"Only when the tide goes out do you discover who is swimming naked." That fabulous quote from Warren Buffett has never been more operative than in this earnings season. We are seeing lots of naked CEOs and plenty of good ones in trunks that are in the exact same sector. They are begging to be called out. So let's do so.
First, we have to go with AT&T (T) versus Verizon (VZ) . I can't believe how solid a quarter Verizon delivered, with a terrific earnings beat and amazingly healthy, 510,000 post-paid customer additions. Verizon's hitting on all cylinders. AT&T, on the other hand, missed badly -- $0.90 when The Street was looking for $0.94 -- and there was a lot of noise around some real weakness with AT&T's Direct TV's division. I am not saying the dividend is in doubt, although it is now yielding a disturbing 6.4%, too high for my risk taste. The cash flow is very strong. But I am saying that there is a lack of predictability and some real weakness in sub gains that has to be addressed if it is going to be restored to what I would regard as a blue chip.
You had to be crushed by how stunningly bad 3M (MMM) really was. We had had a big position for Action Alerts Plus, but had to sell a lot of it because we didn't like what we heard about its auto exposure. What we didn't expect was a sudden decline in its health care and consumer businesses. Just an unacceptable number from a great American company. The company slashed its forecast.
Meanwhile, Honeywell (HON) and United Technologies (UTX) , two other conglomerates, delivered terrific numbers and raised forecasts. Sure, 3M doesn't have the kind of aerospace exposure that Honeywell and UTX have, but it's got a mosaic that had delivered repeatedly under the tutelage of Inge Thulin. Now though? It's been left in the dust under CEO Mike Roman. I think that if he doesn't pull a rabbit out of a hat, he may be yanked like John Flannery was after a short period at GE (GE) .
Oh my, and how about Illinois Tool Works (ITW) ? For years, I loved the diversification of that company, a fabulous mosaic not dependent on any one industry. But today the company said that it saw weakness in autos, specialty and polymers and fluids segments. Awful, and the stock has gone from $179 to $122.
How about the divergence in the drug business? We hear from Bristol-Myers Squibb (BMY) tomorrow -- but one thing is certain, it's fallen way behind the group in part because its anti-cancer franchise seems to be eroding. Merck's (MRK) , on the other hand, is getting stronger. I am used to all of these stocks trading together. That seems like a thing of the past. I can't wait to see the numbers it puts up tomorrow. Meanwhile, ELI Lilly's (LLY) just unstoppable because of its innovation and its spin-off of Elanco, the animal health business.
We've got Boeing (BA) performing at an amazing rate, demonstrating prowess in both aerospace and defense. But General Dynamics (GD) ? It had okay defense and terrible aerospace -- including a plunge in Gulfstream jets.
I know you can't tell from the stocks on a day like today, but there was an incredible difference between the execution of Procter & Gamble (PG) and Kimberly Clark (KMB) . Again, these are two terrific companies, but P&G had share gains and better pricing for a lot of its businesses. Kimberly had the exact opposite, with diapers truly being leaky versus both P&G and the private-label brands -- especially in China. Kimberly's hefty, almost 4%, yield is keeping the stock afloat, especially with rates going lower. Otherwise, I think you would see the divergence that started earlier this week when Kimberly reported its numbers.
Now I know that the world is slowing. That's been my thesis, despite all the happy talk from the President and the Fed. But some are managing the tide better than the others. When the selling lifts, and I believe it will when the month ends, the swimmers with trunks will get bought, those that are naked?
Hide your eyes.