Earnings (General News) 01 (May 10 - Oct 16)

[winston]

Use the Post-Earnings Drift to Find the Stocks Set to Surge by Matthew Weinschenk

I love earnings season.

In fact, it ranks among my favorite times of year, alongside Thanksgiving and the kickoff to the NFL season.

The Secret to Profiting from Earnings Reports: Buy High... Sell Higher

Unlike the others, though, the beauty of earnings season is that we get it four times a year. And that means four chances to profit, using the simple "how to" method I'm going to show you...

The Importance of Earnings Season

Why do I get so amped up over earnings? The reason is simple...

Because earnings season tells you more than just the performance of individual companies.

Forget any of President Obama's speeches... forget what the Fed says... forget BusinessWeek articles... and definitely forget the "expert" comments on CNBC.

When taken as a whole, earnings season means more than any of it. In terms of gauging the direction of the economy and stock market, it provides some of the only hard evidence of what's really happening. (And I'll take hard facts over Fed-speak every time.)

And the best news is that earnings season provides the trigger point for one of the most profitable and proven trades in the markets today - one you can make hundreds of times a year. Here's how...

The Earnings Two-Step

The National Bureau of Economic Research (NBER) says the recession is over. And with stocks already priced accordingly, there's no time to waste. Let's start with the two primary steps...


Step #1: Always Look Ahead

First, remember that the stock market is a forward-looking entity - one priced on expectations. In other words, stocks don't move based on a change in earnings, they move based on a change in earnings expectations.

So the real goal isn't trying to predict the future, but rather, finding errors in the crowd's opinion of the market (expressed in terms of price).

These market inefficiencies allow for profitable opportunities. Question is: How do you find these anomalies?


Step #2: Let the Analysts Do the Work for You

You could spend weeks analyzing companies, developing your own sales forecasts, cost projections and eventually, earnings predictions.

The thing is, though, you'll likely have to wade through hundreds of companies before you find a single opportunity - i.e. a stock that the market has substantially mispriced. Keep in mind, too, that you'll need to find dozens of stocks to be sure that one little mistake doesn't wipe out your portfolio.

Sounds like a full-time job, doesn't it? That's because it is. In effect, you'd be running a simplified model that Wall Street's big research firms use.

That's not a practical approach for an individual.

That's why I prefer to pair the search for anomalies with a market inefficiency called Post-Earnings Announcement Drift (PEAD).

I believe it's the most profitable concept in the markets. The efficacy of PEAD, based on a mountain of data, cannot be overstated.

Let's see how this works...

Catch the Drift

Let's say a company announces an earnings surprise. As you'd expect, the stock immediately jumps higher.

But what most investors don't realize is that the stock continues to drift in that direction. The biggest moves come within a week of the announcement. But the price will ultimately drift for another 30, 60 and 90 days thereafter.

This means you don't need to predict the earnings announcement and buy the stock ahead of it. You can simply wait and buy the stock after the information hits the market.

Now, in an efficient market, this shouldn't happen. Once a stock makes an earnings surprise, it should immediately move to a fair price.

But because stocks drift, that's why it makes sense to wait until afterwards to place your buy order.

It's almost like the company is waving a flag that says, "Buy me now!" Problem is, no one's watching. (Except us!)

Why Earnings Expectations Hold the Key to Profits

Remember my first point - stocks are priced on expectations.

If analysts expect a stock to earn $1 per share this quarter and it earns $1.50... then the expectations for the following two quarters (and, in fact, the next five years after that) are probably wrong.

Analysts and institutions have to go back to the drawing board to re-evaluate their models. Once they get everything figured out, they start buying up the stocks with real future earnings potential. That buying drives the stock up and is what causes the sustained post-earnings drift.

A word of caution, though: Not every stock drifts.

Some stay flat. Some even go in the opposite direction.

That's why you need to use extra diligence, using about a dozen other data points, to isolate the stocks most likely to move - and move the most.

And there are a number of indicators that suggest which stocks will drift the most...

Which Stocks Will Enjoy a Post-Earnings Drift? Look for These Three Signs...

I've uncovered many indicators that identify which stocks are likely to drift the most.

For example, the percentage of shares owned by institutions, a stock's market cap and earnings quality all play a role. But you can take a shortcut.

Look for companies that fulfill these three things in their earnings releases:
1. An earnings surprise.
2. A sales surprise.
3. The company raises its own future earnings estimates.

That "triple play" could filter as many as 100 stocks or so every quarter (obviously subject to change) that are poised to profit.

The point is this: While other investors clamor for the next big prediction that they think will put them ahead of the market, just watch for a proven anomaly that gives you an advantage over market prognosticators and the heavy-hitting professionals.


Source: Investment U

[winston]

TOL:-

Have you noticed that Earnings tend to come in above expectations, when they are not audited than they are audited ?

[winston]

Chart of the Day

One positive for the stock market has been the dramatic rise in earnings following the financial crisis.

