Monday, May 5, 2008

Earnings Preview

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We have 2 late filers tonight in Brazilian homebuilder Gafisa (GFA) and American iron ore producer Cleveland Cliffs (CLF). It looks like they will be reporting later in the evening, but I expect positive things from both - but wish to hear something negative to lead to selloffs in both to build up positions. I really doubt anything of that nature could happen in CLF simply due to its long term iron ore contracts but maybe in GFA.

Andarko Petroleum (APC) which is a natural gas/oil hybrid is out late this evening and continues the drumbeat for successful outcomes in that space. Frankly, the dichotomy in this market is very easy to spot. You can either buy (a) trash that has bad earnings, and unclear prospects on hopes you are catching the "bottom", the "strong dollar" will last more than a week and a half, "the 2nd half recovery" is imminent and the stocks are "cheap based on full year 2008 estimates" (which will be slashed within 6 months, and thus turn from cheap to expensive) and hope enough of your fellow bulls buy the company line and take your stock up or (b) you can buy stocks with massive global underpinnings, explosive earnings growth, and go from "somewhat pricey" to "cheap" everytime they report a great quarter and raise guidance. Myself, I'm more of a (b) guy but in the past week we've seen the (a) guys show their faces - which they do every so often. I have a few (a) stocks sprinkled into the portfolio so that in weeks like last we don't get decimated but frankly the sight of DR Horton (DHI) next to a fertilizer or coal stock is a bit amusing. Again, if I am completely wrong and our economy will return to full or near full growth rates by the 2nd half, the (a)'s are a huge bargain here. But you can have them; I don't see a reason to keep grasping for hope when we have fantastic stories playing in front of our eyes outside the United States of Subprime. Now again, the foreign markets are not risk free as global inflation will be impacting their populaces - but some of these countries have foreign governments loaded with surplus, either through petrodollars (thanks USA!) or trade surplus (thanks USA!) so they can subsidize growth in a way we could only hope to (with our money).

Off we go to a very busy day tomorrow....

Bellweather types...
Cisco Systems (CSCO), Fannie Mae (FNM) <--- should be a disaster on results but as long as it's "better than expected" the stock can rally, Teva Pharma (TEVA), UBS (UBS), Walt Disney (DIS)

Of interest...
Brazilian bank Banco Itau (ITU),
Natural gas player Cimarex Energy (XEC),
Clayton Williams Energy (CWEI) <-- what a chart, Brazilian steelmarket Companhia Siderurgica Nacional (SID),
James River Coal Company (JRCC) - this is an unprofitable coal company but has a lot of unbooked production so could be a good lottery ticket,
Kinross Gold (KGC) - we just sold this today; one issue with miners is they are going to start seeing their costs go up as fuel, steel (for machines), rubber, etc all starts to skyrocket (darn that inflation that doesn't exist),
MGM Mirage (MGM) - this is a name on upticks, will appear to be a great short since the # of Europeans and Asians coming to Vegas should not offset the fleeing Americans over the next year or so. They don't have Macau (China) exposure to provide hope to bulls either. [Stocks/Sectors I'm STILL Bearish On] Speaking of which, small casino operator Tropicana just filed for bankruptcy; again folks I cannot stress enough to avoid almost anything tied to the US consumer (that the Federal Reserve won't try to prop up); outside of a trade it's not worth it.
Papa Johns (PZZA) - inflation (that does not exist) here, inflation (that does not exist) there,
Playboy (PLA) - hey I like to look at the annual report, sue me,
Ruth Chris' Steakhouse (RUTH) - high end restaurant,
Tesoro (TSO) - I keep reading that these refiners need to rally any day now... unfortunately I've been reading that for 3 months now,

Our holdings...
DR Horton (DHI) - we'll see bad news, but these stocks seem to ignore bad news the past 4-5 months because... well... "it cannot get worse"

Huron Consulting (HURN) - this consulting company has warned twice since I've owned it, and expectations should be low after the most recent go around.

7 comments:

Bluedog said...

NYX reports tomorrow. Should be interesting given record volume at ICE, CME, NMX, etc. Key issues will be operating expenses, market share, and synergy progress (w/ Euronext). We took a real beating last earnings.

-BD

Risk Manager Jeff said...

I'm hoping CLF misses too.. I've been waiting forever for some type of REAL pullback. The last one, if you even call it that, lasted for about 2 hours. I find myself more underweight commodities in general, that I would otherwise like.. but I'm resisting paying up. I wonder if even when that correction comes, will it be at a higher price still? The 50 day EMA's are all moving up really fast.

Gold has always been a trade imo. I think we need to see another leg down before the risk:reward matches some of the other commodity stocks. But it is starting to look a little more interesting.

Coal. I did some work over the wkend on coal, and I see what you are talking about. (aka the comparison to fertilizer a year ago) I still dont think it is *quite* as compelling as fertilizer story was last year, but right now, offers a better risk:reward. Totally true about the political risk surrounding ag stocks. But coal has supply issues which may be temporary. Hard to say, but as long as contracts are getting signed at higher prices, this is telling us something about YoY comps and of course, analyst estimate bumps in the near future.

As I got all hyped up to get ready to buy some coal stocks this morning, I was disheartened to see ANR up 10%, dragging the others up kicking and screaming.

sliman said...

Tradermark
Sounds like you think refiners are a waste of time. I am holding a little Valero. Would you dump it?

JeffreyC said...

Mark and Jeff:
I think you may get your wish on Cleve Cliffs -- they reported disappointing earnings and lower than expected revenues last evening...

after the pre-earnings runup, its probably gonna see a sharp sell-off, but is the earnings miss a buying oppy or a sign of trouble ahead for CLF???

TraderMark said...

BD,
I haven't really been following the exchanges as much - that is such a 2006-2007 story ;) They seem to have a lost a lot of mojo. You'd think the volatility of 08 would of been a boon, but not the stock prices. ICE might be showing some life finally.

Jeff, you will not find in 3 decades probably another opportunity like potash - I am not saying coal is the same. It is very easy to look back now and say "wow this fertilizer is so obvious" but a year ago no one was saying it. All I am saying with coal is the earnings potential is completely missed by the street and as estimates go up, the stocks will follow and hence you can replace "fertilizer" with "coal". But the production or moat around coal is nothing like potash. As for your timing, you've been reading the blog for a while and I talk about coal every week since September :)

sliman,
I've done a few good trades on refiners every year for a while now. They are not investments to me, just trades because they are cyclical not secular. However this year has been a disaster. I've commented on them in the past - probably can search for the label for Valero or Frontier for earlier comments. Until crack spreads open up for more than 2-3 weeks they just cannot make money. They have been decimated so I don't know how much lower they can go but if crude goes to $130 I suppose lower they go. The problem is their input is global in nature and their output is domestic in nature - we are seeing demand destruction here in their output so their pricing power is a bit limited.

Jeffrey, havent had time to look @ CLF. I doubt anything they said or did changes the long term story. Its only down to where it opened yesterday... ? 158 - doesnt look like any disaster to me just from the price action.

shaxmatist said...

**CLF - Its only down to where it opened yesterday... ? 158**

It's up 2%, those of you dying to buy some, you can have my 2000 shares, I just sold them, I think the stock price has gone way ahead of where the earnings are. Too close to bubble territory for my liking.

TraderMark said...

So much for that CLF "dip"...
agree with shax, not worth the chasing - would of bought in premarket in $150s, but Marketocracy.com does not have that option :)

the steel stocks I really continue to marvel at... they are getting hit hard in profit margins but still go up. Makes little sense to me but oh well.

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