During the last 20 years, I’ve experienced the gauntlet known as quarterly earnings season around 80 times. Let me tell you, it is not a fun few weeks each quarter when, in rapid-fire fashion, companies reveal their latest revenue and earnings results and issue their take on what lies ahead. Sometimes that outlook can be rosy, sometimes it can be downright dismal and other times it can be favorable, but still fall short of what Wall Street was expecting.
Such is the drama that has come to be earnings season. How frenetic can it be? I would argue that it can be pretty rough for the seasoned professional investor. Consider that this week more than 1,100 earnings reports will be hitting the tape — up from 393 last week — with more than 700 related webcasts. Add in some of the expected economic data — housing, durable orders and flash PMI readings for China, the euro zone and the United States — and it’s bound to be a pressure cooker week. Oh, I almost forgot to mention any political issues that arise and, given the time of the year, any significant updates on the drought, rising oil prices and so on that we’ve been experiencing the last few weeks.
A lot of quantity and quality earnings on tap this week. I have to say, I have been through periods of difficult earnings, but this week in particular is going to be one of the roughest ones I have seen in some time. Aside from the sheer number of companies reporting their results, it is the companies themselves that are doing so this very overcrowded week — McDonald’s (MCD), Apple (AAPL), DuPont (DD), Paccar (PCAR), UPS (UPS), ARM Holdings (ARMH), Facebook (FB), Ford Motor (F), Lumber Liquidators (LL), PepsiCo (PEP), Qualcomm (QCOM), Ryland Group (RYL), Visa (V), Amazon.com (AMZN), Colgate-Palmolive (CL), Dow Chemical (DOW), Hershey (HSY), Starbucks (SBUX), Starwood Hotels (HOT), Stanley Black & Decker (SWK) and Weyerhaeuser (WY).
The danger in situations such as these is that not only do you become overcome with too much information — analysis paralysis or food coma of the mind, as I call it, that you are unsure of what to do. Rarely is fishing in shark-infested waters an easy task, but when those waters are choppy, the sea is blowing and the wind is honking, it can be dangerous. That’s why for many investors it’s bound to be a “shoot first, ask questions later” environment and that tends to lead to some long-term buying opportunities, particularly when it comes to overdone reactions on modest earnings misses. An example of such a situation is when a stock falls 8-10% or more, after a company misses earnings by one cent or two cents per share. Of course, if that penny equates to a 50% miss in earnings, it is a big deal, but if that penny miss is on an earnings per share number greater than $0.30, an 8-10% plus correction is extreme.
Food for your investing mosaic. While the rear-view mirror view will be key here, we can’t ignore future guidance. So far, out of the third-quarter guidance numbers that have been issued, we’ve seen 14 negative predictions against three positive ones, according to FactSet. Granted, earnings reports will pick up significantly this week, but this ratio does bear watching.
At a minimum, it means there will be no shortage of information to plug in to your investing mosaic. I can safely say that because I will be updating my PowerTrend lens big time this week.
PowerTalk with Veda Healthcare Partners. One of the great things about having been an investor for more than 20 years now is the network of friends and associates that I have cultivated in that time. Joining me this week on PowerTalk were George Abraham and Sumesh Sood of Veda Healthcare Partners. George and I worked together when I was an equity analyst at FBR & Co. Veda is a hedge fund that has been in operation for more than two and a half years and invests in healthcare. From biotech and pharmaceuticals to managed care and generic drugs, these guys are looking at all of it with an eye toward delivering profits for their investors.
As you and I know, health-care investing can be a tricky thing, and we’ve made some very nice returns in the last few weeks at my investment newsletter PowerTrend Profits as well as my trading service ETF PowerTrader. Subscribers to PowerTrend Profits are making some good hay in both Allscripts (MDRX) and Vivus Inc. (VVUS), which are up more than 19% and 9%, respectively. We’re also doing rather well at ETF PowerTrader, given the better than 17% return in our Vanguard Health Care ETF (VHT) during the last few months.
As an investor, I’m always on the lookout for new investing candidates — contenders, as it were — but that also means side-stepping the pretenders. That’s why I like to check in from time to time with my colleagues so I can understand what opportunities they see ahead. To listen to what George and Sumesh see as remedies for these and other healthcare-related issues, click here.
To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.
P.S. Join me for the San Francisco Money Show, Aug. 15-17, at the San Francisco Marriott Marquis. There is no charge for this conference, but you do need to register. Call 1-800/970-4355, and mention code #031735.