The Week Ahead: Apple, Netflix and more
Posted
Jul 18 2008, 08:00 PM
by
Andrew Horowitz
Rating:
We are the heart of earnings season and this week's lineup is massive. As I write this, I'm looking at over 25 pages of earnings estimates on hundreds of companies presenting results in one of the toughest quarters we've seen in decades. It appears that many of the companies that have already reported have been doing a fine job of beating lowered expectations and providing a nice balance to a market that has been under siege.
This week will be no different in terms of volatility. But those companies which have been savvy enough to project estimates that they figure they can beat will have an easy time pleasing investors. Those that don't will pay a heavy price into the next cycle. Let's face it, it's a game. If played well it can provide wondrous rewards.
Here are a few companies that you may want to pay attention to. Remember, this all is predicated on oil behaving and limited announcements of any kind from the financial sector.
Monday, July 21
Ametek Tech manufacturers test/calibration instruments, air – moving and electrical motors, and electromechanical connectors. You may have never heard of this company but it has over a $5 billion market capitalization and a 25% annual earnings per share growth rate. The number of institutional investors has grown over the past several years and has provided investors with rock steady earnings. Analysts are estimating earnings of $.57 for the quarter, $.03 ahead of the same period last year. What's more, this position has recently been added to The Disciplined Investor's Managed Growth Portfolio based on the QuantaFundaTechna process. If you are in the market for a well-diversified company that provides parts for the world’s machinery, this may be a good stock to look into.
After the close, the much-anticipated earnings from Apple will hit the wires and shares are expected to be on the move. Now that the iPhone 3G has been released on a worldwide basis, there is a considerable amount of expectations that have been building. Shares have been holding up nicely through this market collapse but have been recently fading. By most accounts, laptop sales have been enormous while there is the continuing question of whether or not the iPhone is cannibalizing iPod sales. Even so, the worldwide appetite for Apple products is continuing to grow as can be seen by the expected revenue of $7.3 billion for the period. Analysts are looking for $1.08 for the quarter, which is an 18% gain over the same period last year. If you are a holder of shares, you may want to utilize risk management into the earnings with covered calls as the premiums are significant.
Tuesday, July 22
CME Group is the holding company for the Chicago Mercantile Exchange Inc., Board of Trade Inc. (CBOT). This is where a good amount of trading takes place for futures and options on futures based interest rates, equity indexes, foreign exchange, agricultural commodities and alternative investments, such as weather and real estate. You would think that this company has to be doing well with the blistering pace of commodities these days. Yet, shares have been heading south for some time. Perhaps it is because investors no longer need to trade futures as ETFs have been able to provide a similar investment experience without the hassle. Or, maybe it is because the Intercontinental Exchange has been the preferred trading choice. The estimates are for $3.86 per share. If the Enron Loophole is fully closed, will that preference shift trading back to CME ?
You have to feel a touch of motion sickness thinking about the airline industry these days. Far from flying high on a cloudless day, shares have crashed and burned for most companies within this sector. The only savior will be for oil prices to come down to levels that will provide an opportunity to regain control of the profit margins. JetBlue will be reporting and is expected to show a loss of $.07. On top of that, UAL Corp has analysts predicting a loss of $2.065 per share for the latest period.
Do you remember when VMWare imploded a few months ago? It was almost comical to watch and read comments from analysts saying that they were dumbfounded as to how shares could be falling. Of course there was that well known and obvious fact that last December, Microsoft announced that they would supply a competing product on their next server edition…for FREE! Recently, another round of selling was seen when the company reduced their outlook. The earnings are estimated to come in at $.23 for this period from $459 million of revenue. Unless VMW comes out with a substantive product upgrade and a plan to increase margins, it will be difficult to see how they will continue to compete effectively. (See A Wallstreet Chainsaw Massacre)
Wednesday, July 23
Going, Going, Gone? Sallie Mae is feeling the full force of the financial nightmare on Wall Street. Earnings are expected to be $.40 per share, which is somewhat hard to believe. (see Markman Commentary – Credit Crisis Over, not likely) The shares have tumbled as investors worry that the long-term loans which have been a ball-and-chain to many graduates will continue to show increased delinquency and default levels. Now that the FED seems keen on saving cousins Freddy and Fannie, is Sally going to be left out or adopted as well? Whatever is revealed today, it is a good chance that the problems for this company are far from over.
