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Should Investors Worry About eBay's Fourth Quarter?

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The hope is that management is just being conservative.

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Every four to five months it seems I end up buying a new cordless phone. Even the expensive ones end up being all static over time. They can make a cell phone that calls across the ocean but still can't create a decent cordless that will let me dial the local takeout place.

Asian stocks fell overnight, but not by too much. The Hang Seng and the Nikkei were off 0.48% and 0.64% respectively. European stocks were in negative territory early this morning, too. And here in the US, we're currently trading lower.

Here's what I'm seeing this morning:

eBay
(EBAY):
In the third quarter, the California-based company put up and adjusted $0.38, which was a shiny penny north of Street expectations. It appears it beat on the top line, too.

But everyone seems to be talking about the fourth quarter. Apparently the company is looking for an adjusted $0.38 to $0.40 in the period, which might get some underpants in a bunch because analysts are at $0.40. To boot, the revenue outlook it offered up for the fourth quarter seemed lackluster.

Some other thoughts:

1. Obviously I don't have a crystal ball or I would have won the mega-millions lottery drawing last week. That said, I think the stock gets a bit of a slap on the wrist in early trading.

2. If it made it down to the high teens (hold the email you're thinking about sending), I might be really interested. Keep in mind that as it is, it trades at about 16.5 times the 2009 estimate, which isn't terribly expensive.

3. My hope is that management is just playing it conservative with the fourth quarter, and that it will be able to come in north of its expectations. Note that it's pretty consistently beat out Street estimates over the past year or so.

4. Overall, I'm lukewarm on its very-near-term prospects, but a pullback would cause my antennas to go up and could cause me to change my tune in a big way.

Northrop Grumman (NOC):
The big-name California-based defense company was out with its third quarter.

In short, it put up $1.52 in the period, but added in the release that "Third quarter 2009 earnings included a net tax benefit of $75 million, or $0.23 per share." Not too shabby because the Street was at $1.18. And for the full year it indicated it's looking for $5 to $5.15, which is bound to raise a few eyebrows because the estimate is $4.85.

Some thoughts:

1. I don't think the current administration is eager to spend a ton of dough on defense, but when all is said and done, this country needs to consistently make things that make the bad guys go bye-bye. That's essentially why I believe Northrop and other defense players will be seeing jingle in their jeans for quite a long time to come.

2. I'm hoping we see some analysts raise their expectations in light of management's comments. In any case, at under 10 times that outlook, it's certainly got my attention. I'd view any weakness as opportunity.
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No positions in stocks mentioned.

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