Where did the McDonald's (MCD) sellers go after that so-called terrible quarter? I haven't seen them; have you?
How about the sellers in American Express (AXP) after that "miss?" Where did they run to?
I can't find them.
What happened to all of those investors who bailed on UnitedHealth (UNH) , taking that stock down to $157 on what was, indeed, a better than expected quarter?
And I am still trying to figure out who sold IBM (IBM) down to $163 in the after hours, after only listening to two-thirds of the conference call, if they were listening at all.
In every one of these cases, I saw something that has become part and parcel of business journalism these days: a story written after the stock declined, therefore assuming that there had to be something wrong, rather than a story written about how the company did and perhaps suggesting that some were prone to sell, but if you looked at it in its entirety there was reason to buy.
Let's go back to that McDonald's quarter that I liked, but was widely panned instantly. What did I like about it? First, global comparable sales were up 2.7% for the quarter, sure, a decline from the 3.8% run rate for the year, but still pretty impressive and better than anyone was looking for. The Street was looking for a buck forty-one. The company did a buck forty-four. Revenues? $6.03 billion versus $5.98 billion. That's a gigantic beat!
But all that seemed to matter to anyone -- at least on that day -- was that U.S. comp sales were down 1.3%, which his pretty much what everyone expected. That number, which annualized the fantastic all-day breakfast initiative, showed to the doubters that the string was over.
Let me say two things about this. First, when Steve Easterbrook came up with all-day breakfast idea more than a year ago, he kept the expectations down about it and if you go look at the contemporary verbiage you will see most analysts and commentators thought it was a futile, hopeless gesture. Many laughed at the futility of it all.
Instead, you made a killing by going against the grain and buying the stock.
Now, if you go listen to this conference call you can hear Easterbrook tell you that he is tinkering with a lot of important initiatives that may or may not pay off this next quarter, but have worked elsewhere and will work here. Plus, he's working on speed and price and thinks he can make some breakthroughs. I think these could all pay off like all-day breakfast. Just not immediately.
Why would you give up on him now? That's what the market's now saying, because the stock is above where it was when the company reported.
Yesterday we had a fourth upgrade of American Express since that last not-so-hot quarter, which was really quite good considering that you will no longer have to hear about the loss of Costco (COST) after this three-month stress. If you looked at that quarter and budgeted to its trend, which would presume another loss of another Costco, you would see why people would still be sellers.
But the trend's broken. It's now positive, even if the first day after the quarter it went down with the stock, not the company, defining its own narrative. The stock of American Express is now above where that "bad" quarter was reported.
All of these stocks are like that. The writers looked at the "action" in the stocks of IBM and UnitedHealth, which were both very heavy after the release of earnings, and they picked out lines that they thought could justify the declines, even if the declines were "incorrect" or "kneejerk." The reporters or the machines that generate these stories -- at least it seems like they are machines --don't realize that UNH almost always seems to go down after a good quarter, but then recovers in five days. The mechanized scribes should have known that this was the quarter when IBM had better gross margins on its fast growing businesses and that was the clarion call to buy, not sell.But do the writers know the UNH trading history? Do they know that the gross margins of IBM's fast growing businesses are what matters? They write negative articles if the stock is down initially, regardless of what will ultimately drive the stock. They are intellectually lazy. We can lament the decline of journalism. Or we can use it to pounce on stocks at better prices. You know which I favor.