To get through this week, you have to get through a minefield of earnings. This is one of four weeks during the year that each of these companies, except those that report on Fridays, get the bum's rush. Remember that the pros listen to every call, check every model, do deep dives on each quarter, which means that unless they get up at 4 a.m. and work until 11 they don't know what to do about buying and selling and making proper assessments.
What awaits them?
First, on Monday, they have to wade through the Halliburton (HAL) call to find out exactly how badly this industry is really doing. Halliburton's got a full plate ahead of it explaining how its pending merger with Baker Hughes (BHI), which reports Tuesday, will help it deal with the new world of reduced drilling. This group was shocked by Conoco's (COP) decision Friday to walk away from a new Ensco drill ship headed for deep waters in the Gulf of Mexico, even as it had to forfeit two years' worth of day-rates to abrogate the contract. That's an extraordinary action to take and it, plus the paltry showing of just two comers bidding for Mexico's new lease prospects on Wednesday, basically put a dagger through the heart of the group, even as Schlumberger (SLB) had reported a darned good quarter Thursday.
Now, Conoco did so in order to spend more time developing onshore prospects like the Permian, Eagle Ford and Bakken, which shows you the much better economics of these prospects, something that's good for Halliburton. But let's just say the stock is a bottom-fishers' favorite which, alone, is a thankless task.
When we looked at the equity businesses of JPMorgan Chase (JPM) and Goldman Sachs (GS) last week they were sources of tremendous profit. So what happens when we see Morgan Stanley's (MS) quarter Monday? I think it will be even better, which is why it's a sizable position for Action Alerts PLUS. James Gorman has positioned the firm in what would be called a liability-light model, where his company's basically the higher net worth broker. I think it's a winning model.
Then IBM (IBM) reports and all I can say is I wish it hadn't run almost 10 points last week, which puts tremendous pressure on the company to deliver a quarter that shows real progress when it comes to the revolution toward big data, analytics and business intelligence in order to outrun the traditional legacy business that generates cash but has no growth. If it can get the percentage of fast-growing businesses to 35% this year and without it happening because legacy drops so precipitously, then it's a win and the stock powers higher, particularly if it is accompanied by strong cash flow management and a boost in the buyback.
Tuesday you can't bury the lead and the lead is Apple (AAPL). Ten days ago Apple was gripped by China-itis as the company's made a major push into China and the fear is that a sizable chunk of buyers may have been margined out of the stock market and therefore are less likely to migrate to the expensive iPhone 6. If that's the case there will be a shortfall, but not this quarter as it didn't include the crash. That's why it is vital not to trade off the headlines, which will be terrific, but to wait to hear the commentary about the month of July in China. Those who want to hear watch results will sell the stock immediately because it's basically in a beta form and not yet driving traffic toward iPhones (you have to have one for the Apple Watch and the watch is gain-leader gateway to the signups). My advice, which includes all of those who sold it when it temporarily pierced the moving average at below $119, is to hold it until become expensive, which is a lot higher than where it is now. Listen for commentary about next-generation products, which aren't expected, because it will take the unexpected to get the stock rolling.
Microsoft (MSFT) also reports and we are all wondering how quickly Microsoft can get to its huge ambitions of being a cloud company. It's ahead of IBM for certain, but how much ahead? We find out. I will say this, the last quarter was pretty superb and yet the stock's done nothing because personal computers are now declining in the high-single digits and that business is still so important, with the release of Windows 10 now upon us (free no less), it will be hard to position the company as cloud cloud cloud, which has been the MO from Satya Nadella for ages. We know about the painful Nokia writeoffs. But wouldn't it be terrific to get some clarity about the prospects of a takeover of Salesforce.com (CRM)? I sure don't think we will get it, though.
You want a potential downer? Can Yahoo! (YHOO) tell a story of growth and not just capital allocation? We know that its once-treasured Alibaba (BABA) holdings have been tarnished, perhaps severely, by the Chinese stock market crash, so the stock might have to be a little more about how Yahoo!'s been able to grow, now that it's competitor Google (GOOGL) has returned to greatness. The comparisons will be made. I don't think they may be all that complimentary.
GoPro's (GPRO) been making a comeback of sorts -- not that it ever left -- with its bite-sized camera. I think that expectations -- as well as the stock -- have gotten low enough that there will be some intrigue. Let me just say that if it goes well, just grab some Ambarella (AMBA), the chip brains behind the outfit with a strong 2016 drone story.
