Earnings season is upon us. For some, it'll be like Christmas morning. For others, they'll be devastated by poor earnings. In my opinion, the next month and a half will make or break this stock market. If earnings kick the negative sentiment, I think we'll see 25,000 on the Dow. But if we see enough to hint at a deceleration, watch out. Here are some names I'll be watching.
I bought UBS (UBS) on the December correction. My reasons were straightforward. The pullback created a very discounted stock with a 5.5% dividend. The company struggled the last few years as earnings have not made it back to the earnings highs of 2015 when they reported $1.64 a share (Denominated in Swiss Francs). The massive investment company made a big push in the right direction in the third quarter, they reported a 28% jump in diluted earnings year over year to $0.32. They have a record of beating estimates, and I am eagerly awaiting their earnings results.
Car sales are one of the best indicators of where an economy is at. Consumers will not purchase cars if they don't feel good about their economic situation. If you go through time, you'll often find that one of the first precursors to a recession was slower car sales. Ford (F) , along with others, has countered declining overall auto sales with big money gains on expensive pickup trucks. Month to month, Ford's sales reports showed an overall decline in trucks. That could be what finally puts a hiccup in the earnings story. The share price has performed terribly through the past year, and I think we're going to see very little that will change that. I'm curious to see what their own guidance shows for the year.
User growth, user growth, user growth. Netflix (NFLX) shares have never operated in an intelligible way in regards to actual earnings. The stock most certainly carries a cult following, and strong user growth rates are basically what are needed for the price to rise. I am continually unimpressed by the excessively high spending on content. It draws in users, but the cash flow isn't sustainable without debt and stock dilution. Nevertheless, the market seems to value Netflix on one thing -- user growth.
J.C. Penney and Macy's
What we have here is a war of attrition. With Sears in bankruptcy, JCPenney (JCP) is most definitely the weakest link going into 2019. Macy's (M) has assets and cash, but needs to keep gaining growth if it wants to compete with better performing names like Kohl's (KSS) .
JCP's debt levels are well over $4 billion, and the company has very little wiggle room in terms of cash. It seems to be the combination of debt payments, and poor earnings are hampering the retailer's ability to make changes. They can't afford to improve their stores. They can't afford to spend on much of anything without increasing their debts. If they keep doing that, their interest expenses are going to progressively consume any income that might actually be found. Thus far the losses are over $300 million in the first three quarters of 2018. I think this is the one of the best shorts in the market.
Macy's is that name I wanted to see succeed. The company was doing great in reviving a growth story in 2018. The stock was absolutely pummeled a few days ago when they announced very weak holiday sales. The company subsequently lowered its profit guidance for full 2018 with diluted earnings of $3.90 to $4. The stock is still cheap, but this market does not forgive weak sales in retail. They're doing much better than JCP, but I expect the stock to perform weakly if earnings aren't amazing.
Investors woke up to the over-hyped potential of Zillow's (ZG) stock relative to its earnings back in June. Down roughly 55% from its summer highs, Zillow has a lot to prove. At $33.15, I still consider the stock way overpriced. The company has lost money each of the last five years. Full year 2018 is not looking much better; though the company has reduced the size of its losses. I think any failure to demonstrate an ability to make money could cause serious fallout here.
Starbucks (SBUX) might give us some good indicators on China's economic story amid ongoing trade tensions. Their sales growth in Asia has been strong, and the fiscal first quarter performance might show us a little glimpse of China's slowdown. There's a lot to watch from Starbucks. The company's sales have been hampered by weak performance domestically, which has lessened the effects of its growth in Asia. Furthermore, the costs associated with driving sales continue to eat into operating income. It will only be so long before that becomes a real drain on the share price. I am neutral to negative on the stock.