This earnings season has turned out to be good enough, overall.
Take Caterpillar (CAT) , for example. Having lowered sales and earnings guidance for the second quarter, it has gone up some 17% over the last month alone. A mix of short-covering and optimistic types are likely responsible for the move. It isn't really that surprising to me -- CAT's fundamentals have been on the decline for four, that's right, four straight years. They are navigating well and deserve a "franchise" multiple on some future earnings power. The dividend yield satiates us while we wait. CAT was good enough. There is even follow-through today.
Add Owens Corning (OC) to this list. The stock was bid up into the $50s on expected strong roofing sales and operating margins, which the company delivered. The stock was looking up a couple of bucks in the pre-market, only to reverse during the conference call when folks realized that second-half sales were not going to accelerate. Insulation revenue will be down year on year in the second half and margins in roofing may have hit a bit of a peak. We have seen flex in the roofing business at Owens Corning many times, and we have seen the stock suck wind, too. After this 12-month move, it's probably dead money for a period here.
I guess Buffalo Wild Wings (BWLD) was good enough. Ha. Comps turning solidly negative for the first time in years gives plenty of fodder for the new activists who will try to effect change at the company. They need more than a buyback, though.
Apple (AAPL) was good enough. I wish it was just that simple, sometimes. Maybe it really is. The reality, though, is that Apple could have gone either way. Samsung nipping at its heels again. The suppliers across all geographies were cautious, and results began to prove the negativity out. Nonetheless, AAPL was good enough -- with all the widespread negativity and a cheap valuation for a well-capitalized behemoth with plenty of optionality. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
It comes down to valuation and trajectory at the end of the day. Earnings no longer falling at a reasonable valuation get awarded in "normal" markets. But to this day, those momentum types, and those computers, love buying any stock that is working. But, like OC and SHW, any near-term variance in expectations leaves these "up and to the right" stocks vulnerable, if only temporarily.
Always be wary of that from a tactical perspective.