We understand the term "better than expected." We know that when a company reports better-than-expected numbers its stock goes up. We also know "worse than expected," that toxic statement that often gets followed by the dreaded words "cuts forecast."
But how about another category that's causing stocks to jump today: "not as bad as we thought."
The "not as bad as we thought" thesis is playing out big today and you can see it in some prime examples.
Number one? Bristol-Myers (BMY) . Not that long ago Bristol-Myers was at the top of the heap. I always mention that the stock price is determined by what Bristol-Myers is doing, not what's happening to the world's economy.
It was the "go to" name in the pharmaceutical business because it had the best growth of the old-line pharma companies. Some called it a biotech in disguise because of its massive re-rating from boring old drug company to the company with the winningest anti-cancer franchise of any out there because of its breakthrough drug, Opdivo.
You may have seen the ads for the drug, the ones that are meant to ask your doctor to try Opdivo, ads that gave a lot of people hope that a real wonder drug was upon us.
But a few months ago we learned that Opdivo wasn't all that wondrous. In fact it failed to meet some endpoints in an important lung cancer study and BMY fell from $75 to the mid-fifties immediately. Then when still one more study came out showing it had inferior characteristics to Merck's (MRK) Keytruda, the stock broke down to $49 as the market judged that Bristol-Myers was just about hype not substance.
Today, Action Alerts PLUS holding Bristol reported and wouldn't you know it, the company had some good things to say about Opdivo and some of its other drugs. By this point, because the stock had seemed like the second coming of Valeant (VRX) -- a very unfair comparison but one that got around -- short-sellers had swarmed to the darned thing. As poorly as Bristol has played its hand when it came to promising Opdivo's universal greatness, it was understatedly positive today. Or, to put it in the prism I am using, it simply wasn't as bad as people thought it would be and it rallied.
I still think the company is promising too much but its rally is simply based on not blowing up a third time. Just as owners get disappointed and sell when they don't like what they see, short-sellers get disappointed when they like what they see and they have to cover, which sends the stock higher. That's the truth behind Bristol's big move, one that I do not trust as much as I would like because it is based on the company simply not screwing up badly again.
I felt the same way about Cheesecake Factory (CAKE) and Buffalo Wild Wings (BWLD) today. Both companies reported numbers that to me were absolutely nothing to write home about. Wall Street was looking for 1-2% growth for Cheesecake and the numbers came in at 1.5%. That's not better than expected. A tech stock that delivered that kind of number, one that failed to beat the top line, would be slaughtered. But when it comes to going out to dinner, you do a number that's smack in the middle of the range and you are a hero. No wonder Cheesecake's stock actually hit a 52-week high simply by not missing its estimates!
In fact, the restaurant business is so bad right now that when Buffalo Wild Wings predicted that its franchises would have minus 1.7% franchise comparable store sales and the numbers came in at minus 1.6% -- minus mind you -- that sent the stock up almost $8. It's almost stupefying isn't it? But simply not horrendous cuts it in this market, or in the land of the blind, the one-eyed restaurant chain is indeed king.
Twitter (TWTR) almost pulled off this same thing today. The stock was flying in the morning because there was actually a trajectory of daily averages users that was positive. You see Twitter was supposed to report a horrendous number, part of the whole process by which it didn't get sold. Amid all of the other rancor and bad will that developed during a process that played out way too publicly was a belief that when the company reported it would deliver sales and metrics so disappointing that it would go right back to the $14 level before all over the take-over hoopla started.
But it didn't. It just wasn't the most disgustingly terrible quarter that investors thought. It looked like the stock was going to break out for good. However, we learned that it was shutting Vine, something that at one point speculators thought would be the reason for someone to acquire the company, so the pre-earnings desperation came right back to life.
My take? It genuinely wasn't as bad a quarter as I know I thought they were going to do. They did beat on both revenue and earnings. Plus, I think that this number makes it more likely that Twitter can come back into play, especially if they develop something that can use machine learning to actually knock off the trolls. They do that and I am telling you that buyers will come back and this company will be owned by someone else who can use all of the data to help companies make better decisions about what consumers want and where their dollars could best be spent.
But it is a one-two punch. They have to fix the troll problem -- which I think they are -- and then they have to keep the process quieter. It got totally out of hand last time to the point where it became $29 or bust and the company's not liked that much that a buyer's stock won't be crushed for making a bid.
I think that the discipline of closing Vine and chopping heads while at the same time showing some growth is going to make Twitter more attractive to buyers, but not until the troll problem is buried and done with because the shareholders of whoever might make a bid despise Twitter for its inability to tamp the hate even as they can't keep their eyes off it to see what's happening.
Finally, there are companies that recognize that they can change the coloration of what people think about them and manage to see their stocks soar.
For years now Qualcomm (QCOM) , the company that develops intellectual property integral to the modern-day cellphone, just kept disappointing Wall Street. Management, which is very pro shareholder, was besides itself. How the heck does a company like that make Wall Street see that it isn't as bad as they think it is?
How about by making an acquisition that in one fell swoop changes its stripes from a so-so cellphone chip company with oodles of cash overseas that can't be brought back without confiscatory taxes being paid into an internet of things and automobile semiconductor company with some terrific cellphone technology? That's what happened today when we learned that Qualcomm were plunking down $47 billion to buy NXP Semiconductor NXPI, a foreign-domiciled company and one of our favorite companies owned by my charitable trust, Action Alerts PLUS.
The fact that NXP Semiconductor is foreign domiciled allowed Qualcomm to take that deadweight cash and put it to work without taxes while borrowing cheap foreign money to pay for the rest. That's how the acquirer's stock could leap two and a half dollars while NXP's stock barely budged!
Yep, not being as bad as we thought, not being as bad as we were getting used to. That's become a time-honored way in this difficult market to drive your stock higher. Why bother to look through it? The darned strategy's working.