NABAF is back -- and back with a vengeance. NABAF, for those with a memory deficit, is my acronym for Not as Bad as Feared -- and you are seeing stocks through the prism of NABAF as they report. It's a wonderful thing because NABAF means you don't need to give up on a stock just because it screws up the quarter.
Case in point: Netflix (NFLX) . There's very few data points I can discover that are any good when it comes to the streaming giant -- except for earnings per share, which came in at $1.47 when analysts were looking for about $1. Sign-ups? Subpar. Growth versus their own expectations, just okay. Domestic? Bad.
But the company made more money than expected and, suddenly, a metric that has never mattered is the most important because this company's earnings aren't falling apart in the face of so much else to watch and do.
Can the earnings collapse when Disney (DIS) and Apple (AAPL) begin their streaming projects in earnest next month? Sure, but the strength in international, one of the few metrics that beat expectations -- 6.26 million versus 5.2 million -- may insulate the company from the assault of better-capitalized players. Netflix describes these competitors as "modest headwind to our near-term growth," minimizing concerns that kept popping up as gospel.
NABAF at work.
CSX (CSX) is another NABAF. I didn't like any of the industrial lines: Chemicals worse than expected, automotive worse than expected, metals and equipment worse than expected, fertilizers much worse than expected, intermodal worse than expected and coal ridiculously worse than expected. But the operating ratio, how much they make minus expenses, was insanely positive: 56.8% versus 58.7% last year. These guys know how to run a railroad. If trade were to pick up then this thing could really hum and you know trade can pick up if we get any trade deal anywhere.
Both stocks are a major prop to the market because Netflix, as small as it might be in FAANG, looms large as a conceptual, core internet story. CSX's earnings come at a crucial point for the transports. You need this sector to break out and CSX comes on top of a NABAF from United Rentals (URI) yesterday.
Of course, not all can be NABAF. Some are a reluctant to use an acronym that nonetheless fits the nomenclature: WTF, and in this case both United Rentals and IBM (IBM) qualify for this undistinguished title. It's tricky. United Rentals trounced earnings --$5.96 versus $5.56 expected -- but it doesn't matter. This puppy trades on the future and the company and the company forecast disappointing growth in all 8 categories. WTF.
Finally there's the Mac Daddy of disappointment: IBM. I have always found that many companies truly try to mask weakness when they report. Kudos to IBM for flagging weak revenue largely because of disappointing Global Technical Services, a huge unit that one would expect to be on fire given how many companies need help in this area. The globe, though, is an uncertain place, led now by the UK and Germany and a Brexit conclusion of any sort has to boost numbers. Doesn't matter: IBM is distinctly a WTF situation, with the good of Red Hat -- and it certainly was good -- being offset by this colossal legacy line.
The good news for the market? We've had more NABAFs this quarter than we thought: UnitedHealth (UNH) , Johnson & Johnson (JNJ) , Pepsico (PEP) , Bank of America (BAC) and JPMorgan Chase (JPM) , to say the least. Plus Netflix joins Goldman Sachs (GS) in the ranks of baffling NABAFs, meaning they simply can't be explained as positive, judging from what they reported, but there were extreme negatives coming in.
When you have stocks that are down or with compressed P/Es, you can get NABAF rallies. Don't forget though, there will be plenty of WTFs: URI and IBM are misery, and you know how much misery loves company.
