Action, not reaction.
As predicted, the arrival of a fresh round of quarterly earnings reports sparked stock market action. What was unusual were the manic investor reactions, jumping from buying to selling like beachgoers on the Gulf dodging oil spots. Testing times over the past two years in the stock markets have left investor nerves so frayed that they are reacting to news headlines with even less forethought than usual.
Overall, the results are favorable. Comparisons with the dreadful numbers from a year ago are easy and commentators are trying for clues from hints or forecasts of the next quarters. Intel (INTC-$21) was one of the first to report. Its results were excellent and its stock price moved up briefly before attention deficits disorders kicked in on the investing mob. These results should not be forgotten and Intel deserves fresh consideration for almost any investor on its news.
Intel’s quarterly earnings of .52, well above Wall Street forecasts of .42, and a 34% increase in sales inspired its CEO to declare the June quarter the best in the company’s 42-year history. Even AMD, its pet sparring partner, managed a good quarter, proof that the PC and server markets are strong. Fretting about overseas markets by the fearful then choked off Intel’s rally and the stock, one of my ten largest positions, remains a strong buy. Intel yields 3% and has increased its dividend for 6 straight years.
The applause died away for Intel, then IBM (IBM-$121) and Goldman Sachs both announced earnings ahead of forecasts on sales that fell a bit short of expectations, again triggering nervous selling. Goldman bounced back but IBM languished. IBM is also a member of my top ten and remains a buy. It raised its earnings guidance again and will probably bump its dividend before too long. IBM yields almost 2%, it has raised its dividend for 14 straight years and its valuation is unusually modest.
Valuations for the overall market are quite restrained, a normal condition following an economic slowdown and one that often is a prelude to a market surge. None of this helped Google (GOOG-$477) when its earnings report showed very strong global growth but sales disappointed analysts although a closer look shows that advertising revenues for Google are surging. I give it a 12-month price target of $650 to $700.
All these maneuvers set the stage for the quarterly announcement by Apple (AAPL-$254), the world’s most successful technology company. Net income rose 78% to $3.25 billion on a 61% sales increase to $15.7 billion, a record quarter, even beating its best holiday seasons. It sold 8.4 million iPhones, including 1.7 million new iPhone 4’s, which were only released three days before the quarter ended. It sold 3.3 million iPad’s, which were introduced during the quarter. My 12-month price target of $350 looks solid.
Outside the recession-resistant technology sector, the economic recovery continues to sputter along. More government stimulus spending would help the jobless but the political climate seems too hostile for such measures. The result will be continuing low inflation, possibly even threatening deflation, and a continuing low interest rate environment.
That will favor large, well-financed companies. The tech sector is almost booming with sales to businesses boosting productivity. Cisco (CSCO-$23) will continue to dominate networking and Oracle (ORCL-$24) has a secure and expanding share of the global business software market. EMC (EMC-$19) is similarly well positioned in data storage and I am adding it to our buy list.
While prevailing anxieties and political uncertainties will cause continuing volatility, the stocks recommended here are all reasonably priced. Owing them will be more profitable than trying to outguess investor reactions.