Here we go again... earnings season is upon us. Over the next couple of weeks hundreds of companies will be reporting their results for the second quarter of this year. The trickle of earnings that begins next week will become a flood, with over 50 earnings reports expected two weeks from today.
In general I am not one to try and predict earnings ahead of time. The information that such a prediction is based on is freely available and has usually been thoroughly diced and dissected by Wall Street. You may make a lucky guess, but that is all it could really be. That doesn’t mean that I don’t pay attention to earnings reports; of course I do.
Early in the season I look for clues as to what may be to come. This is, of course, an inexact science. The individual performance of companies is what really counts, but by looking at revenues rather than profits, it will be possible to get a read on overall economic conditions and sentiment during April, May and June. Once earnings are out, I would advise against trading the news. We, as individual traders, have no chance of beating Wall Street to the immediate trade.
Far better to sit back, digest the news, and look for long term implications. With that in mind, here are five stocks to watch in the early results next week that will give a broad read on what to expect over the coming weeks.
Tuesday: Alcoa (AA) Alcoa is hardly an original pick as they are traditionally seen as the company that kicks off earnings season. As America’s largest supplier of aluminum, though, they do give an interesting read on manufacturing activity. That has certainly been the case over the last year. Following 2009, as profits overall increased, manufacturing lagged behind. Then, over the last year, Alcoa has followed the path of others and increased the bottom line, even as revenues remain reasonably flat.
That is expected to continue this quarter, with a consensus forecast for $5.67 Billion in revenues (-3% YoY) and $0.12 EPS (+71% YoY). It is evident that Alcoa’s success in the past year has been based on internal factors and that is expected to continue. Any beat of the top line number, however, will be looked at as a good sign for what is to come, and that is what most will be paying attention to.
Wednesday: Synergy Resources (SYRG) When oil and gas company Synergy reports on Wednesday, I will not be looking for clues to the overall energy sector. I will, though, be looking at the reaction to the report to gauge market sentiment. Synergy has most of their holdings in the Denver-Julesberg basin in Colorado, so they are not particularly indicative of the fortunes of the bulk of US energy companies, but they are a young company whose stock has gained around 50% in the last six months.
If there is a seemingly illogical move after their earnings; if bad news is shrugged off, or good sees a wave of selling, then it will tell us a lot about traders’ attitudes to the so-called “momentum” stocks and sectors. Analysts are looking for $0.10 per share in earnings on revenues of 28.06 Million.
Thursday: Family Dollar (FDO) Family Dollar Corporation is a useful contra indicator for the economy as a whole. In essence the company does better when consumers are feeling the pinch. As the general economic recovery has picked up, so FDO has disappointed with the last two quarters’ EPS. While a miss of current estimates for earnings of $0.90 would be bad for the company, it would be a good sign for the rest of the economy.
Thursday: Infosys Ltd. (INFY) Infosys, an Indian tech company, hits all of the buzzwords in the sector. They provide IT consulting and technology to businesses; cloud based solutions, analytics and all of those other things we hear so much about. Obviously, this is a highly competitive field, but a significant beat or miss of the expected top line of $2.13 Billion would get my attention. A miss or beat in and of itself may not be significant, but if management comments attribute either to overall market conditions then it will give us a useful handle on business tech spending in general.
Friday: Wells Fargo (WFC) The potential signal here is fairly obvious. There are so many moving parts to the earnings of a mega-bank such as Wells Fargo that it is hard to draw immediate conclusions from the quarter’s performance, even in relation to the expected $1.01 EPS on $20.81 Billion of revenue. What to watch for, though, is any comment that suggests improvement in two key areas that have held large US banks back as of late; fixed income trading and loan generation. Performance in either one will have broader implications within the financial sector but loan generation numbers will be particularly closely watched for clues to consumer spending and business investment.
Armed with clues from these early reporters, you will be in a position to analyze the numbers as the flood of earnings begins. Good luck, and to our American Readers, Happy 4th of July!