It's time to enter a new term into the lexicon of stock picking: BTF, or better than feared.
We are seeing stocks jump like mad if the companies underneath them are able to do even slightly better than most analysts feared they would.
Bristol-Myers Squibb (BMY) , for example, on Thursday delivered a BTF quarter. The stock of Bristol has been under severe pressure as worries mounted that its still-pending Celgene (CELG) acquisition might be a bust, and that its top selling cancer drug, Opdivo, isn't performing well vs. Merck's Keytruda.
But sales for Opdivo came in better than feared and the revenues from Eliquis -- which is by far the No. 1 blood thinner in the world and is taking share everywhere -- were off the charts. This is even though Bristol delivered unsatisfactory results with Opdivo just on Wednesday night on a study involving non-small cell lung cancer.
Or to put it another way, I don't know a soul, other than perhaps me, who believed that Bristol would even do the estimates, let alone beat and raise, which stands for beat the estimates and raise the forecast.
Wednesday, we saw the same thing with Texas Instruments (TXN) . The Street was thinking that there was no way that the company, heavily levered to the industrial economy, which is so weak, could possibly beat the earnings estimates. But Texan, as we call it because its symbol is TXN, delivered a BTF quarter and the stock rallied 8 points.
Sometimes it's a fine line: 3M (MMM) looked BTF on the surface and the stock jumped $8 in pre-market trading, but then analysts found things they didn't like on the conference call and it gave up all of its gains. You can never judge BTF by the headlines, because management can print numbers -- another technical term for what the earnings, sales and forecasts were -- and the headline machines have no analytical ability to see if the numbers are all done with smoke and mirrors.
Perhaps the best better than feared so far this quarter came from Goldman Sachs (GS) . A combination of a slowdown in trading and a belief that the company's reports had become too episodic, a good followed by a not so good, followed by a terrible set of figures caused many to fret that this could be another blow-up quarter. That's why it had become the cheapest stock in the group as valued by the price-to-earnings ratio, which is the apples to apples method Wall Street uses to compare stocks to each other.
But when Goldman reported, it was totally BTF, because the firm had a much more stable earnings stream than anyone expected. So, even though it wasn't as good as JPMorgan Chase (JPM) or Bank of America (BAC) in terms of profitability, the stock soared 20 points.
Oh, and how about the uglier than feared. Frankly, there aren't many of these, because typically if a company's earnings are feared to be ugly, they are usually ugly, so there's not a lot of gradation.
I was expecting, for example, an ugly quarter from Dow Inc. (DOW) and it gave me an UTE so it got dinged. Not an important category.
Now BTE, BTF and UTF -- better than expected, better than feared and uglier than feared -- must all take a back seat to plain old disappointment. A disappointment, per se, is something that happens to a company's stock when the Street is looking for a consistently good number.
Align Technology (ALGN) , for example, has been the pillar of consistency. It had a slight miss in estimates and forecast, but Align's been priced for perfection for ages. Big disappointment. Same with Paypal (PYPL) , which lowered its forecast, something holders who have seen this one skyrocket were clearly displeased by. That's why they both got clobbered.
With the economy slowing and with the industrials doing poorly, I believe BTF should be part of any analysis. It is only through that prism that you can understand how a stock could go higher on what looks like not so hot numbers.
DOW, GS and JPM are holdings in Jim Cramer's Action Alerts PLUS member club.
