Reviewing some third-quarter earnings and what they mean and looking ahead to the fourth quarter
As was the case in the third quarter, there are some high hopes of seeing sales growth in addition to earnings acceleration as the economy recovers.
The third quarter in my view was average. What was disappointing was the lack of strong revenue growth in the third quarter, an indication that spending is still sluggish.
In my view, the key in the fourth quarter and beyond will continue to be the ability of companies to report higher sales, which is what you want to see during an economic recovery, as it indicates increased spending.
The reality is that earnings can be made to look better via cost cuts and control. In addition, watch for guidance going forward, as this will also be a key factor.
As is the tradition, Alcoa Inc. (NYSE/AA) managed to report a decent yet not great fourth quarter, but it did manage to post its highest quarterly profits in two years. The negative was an anemic four-percent sales growth, which was short of Street estimates. The plus was that Alcoa offered a positive outlook going forward.
On the retail front last week, several reports from major retailers were soft, which was a surprise given the strong readings recorded by MasterCard Advisors’ SpendingPulse. Several major retailers including Target Corporation (NYSE/TGT), Costco Wholesale Corporation (NASDAQ/COST), and Macy’s, Inc. (NYSE/M) reported same-store sales in December that fell short of estimates. The results were disappointing given the strong November readings and hopes for a stronger December.
On the plus, Sears Holding Corporation (NASDAQ/SHLD) said it would beat estimates for its fourth quarter and full-year earnings per share (EPS).
High-end jeweler Tiffany & Co. (NYSE/TIF) increased its EPS estimate for its fiscal 2011 ending in January. Apparently, the high-end spending continues.
Wait for the key Retail Sales reading for December this Friday.
Technology will be a critical area to see, since this sector has provided much of the leadership over the last several years.
Intel Corporation (NASDAQ/INTC) is struggling to adjust to the increasing demand for mobile chip solutions over PCs. I’m neutral on Intel.
The area to watch for in technology will be mobility applications for tablets and smartphones, as users shift away from the more cumbersome PCs and into laptops. Apple Inc. (NASDAQ/AAPL) is the “best of breed” in my view.
These are just some of the companies and areas to watch for during earnings season.
As I have said, the key will be revenues, especially organic growth. We want to see revenues grow to drive earnings instead of cost cuts. Without revenues growing, it is difficult to imagine a healthy economy. It is my concern that this could hamper growth.
Iconic Chart Shows Biggest Devaluation of Our Generation
Yesterday, China’s central bank said its foreign-exchange reserves have hit $3.0 trillion for the first time in its history. China is awash in dollars. The U.S. itself has too many dollars floating in its financial system. Is it any wonder the U.S. dollar is collapsing in value against a basket of currencies made up of other major currencies?
Taking Stock: A Lot of Good News Already Priced Into Stocks
Most capital markets are due for a correction and that makes it more difficult to be a new buyer of stocks, bonds or commodities right now. All you have to do in the equity market is pull up a one-year stock chart on the S&P 500 Index and you’ll see the tremendous capital gain. The market has already priced in strong first-quarter earnings and, if companies don’t announce strong second-quarter visibility, share prices will retreat. So, what's next for investors?
A Safer Way to Invest in China: The Large-cap Chinese ETF
Playing the Chinese capital markets involves excessive political and economic risk. While the risk is high in trading Chinese stocks, especially of the small-cap variety and for smaller trading accounts given the current selling of Chinese reverse merger stocks, there's another, lower risk way you could play China.
