I think you'll all agree that the earnings season thus far has
been less than stellar. In fact, as Sheraz noted earlier in
the week; average earnings are down year over year.
What's even more odd is that some companies like Intel (INTC)
are warning about future performance and yet traders are still
buying. It had one of its best days of the past year on
General Electric (GE) reported a Q2 profit of $3.1 billion, or
29 cents a share, which was down from $3.8 billion, or 35 cents a
share a year earlier and yet the stock is climbing this
Microsoft Corp. (MSFT) came in with a fiscal fourth-quarter loss
of $492 million (6 cents a share) and revenue of $18.06
billion, compared with a profit of $5.9 billion, or 69 cents a
share or $17.37 billion in the same period a year ago. The software
company took a major write-down in its online services business
which caused the loss. Microsoft would have earned roughly 73
cents without that charge. Still and yet, it's certainly not
the strongest gain for MSFT and yet shares are rising this
Of course, there are stocks that are beating estimates and
subsequently moving lower, but the general theme is that earnings
are "not that bad" and so investors are buying on average.
At first glance this early in the earnings season I see three
trends happening; let me know if you agree:
- Investors are favoring bigger, perhaps dividend yielding
names that they are familiar with and almost ignoring the
weakening earnings trends.
- Besides equities and perhaps high yield bonds, investors have
nowhere to turn to even keep up with inflation. Money
markets are in the toilet and about to get another flush from the
Fed if they remove the 25 basis point free interest ride that
U.S. banks are enjoying on their excess capital.
- U.S. Based companies with minimal exposure to global
economic trends and technology are also in favor on
average. As bad as things are here, they are better than
most of the developed world.
Frankly I think investors are being too optimistic, although I
wouldn't be fair if I didn't say that earnings have not been the
bloodbath I thought they might be.
We must not forget though that earnings are a reflection of what
HAS happened, not a statement of what WILL happen…
GENL ELECTRIC (GE): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis
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