How about the food at Chipotle Mexican Grill? Are you as much of a fan of their menu as I am? YUM ! But the recent share action isn’t so tasty. Back in April, hedge fund manager, Zach Scheidt called it perfectly. He looked at the increasing costs associated with the food that Chipotle served and provided great insight into a short position that paid off well. Now, shares are starting to bounce on the recent market uptick and estimates for this quarter are coming in close to $.75 per share. That is 22% growth as compared to last year, same period. So what was the problem? It seems simply valuations got stretched and investors gladly adjusted it back to a normal level. Food pricing will surely play an important role here and if we continue to see the cost of foods stabilize or drop, CMG may be in play again.
Thursday, July 24
Wynn Resorts is reporting after the close. The exciting part of this story is the booming growth in Macau. I just happened to be there last week and was amazed, not only by the gorgeous casinos and the massive amount of people playing Baccarat, but by the incredible amount of ongoing construction. Also, coming soon to this small island are several other hotel chains looking to provide a service for the gambling frenzied. Is appears that the Asian continent may be blinded to any recession that we may be seeing over here. It was an awesome sight to see every casino jam-packed with players (all smoking at least one cigarette), with some tables lined up 2-3 deep. Analyst estimates are coming in at $.90 per share and if you think that gambling is a relatively safe bet, this and Las Vegas Sands deserves a second look. Also, if you take a notice, LVS has been pummeled as investors are spooked by economic and financial issues. If Wynn shows a good quarter, LVS will benefit as a short squeeze should drive share prices higher. Note to self: This is clearly a gamble…
There has been a good deal of concern lately as to how Amazon is going to manage with all of the economic trouble that is being reported. Some believe that discount retailers, online and off, will provide a great opportunity while others believe that any slowdown in spending will spell trouble. Realize that no longer is Amazon only a seller of books. With their 1-click technology you can shop for just about anything, anytime. Estimates by analysts are showing that Amazon will come in much stronger than the year ago period. In fact, 25% higher at $.26 per share is what they are collectively estimating. Shares have been beaten up lately, but if any recovery is at hand – a BIG if – this could be a good time to begin looking at this fine company.
Friday, July 25
Netflix has a great selection, terrific service and has been written about within the TopStocks pages over and over. The interesting issue at hand is that competition from all sides is providing major angst to shareholders. While it is true that shares are up slightly this year, the April 22 earnings announcement disappointed and shares took a nasty tumble. If Apple and Amazon are competing, what does this say for outlook? Neither of these two retail monsters should have any trouble taking market share and Netflix is somewhat of a one-trick-pony. Here is more to chew on; growth of earnings has been stupendous, institutional ownership is rising, and the weekly chart looks poised to pop if the earnings do not disappoint too drastically. Add that to the fact that they have recently entered into an agreement with Microsoft to stream movies and TV episodes through the Xbox360 gaming system. Hmmm, maybe that is a pony of a different color! Other than that, keep an eye out for the next round of MSN Money’s Strategy Lab as I will be participating. Should be an interesting 6 months!
Related reading:
3G iPhone rollout suffering glitches
Apple's grandiose plans for the iPhone
Amazon opens new online video store
Andrew Horowitz is a money manager and the founder of Horowitz & Company. He is also the author of the bestselling book, The Disciplined Investor . Check out his latest investment idea or listen in as he hosts, The Disciplined Investor Podcast.
Disclosure: Horowitz & Company clients may hold LONG position of securities mentioned as of the publish date.