One reason for this earnings spike has been the fact that the US dollar has effectively been devalued. Slash the yardstick by which financial performance is measured (e.g. dollars to dollarettes) and relative performance will appear more positive.

For example, when corporate earnings are measured in dollars, an investor will find that earnings are currently greater than what was achieved during the dot-com bubble and fast approaching the record levels that were achieved at the tail-end of the credit bubble.

However, when measured in another world currency such as gold (see today’s chart), the earnings picture isn’t quite so rosy.

Today’s chart illustrates how S&P 500 earnings measured in ounces of gold actually peaked back in 2001 and has moved within the confines of a dramatic downtrend ever since.

In fact, the historic spike in earnings that began in the summer of 2009 doesn’t look all that historic with current earnings coming in at a level that is significantly lower than what occurred at the conclusion of the dot-com and credit bubbles.

http://www.chartoftheday.com/20110722.htm?

[winston]

TOL:-

Will the "expert" analysts be using this rout to downgrade their stretched earning numbers ?

[winston]

TOL:-

If your company is reporting results on a Friday ( after closing ), it's normally worst than expected.

[kennynah]

i just know that smrt made good profits....but its fares are being hiked anyways...

[winston]

DJ MARKET TALK: More Earnings Cut For China Equities Likely - GS

1054 [Dow Jones] Goldman Sachs sheds some light on why the Hong Kong market appears to be trading at such undemanding valuations (HSI at 11X historic P/E based on Friday's close).

The house says that MSCI China constituents have all reported 1H11 results, with earnings growth up 29% on-year, trending ahead of consensus 2011 of +20% on-year and completing 51% of FY11 EPS.

Still, GS notes that some companies beat expectations on non-core or non-recurring items, while margin squeeze continued to be a common theme for companies that missed expectations.

GS says all sectors' earnings were cut in the past month except offshore telcos and materials, onshore utilities and staples, and financials.

"We expect more cuts in 2H11, reflecting developed markets slowdown and the ongoing tightening in China."

Source: Dow Jones Newswire

[winston]

CORPORATE PROFITS ARE IN TROUBLE by Lance Roberts

Let’s get something straight – corporate profits are a reflection of the economy, not vice versa.

There is also a huge difference between corporate profitability based on top line revenue growth and bottom line cost cutting.

Lately, there have been a plethora of analysts talking about the continuation of the bull market due to the expectation of rising corporate profits to record levels in the coming year. I have one question – how?

Corporations depend on sales to consumers to create revenue. “Sales”, and ultimately the “revenue” generated by the sales effort, are at the very top line of the income statement.

http://pragcap.com/corporate-profits-are-in-trouble

[winston]

Earnings calls wake up to Wall Street pain by Claire Sibonney

NEW YORK (Reuters) - Earnings forecasts for U.S. companies are starting to feel the pain on Wall Street and in the broader economy as the odds of another recession rise.

Analysts now are toning down double-digit growth targets for the rest of this year and next on the heels of a record second quarter.

A distressing signal came from FedEx Corp <FDX.N>, the world's No. 2 package delivery company, which many on Wall Street look to as an economic bellwether.

FedEx lowered its full-year profit outlook this week, citing high fuel costs and a struggling global economy.

Since July 1, the Standard & Poor's 500 Index <.SPX> has tumbled 15 percent. Forecasts for third-quarter earnings for the S&P 500 companies have slipped to 13.7 percent growth from 17 percent, according to Thomson Reuters data. But many strategists say those estimates are still too high.

Over the last few weeks, analysts have cut earnings estimates for S&P 500 companies across all sectors except technology. Financials are among the hardest hit.

Negative guidance from companies is also on the rise, outweighing positive guidance by a ratio of more than 2 to 1.

Profit growth could still be relatively strong for the season that kicks off in early October, and that could lift stocks, which sold off nearly every day this week on panic reminiscent of the financial meltdown in 2008.

The mystery lies beyond the third quarter into next year. Strategists speculate that estimates may be inflated by 5 percent to 15 percent , as the market questions how far the cost slashing since the last recession can shield the bottom line.

FINANCIALS: THE ACHILLES' HEEL

Financials, worth more than 13 percent of the S&P 500 and the second-most influential group behind technology stocks, have been subjected to drastic cuts in earnings estimates.

Insurers are also very susceptible to a lower-rate environment, while energy and consumer discretionary sectors are vulnerable to see-sawing commodity prices and damaged confidence.

The forecast for technology earnings for the full-year 2011 is 16.6 percent growth, compared with 2010, according to Thomson Reuters data released on Friday. In July, the forecast called for growth of 13.7 percent.


Source: Reuters US Online Report Business News

http://www.newsmeat.com/news/meat.php?a ... &buid=3281

[winston]

The Earnings Estimate Tug-O-War by Joshua M Brown

Q3 earnings are right around the corner, There were a startling amount of companies who, during Q2, pulled their guidance figures entirely.

We said at the time that this is never a good sign - we're about to find out if that's truly the case.

http://www.thereformedbroker.com/2011/1 ... tug-o-war/