Be prepared for horrid quarterly reports
Today's Financial News - Posted January 7, 2009
Investors need to be ready for a downright nasty earnings season. Already, we are seeing some companies cut their earnings estimates by drastic proportions. If you are not prepared, it could get painful.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): My day did not get off to a good start. After rolling out of bed, my first stop is always the coffee pot. Then, I grab the newspaper and flick on the TV.
As usual, my newspaper (at least I hoped it was my newspaper) was tossed on my neighbor’s driveway, but when I tried to tune into the local news, the screen was black. Instead of waking up to my favorite weather girl, I was forced to listen to the pre-dawn silence.
While my troubles were trivial and caused by an overnight ice storm, the problems throughout the cable that provides my morning media fix industry continue to brew. For proof, just look at the nation’s largest media conglomerate, Time Warner (NYSE:TWX). Its share price is down by over 6% today.
Thanks in part to a $15 billion write-down of its cable spin-off, Time Warner Cable (NYSE:TWC), the company is expected to post a loss for all of 2008. It is just the first of what is sure to be many signs of an ugly earnings season for the industry.
One of the company’s larger competitors took the opportunity to leak some of its own bad news in the hopes investors would be distracted by the news from Time Warner.
A Comcast (NYSE:CMCSA) insider said the company would have to cut its balance sheet to reflect the losses in its Clearwire stake, which is down by as much as 60% over the past 12 months. Fortunately, losing out on the wireless Internet venture is far from a surprise. But the information reinforces the notion the upcoming earnings season is going to hurt.
Trouble ahead
Of course, the media industry is not alone. Intel (NASDAQ:INTC) is also dragging on the equities market today as it tells investors to expect worse-than-expected fourth-quarter results. The chipmaker now expects revenues to show a 23% drop from this time last year, to about $8.2 billion.
The news from economic-bellwether Alcoa (NYSE:AA) is just as bleak, especially if you are one of the 15,000 employees about to get a pink slip. By cutting its capital spending in half, the company’s problems are certain to spread across the broad economy.
So why I am writing about this collection of bad news? I do it in hopes that you realize the switching of our calendar did not suddenly fix the nation’s dire economic situation.
The last few trading sessions have been filled with exuberant trades. Stocks that investors dumped like mad only two weeks ago were surging in value. The turnaround allowed smart traders to bag some sizeable gains, but I caution you to do your homework before entering new positions with the Dow above 9,000.
No stimulus big enough
Even when Obama dumps a trillion dollars of taxpayer money into the economy, all will not be grand. Hundreds of thousands of consumers have recently been fired from their jobs. Consumer spending will not rebound to its historic level anytime soon. Obama may be able to stabilize the system, but a rapid rebound is nothing but a pipe dream.
The equities market will remain range bound through the next earnings season. There will be opportunities to buy on dips and sell on surges, but miss the timing and you could be hurt.
As earnings season unravels, continue to look towards the safer, consumer favorites like McDonalds (NYSE:MCD) and Wal-Mart (NYSE:WMT). Remember, one of the few bright spots today was Family Dollar (NYSE:FDO).
The discounter reported a 14% jump in quarterly earnings and boosted its fiscal-year forecast. Best of all, its shares rose by more than 10%. It is proof that there is still plenty of money to be made if you pay attention.
The next few weeks are going to be critical. Volatility will rise and earnings surprises are going to rule the market. Be prepared for the action and you will survive unscathed.
Next Article: Paying and suffering as the government gets bigger
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