Ticker Shock: Palm Loses Its Grip

What do you say we put on our rally caps today? It’s about time for a little rebound action.

Asian stocks closed higher overnight. The Hang Seng was up nearly 2.5% while the Nikkei closed up just a smidge under 1%. Meanwhile, European stocks were showing me some green earlier this morning as well. Here in the US, we're currently trading (yeah, baby!) higher.

Here’s what I’m focused on this morning:

Toll Brothers (TOL):
 “If you build it, they will come” might apply to baseball diamonds, but I’m not so sure about homebuilders.

The high-end homebuilder was out with its first-quarter earnings this morning.

Per the release: “Excluding write-downs, FY 2009's first-quarter earnings were $9.6 million ($9.55 million of which resulted from the net reversal of a prior tax provision), or $0.06 per share diluted, compared to $57.3 million, or $0.35 per share diluted for FY 2008's first quarter.”

Not terrific, but not as bad as it could have been in my mind. 

But I was more focused on what might happen going forward. The following tidbits in the release stood out to me:
 

• The cancellation rate was 37.1%. That doesn’t mean it will necessarily be high in the current quarter and/or going forward, but it does tell me that the environment probably isn’t so hot.
  
  
• Also per the release: “The Company's FY 2009 first-quarter net contracts of 266 units, or approximately $127.8 million, declined by 59% and 66%, respectively, compared to FY 2008's first-quarter net contracts of 647 units, or $375.1 million.”
  
  Again, not a metric I’d like to see.
  
  
• Finally, I was put off by the lack of earnings guidance going forward.

As I believe I’ve said in the past, I think when the economy turns, this stock could pop - big time. But at the present, I remain reluctant to get involved because I don’t see a near-term catalyst. Sorry Toll Brothers bulls, but while I'm hopeful that a turnaround will come, hope alone isn't an investment strategy I subscribe to.

Costco (COST):
 Geez, I thought my wife and I did our share to contribute to Costco’s latest quarter, but apparently it wasn’t enough.

Check out the Washington-based warehouse company’s second-quarter numbers:

It earned $0.55, well shy of the $0.74 it put up in the comparable period the year before. It was also shy of the $0.59 a share analysts were expecting. Meanwhile, its revenue line came in at about $16.84 billion, which appeared just a wee bit shy of expectations. 

Not a quarter to write home about. But at the same time, I don’t want to cast the company aside like an old cigarette, because it might be considered one of the “better plays” in retail over the longer haul. My thinking: These guys sell stuff that we need, or really want (read: obscenely large rolls of paper towels) at generally cheap prices. Also, I’d point out that in spite of the miss and this whole economy thing, it’s still expected to put up $2.68 a share in the current year and $2.96 a share in the next.

In short, I’m hoping that investors look past this current quarters results - I think they should.