This is Earnings Season

The week ended January 31st 2014 had over 300 companies report earnings; companies such as Apple,Yahoo, Amazon, Google, Ford, Visa, and MasterCard reported revenue and earnings results. While mostly positive, the S&P 500, as a measure of the broad stock market, lost 20 points in what seems to be a consolidating phase after a few weeks of  retreating. Q4 earnings reports have been decidedly positive, with 64% of companies reporting results above Wall Street estimates and financials leading the charge by outperforming the expected 28% earnings growth. This would seem to be the fuel that equity markets need to make new highs. Alas, the S&P 500 has retreated over 2% in 2014 and brushed off record bank profits and consistent impressive earnings of companies. The market seems to be driven largely by macro factors in the early goings of this year which presents a prime opportunity for value stock pickers.

Investors must be cautious as the low hanging fruit may be low for a reason. For example, the tech golden child Apple reported a $0.50 beat off a $14.00 basis and saw the stock retreat over 10% to $500. An uninformed value investor would swoop in to buy a great company at a discount, but they would overlook the company’s failure to meet expectations for iPhone sales (its largest revenue producer and main driver of growth). While iPhone sales were at record levels (51 Million,) they were short of the 56 Million expected which sent the stock tumbling. The growth priced into the stock’s price had to be re-adjusted down causing the stock's tumble. Similarly, Yahoo inc. missed its top line expectation while reporting better than expected earnings, and the stock retreated.

While this investing environment allows investors acquire great companies for amazing value, we must exercise caution in the decisions because a company’s bottom line does not always tell the entire picture of its operations.

Look for cheap stocks with a solid balance sheet and a viable business strategy. exercise patience as the market takes a breather, then pounce once the timing is right. 

-F 

Weekly Recap - NASDAQ and APPLE

Today Ill recap what happened in the NASDAQ As well as my outlook for AAPL after it officially became the world's largest company surpassing Exxon.

NASDAQ composite opened bullish on Monday Jan 23rd based on optimistic views about a Greek debt meeting as well as positive earnings outlook, however, early gains were erased as earnings came in less than expected and uncertainty about Greek debt resurfaced. The day ended relatively flat from opening.

On Tuesday the NASDAQ outperformed other indices, the tech index showed more resilience than the market withstanding the stall in Greek debt talks in Europe. The rally was supported by positive investor sentiment regarding tech stocks in the United States, and perhaps on the heels of expected tech giant’s earnings report.

On Tuesday night Apple Inc. released Q4 earnings report that were better than analyst expected, this led the stock 8.5% up and it carried the index along with it. On Wednesday NASDAQ composite index opened positive. The announcement by the Federal Reserve to keep interest rates low till 2014 also helped tech stocks and ensured that the NASDAQ composite index remained up on the day.

On Thursday, the NASDAQ opened up along with the market. Investors were still bullish after the statement from the Federal Reserve to keep interest rates low, as well as the possibility of more monetary stimulus also known as “Quantitative Easing (QE 3)”. Strong earnings reports from some tech companies were enough to propel the Index to further gains. By midday, the index began to inch down as investors began taking profits from the tech and financial sectors. The index closed down on the day due to profit taking and weak housing economic data.
The US released less than expected GDP growth data on Friday, this caused the NASDAQ composite Index to open lower on Friday. However, technology stocks rallied in the afternoon as investors bought back into the sector on pull backs. This caused a market wide rally and the NASDAQ finished positive for the week.

Outlook on NASDAQ
I believe NASDAQ will continue to be the index that is most resilient to macroeconomic data coming from Europe. However, it has seen an unusual bullish rally in January and is due for a pull back this week before continuing its rally.

APPLE
This week in Apple had quite an interesting story for the most part. On Monday analysts were preparing for Apple to release its Earnings report, most believed that they would produce positive reports from during the fourth quarter in 2011. Investors believed that they would beat estimates, these sentiments drove the stock price up and closed higher on the day. On Tuesday prices pulled back slightly as some investors exited their positions before earnings were to be released on Tuesday evening. Some negative news came out on Tuesday for AAPL; they lost a bid in Amsterdam for a ban on their competitor (Samsung Tablet). Regardless of the recent bad news analysis still advised investors to take position in apple going into their earnings report. I took a position in AAPL prior to a release of their earnings report because I believed that their iPhone 4s sales in the fourth quarter would be fantastic, thanks in large part to the gift giving season. On Tuesday evening AAPL released earnings that showed revenue of over US $46 Billion and $13.87/share which easily beat analysts’ estimates. This caused their share price to rise by 8% overnight. Seeing how I had a position in AAPL I decided to take profits at a high price and re-enter AAPL at a lower price. AAPL opened up 8.5% on Wednesday and traded down all day. On Thursday AAPL continued trading down as investors took profits. Most analysts have increased their price target on AAPL and remain Bullish.

Outlook for APPLE
I remain bullish on the tech giant, I believe in the fundamental strengths that this company has, as well as its incredible amount of cash on hand, totaling over US$98 Billion. I believe that investors will soon be done collecting profits caused by the huge gap up in price thanks to earnings. In the near future the price for AAPL will continue to increase and create new highs.


Till Later
Trade to Trade well
Pigs get Slaughtered!