Word on the street is that they are making heavy discounts on their soda at gas stations to spur impulse buys. So either the market is going to get mad at the margins if this discounting rumor is true and if its not true, its going to get massacred because of declining revenue.
Verdict: Neutral to Negative. Some metric is going to upset someone. But they might be already be expecting it. Just don't expect this stock to react more than a percent or two in the positive.
Ebay:
I have yet to figure out what global market forces cause this company's stock to do well. You would think that maybe they would get increased revenues from liquidation companies during economic downturns, but this is likely counteracted by decreased revenue from long-standing businesses because of consumer spending slowdowns.
Verdict: No clue. But if you really want a completely blind guess...I'd say down because of consumer spending slowdowns.
AMD:
A long time ago, I was a complete computer geek, I knew what chips were better and which ones were no better than silicon goo. AMD used to be the preferred chip of the PC-enthusiast. Now, Intel's Core 2 Quad remains unanswered by AMD. One of AMD's major suppliers AMAT, Applied Materials, had weak sales. All signs point toward a bad earnings report.
Verdict: AMD needs to get its act together. Or Intel may have another anti-trust suit to deal with.
Entire Financial Sector:
Bad. Very Bad. Expect dividends to be cut. CEOs avoiding discussing how they haven't bought back any stock even though they said they would. We may have a gem or two, but I'm willing to bet that with IndyMac fresh on everyone's minds, people will be out for blood. ]
Pharmaceuticals:
Up. Most major financial institutions are buying pharma. Even mildly positive results will cause momentum player to come in and cause their prices to go further up. Get on the momentum bandwagon! Who cares about FDA probes and excessive debt? Everyone's sick of losing money calling a bottom on the financials! Its time to inflate some prices!
Ooof...talk about putting myself out there. Its going to be a busy week. Don't forget to listen to Bernake's speech to Congress this week. Oh, his recommendations on what the Federal Reserve wants to be done about Freddie Mac and Fannie Mae - the two federally back mortgage insurers (well...supposedly) are going to be critical in evaluating the direction of the market for the next few months.
-Mansij Hans, E.I.T.
Member, Intigril Capital Management
Full Disclosure: Intigril Capital Management is long Microsoft at time of publication of "One of the four most wonderful times of the year!" article
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