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Posts Tagged ‘EARNINGS ESTIMATES’

Sure Thing?!

Sure Thing?!

Courtesy of Mish

Last week, David Tepper, a billionaire hedge fund titan and president of Appaloosa Management remarked on CNBC …

Two things are happening. It’s that easy sometimes. Either the economy is going to get better by itself, in the next 3 months and what assets are going to do well? You can guess what assets will do well – stocks are going to do well, bonds won’t do so well, gold won’t do as well. OR The economy is not going to pick up in the next three months and the Fed is going to come in with QE. Right? Then what’s going to do well? Everything! In the near term – Everything!

Video

Earnings vs. Share Prices

One might not be able to argue with Tepper’s past performance, but one sure can argue with his current logic. Stocks do not necessarily go up because earnings go up. Stocks rise or fall primarily based on sentiment.

Right now, sentiment is so bullish and earnings estimates so lofty there is room for hefty earnings expansion that falls short or estimates. Buying stocks that miss wildly optimistic earnings estimates is not likely to work out well.

Furthermore, even if earnings do come in on target, there is no historic guarantee that stock prices follow. For example, on March 31, 1973 the S& P was at 111.52 with trailing earnings of $6.80. Seven years later, on March 31, 1980 the S&P was at 102.09 with trailing earnings of $15.27.

Thus, over a span of seven years, earning rose 125% while stock prices fell 8.5%!

What happened? The PE ratio on the S&P fell from 16.40 to 6.68, that’s what.

Moreover, those were real earnings then. Now, corporations hide garbage in SIVs with the blessing of the Fed and analysts cite pro-forma earnings that throw out "one-time" charges that occur with increasing regularity.

Thus, anyone who says stock prices will go up because earnings go up, does not understand history. This does not make Tepper wrong, but it does make his argument fallacious.

What About Quantitative Easing? 

Tepper also argues that everything will be good if the Fed falls back on quantitative easing. Really?

The Cleveland Fed has a series of nice charts on Japan’s Quantitative Easing Policy

Japan’s Quantitative Easing vs. Price Inflation

Japan’s Quantitative Easing in Trillions of Yen

After a series


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Is Earnings Optimism for the S&P 500 Justified?

Is Earnings Optimism for the S&P 500 Justified? 

Courtesy of Doug Short

Regular visitors to dshort.com know I follow Howard Silverblatt’s earnings spreadsheet on the Standard & Poor’s website. Free registration is required to access this data. I’ve received several requests for more specific details on where to find the spreadsheet. It is fairly well hidden. Here are two links to help frustrated seekers: step one and step two.

I follow the "As-Reported" earnings and top-down estimates for future earnings (see column D in the spreadsheet). The chart below shows the higher estimates of future earnings from the most recent spreadsheet, dated August 24th, and three earlier spreadsheets (February 17th, April 28th, and July 15th).

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Click for a larger image

The latest earnings estimate for 2Q 2010 is 67.20. Friday’s close gives us a P/E ratio of 15.84, which is close to the average trailing 12-month P/E of 15.48. Beyond the 2Q, the chart illustrates increasing optimism about next year’s earnings. The August 24th estimate of $80.20 for 4Q 2011 at today’s P/E would put the S&P 500 at 1,270 at the end of 2011. That’s a gain of 19.3% from the latest close.

But will as-reported earnings really live up to these estimates? Last month Howard Silverblatt pinpointed the problem for earnings in a Bloomberg article No Sales Means No Jobs Means No Recovery. His concluding remarks are worth repeating here:

I look to sales as a future indicator. On this basis, earnings are running ahead of Q1 2010, but sales are flat, and that’s the problem. It’s great that companies have improving earnings, but those improvements are due to high margins, which were the product of cost cuts — specifically job reductions, the very thing that we need to improve now. Until companies and consumers start to spend more, the job front will not get better, but they won’t spend more until they believe things are getting better. The stimulus programs were supposed to jump start the economy and break the downward cycle by convincing both groups that better times were here. But so far we’re not seeing the sales or the jobs; but earnings are good, at least for now.

Companies in the S&P 500 sell across the world. But consumption in the US, which remains critical for sustained earnings growth, has been undergoing a sustained contraction —, a fact that…
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ARE EARNINGS ESTIMATES TOO HIGH?

ARE EARNINGS ESTIMATES TOO HIGH?

