Every day I make it a point to try and bring you into my world. Some days it's zany market stuff said with a smiley, energetic undertone. Other days it's commentary filled with the raw emotion that I log when studying the market and individual companies on a near-constant basis -- that is, 24/7. (For Northeasterners, I have been compared to the 7-11 convenience store chain -- accessible to something interesting around the clock.) Mark today as one rife with raw emotion.
Usually it takes, oh, two weeks into earnings before I begin plotting a 1 a.m. run and self-pushup contest at the local track to blow off steam. Maybe since I am no longer a spring chicken, it's only natural that this pitch-black workout was put into action earlier than the norm -- patience wears thin as a person ages, or so I have been told. What I continue to see this earnings season is a consensus that's very confused and stuck in their style -- one that is unprepared to properly guide investors regarding new stock calls, sector calls, or in regaining the evaporating credibility brought about by lack of ahead of the curve action thus far in 2012. (Are they even deserving of being called the consensus?).
In a majority of companies I cover for clients, earnings estimates for the second quarter are generally statuesque from the back half of April, though I'm not sure what the data aggregators are viewing. Ratings and stock-price targets are only now being slashed well lower from the conclusion of the first quarter or in the immediate aftermath of a massive second-quarter earnings warning. I find this all disheartening, but motivating at the same time. The platform is there for me, once again, to help get you thinking like the temperamental force we know as Mr. Market.
The early-inning messages of this particular earnings season are important to pin down for European fundamental trends will be commonplace across most multinationals and, to a lesser extent, U.S.-centric companies. Nail the early analysis, and you will be able to spot relative winners to be bought as the sector laggards announce in upcoming weeks. If you aim to sit on your hands in tandem with the consensus, well, email me and I will schedule an Internet hug to be sent by the middle of August. What I am suggesting is that you be insanely fired up.
Early-Inning Earnings-Season Messages
• Due to macro factors, sectors with weakening fundamentals will see a single company being share consolidators. In the case of railroads, Kansas City Southern's (KSU) performance was stronger than that of CSX (CSX), I think. Share gain, or evidence of stronger operating performance in so-so periods for the economy, hint at even stronger relative outperformance when periods stabilize and then improve.
• Inventory management will be rewarded as it improves the outlook for uses of cash flow when periods are uncertain. A company could invest more in fixed assets to drive long-run outperformance on sales and earnings as a competitor tries to work through misaligned inventory, which was caused by over-exuberance on the forward outlook. Mattel (MAT) shares caught a nice bid amid a decline in inventory year over year, with the earnings beat of course aiding market sentiment.
• Companies announcing negative news will see a stock price react accordingly. What this tells me is that the market continues to search for the meaning of "oversold."
• Three months of softer-than-expected U.S. and European data are playing out in corporate fundamentals and guidance for both the third quarter and fiscal year. The doom and gloom has not been misplaced in other words. See the earnings reports from Johnson & Johnson (JNJ), Coca-Cola (KO) and Intel (INTC) as supporting evidence.