You know how you get your stock up in this earnings season?
Pretty simple. Make sure it is down before you report. That's the theme of the day, whether it be the reversal in fortune for Facebook (FB) or the return to the double digits for GE (GE) or still one more up day for Apple (AAPL) . It's a theme that permeated the entire market and turned the session from one that looked threatening to one that blossomed from an ugly duckling to a swan, more on that in a moment. It's a fitting cherry on top of an S&P 500 that's enjoying one of its biggest monthly gains in years.
Today Facebook's stock exploded higher jumping an astounding 12% which is a real big deal when you are dealing with a $500 billion company.
What happened with the once-bedraggled stock of the most powerful social media company in the world is nothing short of amazing.
When we last left this one, it was considered road kill, it's obituary written over and over and over again by the New York Times, The Wall Street Journal and pretty much every other major print entity in the country.
The publicity had crushed the company and the last two quarters were an abomination, with the stock in free-fall from $218 in July down to $123 on Christmas eve.
It was enough for many to wonder how the F could stay in FANG! The scandals, the scoundrels, the trashings, the endless scolding, didn't all of this negative publicity have to impact users? We have heard of so many people, so many celebrities leaving Facebook at the same time that costs soared. It was the worst possible situation, revenues slowing dramatically, costs soaring dramatically and some of the worst press I have ever seen for a company that didn't kill anyone.
And what was the fallout?
After last night it isn't clear. Maybe there wasn't any. Users are growing, advertising is growing, revenues are screaming higher and costs are trending down. There are 2 billion people who check in every day to Facebook. Two billion people? Where are you ever going to get that reach? Plus I could argue that the darned thing is loved more than ever and the world is a very forgiving place.
Mark Zuckerberg and Sheryl Sandberg, CEO and COO, told such a compelling story about how advertisers are reaching the hard to reach that I wanted to grab the phone and place an ad for TheLongshoreman, my wife's new joint in Brooklyn. I am not kidding, that's how fabulous that call was. You ended up raising a metaphorical glass to them, a glass full of money.
So what happens now with the stock? Let me introduce one of the most beautiful terms in the world. Let me introduce the word "leverage." Now some might think this term references the amount of debt that a company takes on.
Yes, it can mean that. But there's another, glorious use of the term leverage: it's what happens when your costs stay fixed but your revenues soar. You can print money. That's what Facebook is back to doing. I say back to doing because I took a look at what analysts were looking for this quarter when they made their estimates last year and darn it if Facebook didn't come near making those numbers. That's because as brutalized as the press made people feel about how Facebook abused them, two billion masochists are thrilled to post content that can be advertised against.
So now Facebook can coin money, buy back stock, and see its value increase to a level that could be much higher than it is trading right now even after this glorious day.
Facebook's back and it might actually be bigger than ever. Memo to the Wall Street Journal and the New York Times, remember, what Ralph Waldo Emerson said, "when you strike at a king you must kill him." They failed.
When you think about it, the Facebook romp is pretty reminiscent of the move in Apple yesterday, isn't it? That stock is now up 20 points since CEO Tim Cook told us a few weeks ago that the future was brighter than most people realize and he was optimistic of Apple's long-term success. If stock price matters, and I think it does, then the judgment may turn out to be as accurate as when he told us that Apple's best days were in front of it when the stock was at $93 and it then proceeded to go to $230. Yes, the stock's come down but I think this recent move verifies my judgment that you should own the stock not trade it. Why not? The service revenue stream keeps growing. The watch, which I regard as the next big thing, is supply constrained. And the real weakness in the iPhone is China, given the slowdown in that country, the rise of nationalism and the strength of the dollar which makes Apple's premium phones more expensive than the locally made competition.
My take: You get a trade deal, you've got a $200 stock.
It wasn't just FAANG that got some mojo after some serious beatdowns
Get this, maybe we need to replace the G, which used to be Google now Alphabet, with G as in GE, which reported a better than expected quarter and gave you a sense of confidence that the worst is over. Larry Culp, the new CEO gave you a road map today that could eventually get GE off the do not resuscitate list and put it in the ICU, which, believe me, that's a big move. Now this one's pretty ethereal. Culp didn't talk about big numbers and make awesome projections. Nah, he was more like Hercules. He's cleaning the darn Augean stables and while he still has to deal with the manure pile that is Power he's tidied up the Justice Department investigation of its subprime transgressions, accelerated the orders of health care to an astounding 7%, figured out how to get his arms around the long-term care headache, although there still could be a shoe to fall there, and put into place his own team that has nothing to do with the old regime. He's going root and branch and when he downsizes Power dramatically we are going to think of this as a nifty industrial.
Now not every down and outer was able to muster a following. DowDuPont's (DWDP) stock got crushed today and it was well off its high. DWDP was like a poster child for why Fed Chief Jay Powell had to back away from his tighten at all costs position because almost every single major business line got crushed by the slowdown in December. We may have to create a new line item in the scorecard of the earnings season: HBP which stands for Hit by Powell, and given the weakness in DowDuPont's auto and housing related businesses the blame can be laid on the old fed chief, the one who got a little reckless out of the gate. The new, patient Powell, actually makes me feel that DowDuPont is a buy not a sell because the company's breaking up. But HBP is a brutal designation.
Here's the story in a nutshell: if expectations are as low as they get and you trump those expectations, you've got a winner. So scour the losers. They may be ready for the comeback of a lifetime.