Courtesy of The Pragmatic Capitalist

This excellent piece (below) was on Bloomberg yesterday and cites another bearish note from Gluskin Sheff’s David Rosenberg.  It notes that the analyst community now expects 35% earnings growth for 2010.  They go on to show that this has only happened 6 times in 75 years and has been accompanied by 10% GDP growth each time.  In essence, the implication is that this recovery is entirely different and is unlikely to rhyme with these other robust earnings recoveries.  This is accurate, but terribly misleading in terms of timing.  Have a look here and continue reading below:

What Rosenberg and Bloomberg fail to be more descriptive about is the timing of these high estimates.  As we have long noted with our expectation ratio and earnings analysis (which has been spot on) the analysts have remained far too bearish for the last year. Where the above analysis goes wrong is in bunching 2010 estimates together as a whole as opposed to breaking them down by quarter.

A closer look at these estimates is vitally important in positioning your portfolio for the coming few quarters. In our 2010 investment outlook we said we were bearish about H2 2010 partly due to the potential for overly optimistic earnings analysis. If you look at current estimates analysts are calling for just 2.7% sequential growth in 2009 Q4 earnings. For 2010 Q1 they are calling for just 1.9% sequential growth.  In a nutshell, they expect earnings to be in-line with the last few quarters (which I believe is utterly naive and lacking in any real analysis worthy of paid employment).   These estimates are almost certainly low.  Where things get interesting is in the later quarters of 2010.

In Q2 analysts are calling for a big jump in growth to 11.3% sequentially and 33% year over year. The same goes for Q3 where they are currently calling for 7% sequential growth and 25% year over year growth. These are big numbers. $19.72 & $20.62 in operating earnings per quarter is essentially what the S&P was doing back in 2006 & 2007 when the economy was at record low unemployment and the banks were cranking their high leveraged ponzi scheme on all cylinders. Can we realistically return to such levels so…
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Zero Hedge

THe INTeRViEW...

Courtesy of ZeroHedge. View original post here.

Submitted by williambanzai7.

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Who knows what evil lurks in the minds of Un...

 

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What do you think would happen if someone dared to produce a movie about a plot to ass-asinate the Butt-tard in Chief?

 

 

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Misdirection: Instead of torture victims, we are now supposed to feel sorry for a hacked politically incorrect Hollywood studio...

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Chart School

Can you make a living trading Springs and UpThrusts?

Courtesy of Read the Ticker.

We tell the truth about trading springs and upthrusts, no holding back!

More from RTT Tv

NOTE: readtheticker.com does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Paint.net Investing Quote...

..“The market always tells you what to do. It tells you: Get in. Get out. Move your stop. Close out. Stay neutral. Wait for a better chance. All these things the market is continually impressing upon you, and you must get into the frame of mind where you are in reality taking your orders from the action of the market itself — from the tape.”…

Richard D. Wyckoff
.."Markets are constantly in a state of unce...



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Phil's Favorites

Evolution of YouTube: Will it Supplant Mainstream TV, Vanish, Evolve, or Languish?

Courtesy of Mish.

What will become of YouTube?

It started from nowhere about 10 years ago as an idea with no revenue and no content, then pretty quickly lots of content coupled with a plethora of copyright infringement lawsuits.

Today, YouTube gets 300 million hours of watching every day. Top content producers have millions of followers and make millions of dollars.

But where to from here?

New Play Button

The New York Times tackles that question in a fascinating story YouTube’s Chief, Hitting a New ‘Play’ Button.

The article is about Susan Wojcicki, the chief executive of YouTube, how she got her start, and in turn how Google got its s...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Insider Scoop

#PreMarket Prep Guest List For The Week Of December 22, 2014

Courtesy of Benzinga.

Brian Kelly, Curtis Erickson and Jerremy Newsome will all be guests on this shortened week of Benzinga's #PreMarket Prep broadcast, sponsored by Nadex.

Be sure to tune in at 8:00 am EST Monday-Friday here to tune in to the exciting show.

Don’t miss our #FedForecast2015 event either!

You can learn more about that here.

Monday, December 22, 8:35 a.m.

Jonathan Corpina (...



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Digital Currencies

Chart o' the Day: Don't "Invest" in Stupid Sh*t

Joshua commented on the QZ article I posted a couple days ago and perfectly summarized the take-home message into an Investing Lesson. 

Chart o’ the Day: Don’t “Invest” in Stupid Sh*t

Courtesy of 

The chart above comes from Matt Phillips at Quartz and is a good reminder of why you shouldn’t invest in s...



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OpTrader

Swing trading portfolio - week of December 15th, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Sabrient

Sector Detector: Energy sector rains on bulls' parade, but skies may clear soon

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Scott Martindale of Sabrient Systems and Gradient Analytics

Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds -- and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to ran...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly.

Click here and sign in with your user name and password. 

 

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Option Review

SPX Call Spread Eyes Fresh Record Highs By Year End

Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...



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Market Shadows

Official Moves in the Market Shadows' Virtual Portfolio

By Ilene 

I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).

Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.

Notes

1. th...



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Pharmboy

Biotechs & Bubbles

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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