Finally, Chipotle's (CMG) jumped 10% in a two-week period, which is too bad because when it reports I still think it might be hobbled by some supply chain issues. Let's hope they could find enough hogs that were treated before they were slaughtered. There's lots of buzz about a return to faster same-store sales growth as well as a belief that the company will talk amore about international expansion and other restaurant concepts. Either way, the risk-reward's been made more perilous by this recent run.
Wednesday we hear from Boeing (BA) and it's the last call from Jim McNerney, who is retiring as CEO after doing a remarkable job. Frankly, it is difficult for me to believe this quarter will be anything but a strong swansong and I would be doing some buying of it, but only when the yahoos take it down in some sort of herd panic, which had been the case for the last few quarters. The long-term game plan is so ingrained that even if you, mistakenly, believe that he is retiring at the top of the cycle, the stock's worth owning.
Two Dow Jones companies that have not distinguished themselves of late are set to report in Coca-Cola (KO) and American Express (AXP) and I think the former could surprise from some very impressive expense control and the latter, while due for a bounce, doesn't seem to have a handle on things. Not only would I prefer MasterCard (MA) and Visa (V) to Express, as it is known, but newfound competitor PayPal (PYPL) has much more going for it. People are tired of the excuses here and it's time for a shakeup. Qualcomm (QCOM) gives you its quarter and all I can say here is it is a reminder that Qorvo (QRVO), NXPI Semi (NXPI), Avago (AVGO) and Skyworks (SWKS) have taken the mind share away from the once-quintessential supplier of chips to the cell phone companies. Now expectations are exceedingly low, but be careful here as the stock often pops until guidance pops the balloon. No need to be a hero and call the bottom on this one.
Speaking of underperforming Dow stocks, we are going to learn about how Caterpillar (CAT) and McDonald's (MCD) are doing Thursday and I think that both will be as upbeat as possible but it might not mean anything. Caterpillar's been generating some impressive cash flow, but in the end it is levered to big mining and oil projects and they are being cancelled left and right. The hope here is a commitment from China for more infrastructure, but we always must remember that Cat bought Bucyrus Erie, the coal machine company, at the exact top of the cycle and the state of coal, even in once top polluter in China is quite bleak.
McDonald's has an issue. New CEO Steve Easterbrook is leading a very successful turn of the chain overseas even as he has to deal with a disillusioned group franchises in this country. As I said last week when I interviewed Nelson Peltz and Bill Ackman, two legitimate investment stars (the former involved in the turn at Wendy's and the latter at Burger King, two lesser properties than McDonald's), the chain can be fixed and that balance sheet allows for a dynamite dividend while you wait for the turn. I really like the risk-reward on this one.
After the close we get the cult stock of the generation, Amazon (AMZN), and I think that it is going to be darned good again only because whatever they do seems darned good these days. Expect more clarity on the model and a bunch of number bumps ala Netflix (NFLX).
Starbucks (SBUX) is more difficult. The run-up here is outstanding, the decline in the price of coffee is sensational vs. the pricing, but this is now a stock hurt by the strong dollar that has more expenses as it tries to entice more workers by making them more learned and empowered: expensive short term brilliant long term. I think you need to wait and see.
I also want to hear whether the run in the best-acting big pharma, Eli Lilly (LLY), is justified by some results for its Alzheimer's treatment. It is reasonable to conclude that the 17-point run in the once-sleepy stock came about because of leaks of effectiveness.
It better be, because on Friday we hear from close rival Biogen (BIIB) on this topic and that's been promotional enough that I think there might be something there. It will be an Alzheimer's duel with Lilly's first-reporting advantage making a very important case for the old-line Indianapolis giant.
Finally, Friday we are looking for confirmation that Delta's (DAL) gains last week weren't chimerical. American (AAL) reports this week and it's got some heady integration issues ahead of it. But if they talk about tighter route structuring and lesser competition than a few months ago go buy more Delta.
I also want to hear what AbbVie (ABBV) says. Not that long ago it took a vicious hit for buying Pharmacyclics, but you can't even see the decline in the stock much anymore and it was the right thing to do. I can only wish that core Action Alerts PLUS holding Johnson & Johnson (JNJ) had been bold enough to snare it.
It's a tall order-week, one often prone to costly snap judgments. Don't make them. You will take a learning week and turn it into a gambler's paradise, until the losses roll out and the casino gets more than its fair share of winnings.
