Here is a small sampling of the 120+ posts seen on the Buzz & Banter this week:
Monday, April 21, 2014
Is Guidance Getting Better?
On Thursday (April 17), FactSet issued its weekly report on S&P 500 (INDEXSP:.INX) earnings stats, which I always recommend reading.
Here are some of the highlights (these data does not reflect today's reports):
- As of Tuesday, April 15, just six companies mentioned Ukraine in earnings calls. (Note: weather, FX rates, BRIC countries have been persistent issues [subscription required].)
- Four of the six are down since February 28 because of the Crimea crisis.
- So far, 82 companies have reported.
- 66% have beaten earnings estimates.
- Health care and materials have the highest percentage of beats.
- Q1 blended earnings growth (combining both earnings estimates and reports) has been -1.3%.
- Q2 earnings guidance is less awful than usual. Six issued positive guidance, and nine issued negative guidance. In recent history, guidance has been running about 80% negative, though we are obviously early in the earnings season.
- Current 12-month forward P/E is 15.2.
1. Guidance is awful.
2. Growth estimates are cut.
3. Companies barely squeeze over newly conservative estimates.
So, I'll be watching the trend. If I see a real sea change in guidance issuance, that could be a sign of real faith in a "real" economic recovery.
Tuesday, April 22, 2014
It's Congress Season!
No, I'm not referring to the group of dysfunctional suits in Washington, DC. 'Tis the season for, scientific congresses, the manna for every biotechnology and healthcare investor. Over the next ten weeks, companies in nearly every disease area will be reporting data at a scientific meeting.
The granddaddy of them all is the American Society of Clinical Oncology (ASCO) meeting from May 30 to June 3. The "ASCO Effect" is a long-standing (at least a decade) bullish seasonal feature of biotechnology stocks. In Chicago, 35,000 scientists, doctors, patients, vendors, drug salespeople, and investors will converge to see cancer drug data first hand.
The first shot in the ASCO parade was fired yesterday with the release of presentation titles. Yes, only titles. Abstract data won't be released until May 14. The biotech investing universe has been madly searching and scrolling through the online schedule, looking to see who will be at ASCO and who won't. Sell-side firms are starting to generate initial notes and schedules. Buy-siders like me are prepping our own schedules (I have 403 entries, so far!) and comparing what we are seeing with management guidance for data presentations.
In all the fun, there are a few things to remember for those who aren't biotech specialists:
- There will be changes to the schedule, including announcing new presentations. However, the data would have to be practice-changing to be placed on the schedule at this late date. That rules out 99.9% of what people are hoping to see at ASCO but is not yet reflected in the titles.
- It is rare these days for the abstracts to have meaningful data. So even though abstract text will be released on May 14, key data may still be unknown. That's why specialists go to these meetings -- to see the actual data.
- If you can't attend (every serious biotech investor should attend at least one of these things), you can follow along on Twitter (NYSE:TWTR). Queue up the ASCO meeting hashtag #ASCO14 to follow. It's not as good as being there, and the feed has much less value-add these days as marketers have invaded it, but you'll get impressions of key data faster via Twitter than any other medium.
One last thing, the release of the ASCO titles yesterday's and today's explosive rally in biotech are almost certainly a coincidence. There are no obvious surprises from scrolling through the ASCO title schedule -- at least not enough surprises to have the SPDR S&P Biotech (NYSEARCA:XBI) up nearly 5%. I think today's rally is best attributed to the Business Development action (implied multiples) of the last two days combined with a badly oversold condition.
Wednesday, April 23, 2014
No, It's Still Not the Weather
Sales of new single family homes disappointed in a big way, and no one quite seems to have an explanation. It's actually fairly easy to understand. In markets, investors and traders see prices real time. Interest rates rise and fall, and investors and traders either make or lose money based on that. However, the effects that come from rising or falling rates are NOT felt immediately by the economy. On the contrary, the economy acts with a lag to interest rates. That means that the most recent data are likely only now incorporating the full effect of last year's yield spike, which did not occur due to reflation, but due to taper talk. Our Accelerated Time and Capital (ATAC) strategies used for managing our,mutual funds and separate accounts at Pension Partners remain defensive this week. The bond market seems to continue to say this weakness is not about the weather. Rather, this is about some weakness happening internally within the market in terms of reflation and escape velocity hope.
Thursday, April 24, 2014
Raytheon (NYSE:RTN) is trading off today because it did not increase guidance after beating expectations by a dime. I call this to your attention, so you can file it away for the second quarter earnings report. The company appears to be setting up for a beat and raise in the second quarter. The drivers of the beat and raise I expect next quarter will be the following:
1. Pull-through of stronger than expected margins in three of four segments
2. Better bookings as management expects over $7 billion in second quarter bookings, which would push the book-to-bill over one
3. The company has raised guidance in the second quarter, the third quarter, or both in each of the last three years. I have had a long position in Raytheon for about a year now, and I added a little today as I expect continued operational execution and capital deployment.
Friday, April 25, 2014
Forgotten Leaders; In the Stock Market History Repeats and Rhymes
"History doesn't repeat itself but it often rhymes," Mark Twain is often reputed to have said.
I like to say, "In the stock market history repeats and rhymes." Everyone knows the news on Apple (NASDAQ:AAPL). As is often the case on Wall Street, the bulls and the bears can each make valid arguments from where they are sitting. After all, that's what makes a market.
I am in the bullish camp, and Apple falls into a special category I created called Forgotten Leaders. Netflix (NASDAQ:NFLX) and Keurig Green Coffee (NASDAQ:GMCR) are recent forgotten leaders. It simply represents a stock that had a huge move, then a steep decline (enters forgotten category) then takes off again almost out of nowhere. If Apple follows Netflix or Keurig's script, yesterday's April move could just be the beginning.
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