Year to date, all three major market indices — the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite Index — are all up big. The NASDAQ Composite Index is up over 30% on that basis, making it the clear winner. We are slated to get several earnings reports from some high-flying NASDAQ stocks — Apple, Facebook, LinkedIn and Starbucks and those results could either lead to more gains for the index, fuel profit taking or result in a pullback. With more than 1,200 companies issuing their quarterly results this week, there will be no shortage of earnings reports in the coming five days, but its the results and outlook from these four companies in particular that will weigh heavy on the stock market.
Even ahead of this week, investors are eying the big run in the market thus far in 2013 and some are building cash. Case in point is Wally Weitz, whose $1.1 billion Weitz Value Fund (WVALX) had 29% of assets in cash and Treasury bills as of September 30th. While you may be scratching your head on this, remember Weitz is the mutual fund manager who beat 90% of rivals in the past five years by buying stocks he deemed cheap. In an article that ran yesterday on InvestmentNews.com, Weitz says bargains are so scarce these days that he’s letting his cash holdings swell.
From my perspective, investors should celebrate ringing the register and booking profits. The issue many have is selling stocks that have moved higher, and over the last several months, Apple, Facebook, LinkedIn and Starbucks are great examples. Year to date, LinkedIn shares are up more than 100% while those for Facebook and Starbucks are up 95% and 49%, respectively, on the same basis. Widely held Apple shares are down just over 1% on a year to date basis, but are up are up more than 36% off their 52-week low of $385.10. Not only are those results head and shoulders above the NASDAQ Composite Index, they are significantly ahead of the Technology SPDR ETF (XLK), which is only up 16.1% year to date.
As we get ready to digest September quarter earnings from this four companies, the question on many minds will no doubt be — “Should I sell my stake?”
My response is why look at the question in black and white? What I mean by that is why sell all of it or hold all of it? If you are up big, it makes sense to trim back your position, which is the strategy I’ve recommended to subscribers of my investment newsletter PowerTrend Profits. We’ve booked some great wins and deployed those gains into other positions (nothing like putting those profits to work for ourselves). We’ve also used the flip side — buying our positions in increments in order to improve our cost basis as we scale our position size. When investing, be it in stocks or ETFs, it’s important to be a disciplined buyer and a disciplined seller.
That also means knowing what consensus expectations are ahead of a company reporting its quarterly results – not only for the quarter they are reporting, but also for the current one. Knowing what’s expected and measuring actual results vs. those forecasts gives you an idea of whether to be buying, selling or trimming.
Here’s the consensus view for what’s ahead this week from Apple, Facebook, LinkedIn and Starbucks.
Apple. The PC, smartphone and tablet manufacturer will report its September quarter results after the close Monday night (October 28). Consensus expectations call for September quarter earnings of $7.93 per share on revenues of $36.8 billion. For the December quarter, the Street consensus for Apple earnings is $13.86 per share on revenues of $55.65 billion. Late in the September quarter, Apple started shipping its new iPhone 5s and iPhone 5c devices, with tiered launches. That combined with the November launch of its new iPad Air and iPad min with retina display in many ways make the December guidance more important than the September quarter results in terms of revenue and margins — at least to me. The degree of sequential volume improvements from the September quarter will make or break expectations for key suppliers like Qualcomm, Broadcom, Skyworks Solutions (SWKS) and others.
Linkedin. The professional network on the Internet will report its September quarter results this Tuesday (October 29). Consensus expectations call for September quarter earnings of $0.32 per share on revenues of $385.4 million. For the December quarter, the Street consensus is earnings of $0.40 per share on revenues of $438 million. Much like Facebook the number of accounts will be closely watched, but in this case it will be premium accounts as well as corporate ones. Advertising revenue for both the Internet platform as well as mobile will be in focus. In addition, LinkedIn has deployed several new apps of late. Commentary on that as well as how LinkedIn is working with corporate customers will dictate how well Wall Street likes what it hears from the company.
Facebook. The social networking giant will report its September quarter results this Wednesday (October 30). Consensus expectations call for September quarter earnings of $0.19 per share on revenues of $1.9 billion. For the December quarter, the Street consensus is earnings of $0.22 per share on revenues of $2.22 billion. Key figures to watch will be the number of active account users and advertising revenue, particularly for mobile, given increasing shift by users and consumers to mobile platforms from desktop ones.
Starbucks. This global roaster, marketer and retailer of coffee will report its September quarter results this Thursday (October 31). Consensus expectations call for September quarter earnings of $0.60 per share on revenues of $3.81 billion . For the December quarter, the Street consensus is earnings of $0.69 on revenues of $4.27 billion. Starbucks has a number of initiatives underway — Evolution Fresh and La Boulange — and more coming, including Teavana. Progress on those initiative as well as data on average ticket trends and continued footprint expansion will be under the microscope. Margins and earnings should benefit from the year over year drop in coffee prices.
Disclosure. Subscribers to PowerTrend Profits were advised to buy shares of Facebook at $24.55 on July 3, 2013 and shares of Starbucks at an average price of $45.87 starting on August 13, 2012.
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