{"id":1862,"date":"2010-10-13T10:09:04","date_gmt":"2010-10-13T14:09:04","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=1862"},"modified":"2018-08-17T14:09:30","modified_gmt":"2018-08-17T18:09:30","slug":"brief-guide-for-the-upcoming-earnings-season","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/10\/13\/brief-guide-for-the-upcoming-earnings-season\/","title":{"rendered":"Brief guide for the upcoming earnings season"},"content":{"rendered":"

The third quarter officially ended September 30th, meaning that earnings season is about to kick off in full stride.\u00a0 Earnings season is when companies report their financial performance for the quarter just ended and the year-to-date, as well as provide guidance for upcoming quarters and next year.<\/span><\/p>\n

You might expect then that earnings season is highly anticipated and celebrated.\u00a0 To the contrary, earnings season is that time dreaded by all analysts and portfolio managers as their days become filled with boring-assed conference call after boring-assed conference call.\u00a0 Typically earnings season can be compared with combat.\u00a0 Extended moments of unbelievable boredom punctuated with rare moments of sheer terror.\u00a0 So it might be helpful to have a little bit of an idea as to what to expect and to pay attention during this time.<\/span><\/p>\n

Things to watch:<\/strong><\/span><\/p>\n

    \n
  1. Growth opportunities.\u00a0 Companies usually begin strategic planning for the upcoming year about now.\u00a0 Therefore, many businesses will be talking about their growth opportunities.\u00a0 And here, I mean revenue growth.\u00a0 Sales have been flat to only slightly up for almost all U.S. businesses for a year and a half.\u00a0 Almost all of the record profit growth has been coming from expense savings wrought from squeezing suppliers, real estate owners, and by firing employees.\u00a0 Sectors to watch for growth opportunities are:<\/span>\n
      \n
    • Technology.\u00a0 Here I am talking about the likes of Apple, Sony, Hewlett-Packard, Dell, Intel and Microsoft.\u00a0 While there are many thousands of technology companies, these are all bellwethers whose growth presages economic health or catastrophe.\u00a0 It will be interesting to see from where new sales are coming.\u00a0 From the U.S. or overseas?\u00a0 From consumers or businesses?\u00a0 From new sources or old?\u00a0 Prediction:<\/strong> Business orders will lead the way with only slight increases in purchases on the part of consumers.<\/span><\/li>\n
    • Retail.\u00a0 I have almost never been an investor in retail businesses.\u00a0 It all boils down to one word: fierce competition.\u00a0 Okay, that’s two words, but you get the point.\u00a0 No retailer has a monopoly on its goods as substitutes abound.\u00a0 But the reason I am saying to pay attention to retailers is because consumers are the customers of retail businesses.\u00a0 So revenue and profit reports from retailers will be an indication as to the mind of the consumer.\u00a0 What will be important to pay attention to is what sorts of discounts retailers are having to offer in order to induce that marginal dollar consumer spend.\u00a0 Prediction:<\/strong> It is my feeling that consumers are still not opening their wallets.\u00a0 Therefore, growth opportunities are likely to be tepid for retailers and won after offering severely reduced prices.<\/span><\/li>\n
    • Construction.\u00a0 We all know that the Great Recession was precipitated by an overheated real estate market (thanks Federal Reserve).\u00a0 But construction still is gasping for air as it struggles to shore up its finances, work through excess real estate inventory, and to find ways to induce the purchase of new properties.\u00a0 Ugh!\u00a0 If construction, both commercial and residential, is recovering and seeing growth of its topline then it will be a strong indication that the economy is stable through and through.\u00a0 Prediction:<\/strong> Construction will continue to lag the overall economy.\u00a0 I expect there to be flat to only slightly up revenue growth from this sector.<\/span><\/li>\n
    • Financial institutions.\u00a0 For the same reasons stated above in construction, banking institutions have remained mired.\u00a0 Yes, they have reported record profits for the last year, however those profits are coming from places like investment banking.\u00a0 What I would like to see are growth opportunities sown from new mortgages and from consumer deposits.\u00a0 Prediction:<\/strong> The financial institutions will post very robust profits as market trading has been fast and furious.\u00a0 However, the back bone of all financial businesses are retail deposits.<\/span><\/li>\n<\/ul>\n<\/li>\n
    • Jobs.\u00a0 If growth opportunities are improving it will mean that either existing workers are going to be stretched more thinly or that businesses are finally going to have to hire new employees.\u00a0 Typically new hiring is not announced during earnings season.\u00a0 But it can be inferred from discussions of candy mountain-like revenue growth.<\/span><\/li>\n
    • Weak spots.\u00a0 It is no secret that the worldwide economy is still very, very hung over from the Great Recession (n\u00e8 the Great Debt Punch Bowl).\u00a0 There remain many weak spots in the economy and those businesses are hampering the recovery.\u00a0 I will be tracking, and you should track as well, those economic sectors that universally report having problems.\u00a0 From that information much about the economy can be inferred.\u00a0 Additionally, the natural cause and effect outcome from these weak sectors can be assumed, too.<\/span><\/li>\n
    • Surprises.\u00a0 Most earnings seasons are punctuated by surprises.\u00a0 That is, businesses that either over or underperform relative to expecations.\u00a0 What is interesting is the general tenor.\u00a0 Are the majority of reporting companies surprising on the upside, or the downside?\u00a0 What is the financial market response to these surprises?\u00a0 If the markets “vote” in alignment with the surprises then it means that most market participants were genuinely surprised.\u00a0 That means that as an\u00a0investor there is a real opportunity to\u00a0make money.\u00a0 Either you are already invested (remember my admonitions for the past six months) and will benefit from a rise, or you have avoided some of the business sectors I have lambasted and you will avoid a declining market.\u00a0 If, on the other hand, the financial market response is tepid, then it is a sign that investors have been expecting such results.\u00a0 Prediction:<\/strong> Most businesses are likely to report stronger results and I don’t feel that most investors have factored this into their calculations.\u00a0 Thus, I think that we are likely to see a stock market performance that is robust.\u00a0 If the lift in share prices is high enough then the retail investor (that is, the little guy or gal) is likely to start deploying some of the cash that has sat on the sidelines for the last couple of years.<\/span><\/li>\n
    • Elections.\u00a0 The mid-term elections are less than a month away and it is very likely that the Republicans and Tea Partiers are likely to end Democratic dominance of Congress.\u00a0 Like it or not, investors typically prefer Republicans to Democrats and so the financial markets are likely to cheer such a result.\u00a0 I am no political prognosticator so will not make any predictions as to what the non-Democrat controlled Congress will do with its power.\u00a0 However, I will closely watch any policy rumblings coming out of Washington and do my best to assess the likely affect on your portfolio.<\/span><\/li>\n<\/ol>\n

      In conclusion, I\u00a0intuit a strong earnings season with better than expected revenue growth.\u00a0 That will lead to profits\/earnings beating expectations and to a surprising degree.\u00a0 That, in turn, will lead to a robust stock market performance that will likely lead to market prices being higher at the end of the November (roughly the end of earnings season)\u00a0than they are now.<\/span><\/p>\n

      Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

      The third quarter officially ended September 30th, meaning that earnings season is about to kick off in full stride.\u00a0 Earnings season is when companies report their financial performance for the quarter just ended and the year-to-date, as well as provide guidance for upcoming quarters and next year. You might expect then that earnings season is […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-1862","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/1862","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=1862"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/1862\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=1862"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=1862"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=1862"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}