Sunday, April 19, 2009

Flood of Earnings Begin - Monday/Tuesday Preview

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Long time readers will know our love/hate relationship with earnings season. As information hogs we love more data; but as stock market participants we hate the massive overreactions to companies based on 90 days of business and a penny here or there in earnings per share, or +/- 1-2% of revenue on the top line. But this is the only game in town and if certain companies should win or lose 20-30% of their market value within seconds of the all important press release is not up to us; this is the market "we've" created. So we'll gap up or down in many individual stocks, and the market as a whole based on 1-2 "important" companies that - based on a few pennies here or there - shift the entire complexion of a $14 Trillion economy. Or so the pundits will opine. In most cases, I will be cutting back positions going into earnings since they have become 50/50 propositions with completely unknown risks v returns as lemmings rush in (or out).

Every quarter I have a bevy of names I look into it to figure out what exactly is going on with the economy, both now and looking ahead - rather than relying on government reports. Some I will lay out in these pages but due to the flood of earnings we soon begin I won't be able to detail the majority via blog. There are also a host of smaller companies in niche areas which we're invested in or looking into, I'll also try to touch on many of those.

Last week was the first real hefty week of earnings, but the onslaught really begins in the week ahead. As we stated last quarter, we expect a lot of pulled guidance from companies who have little visibility - and that came true. I continue to believe that will happen and trust me, anyone taking solace from a retailer saying they have visibility out > 24 hours is reaching; go check 2 years ago or 1 year ago what retailers were "guiding" for the full year versus what actually happened. The other twist I see happening are companies under the protective wing of government "surprising" upward whereas those facing the "real economy" having a tough time of it. But even in the latter case - no matter how bad the numbers are year over year - if all we care about is "better than expected" those too can rally (and they have). The last thing of interest will be the effect of the stronger dollar on multinationals - about a year ago at this time the dollar was weak, and many a company (as we outlined) was smashing numbers on very little more than weak dollar. Without that tailwind we'll see how some of these international beasts do.

Here are some of the names I'll be interested in Monday and Tuesday.

Monday

Allegiant Travel (ALGT) - fund holding; this airline company has been exemplary throughout the downturn even with $140 oil last year. I've had an exceedingly difficult time using technical analysis on this name due to multiple headfakes but when it runs, it really runs. On the earnings front they already announced last week they will beat to the upside so we'll see how much of this is in the stock already... at >$4.00 EPS forecasted for 2009, this is still not an expensive stock considering its growth. I am hoping for some sort of bad news since I have only a holding position - awaiting some material pullback.
  • Allegiant Travel Co. said it expects first-quarter earnings to beat Wall Street's expectations. Late Tuesday the airline and travel operator said it anticipates a profit of $1.34 to $1.38 per share. Analysts polled by Thomson Reuters, whose estimates generally exclude one-time items, forecast net income of $1.20 per share.

Bank of America (BAC) - all eyes will be here, but I cannot imagine them saying anything new that we already do not anticipate; they will "beat" with the magic yield curve, FASB changes, and a refinance boom by "anyway you want it" Bernanke. What we have to watch from banks at this point is not the "beats" but when these "surprises" are no longer causing upside reactions to the stocks... i.e. they get tired.

Eaton (ETN) - I always look at a handful of mini conglomerate industrials; Eaton is one we keep an eye on, and is part of a group of "early cycle" go to industrial type stocks that mutual fund managers will pile into when the "recovery" is yonder. With the focus from the new folks in the White House on energy management this is also a backdoor play on that emerging longer term theme.

Halliburton (HAL) - go to name for big cap oil services

International Business Machines (IBM) - this will be a very interesting name as competitors such as Accenture (ACN) have succumbed to global economic pressures. IBM is one of the last few stocks stuck below its 200 day moving average; this is a bellweather and if they can pull another rabbit out of the hat - kudos to them. It's been an impressive company through this downturn.

Texas Instrument (TXN) - one of the 3 "go to" names in big cap for the "early cycle buy semiconductor stocks" theme. Technically it broke out of a double top formation last Thursday so we'll see what they have to say.

Tuesday

AK Steel (AKS) - for obvious reasons pertaining to the "reinflation" trade along with "everything will be ok in 6 months" trade.

Blackrock (BLK) - former fund holding and one of my favorite financial companies, but due to the fact it was not obliterated quite so badly as many peers, after a rebound in weeks 1-3 of this huge bounce, it has stalled out for the latter 3 weeks.

Brinker (EAT) - one of the best charts out there for this restaurant stock, and I blame myself for not catching this one early. While the rest of the market was imploding mid Feb 09 through very early March, the restaurant stocks were diverging and holding steady with small drops and lots of sideways action. This was an early sign to jump in because once the market steadied these should have been leaders - and they have been. EAT has risen nearly 100% in just 6 weeks.

Broadcom (BRCM) - another tech/chip heavyweight; I've been looking at its peer Marvell Technology (MRVL) for a potential fund addition the past few weeks.

Capital One Financial (COF) - not sure what they will say that is not already out there; the credit card companies report delinquencies every month and that is the main story here.

C.H. Robinson (CHRW) - there are a bevy of transportation / logistic companies that I look at each quarter to see how business is doing in the "real world" (ex Wall Street thesis); this is one of them

Caterpillar (CAT) - can't think of a better name to represent the global "rebound" thesis; heavy dealings in construction of all types.

Coach (COH) - retail is another "go to" area for the "rebound" by the (increasingly unemployed) consumer. But don't fight the thesis.

First Cash Financial (FCFS) - I've sort of lost track of our pawn shop thesis we had for much of 2008 after Obama's constant finger wagging at the cash advance side of business but I still like this name, and the chart has improved mightily of late.

Gilead Sciences (GILD) - biotech superstar which has hit a rough patch; the "rotation" away from safe stocks (i.e. healthcare) and into more cyclical sectors has been a factor - many of the worst charts out there are in healthcare now. 6 weeks ago it was completely the opposite.

Hudson City Bancorp (HCBK) - one of the better run mid sized banks with a quality management team. Will see what they have to say about the state of banking.

Illumina (ILMN) - fund holding, they've been world beaters for many quarters - we'll see if they can continue the streak.

Manpower (MAN) - until I really looked into this company about a year ago I did not realize what a massive European exposure it had; they are a good look into the state of employment. I assume when our recovery begins temp employment will be the first to perk up.

Nabors Industries (NBR) - interestingly, this land based natural gas driller has seen a huge surge in the stock, while the price of natural gas goes nowhere. 50% surge in just over a week? Thesis buying 101?

Regions Financial (RF) - recent fund holding, they announced last week they will book a profitable quarter, want to repay TARP and have sold off some of their commercial real estate exposure. I will be curious how profitable they are and then reassess. I've lowered my exposure going into the actual earnings as the stock skyrocketed from our buy point Thursday.


Sandisk (SNDK) - another 100% gain since the March lows; typical stock to flood into when hope is in the air.

TDAmeritrade (AMTD) - as the stock market recovers, this stock has shot up. They usually provide interesting data on how the retail trader is acting.

US Bancorp (USB) - see Hudson City above but with a larger bank

The New York Times (NYT) - the shorts are in such disarray that even the lowly newspaper stocks are causing massive short covering rallies.

Other industrial type names - DuPoint (DD), Pentair (PNR), Terex (TEX)


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