I’m going to be more aggressive than usual going into Union Pacific’s (UNP) earnings report tomorrow, April 22, before the open. The market seems to be reacting to this quarter’s earnings reports by selling the stock on good news—unless earnings really bust through expectations and the company raises guidance ala Intel (INTC) and Apple (AAPL).
I expect good news from Union Pacific, quite probably even a positive earnings surprise, but I don’t think it will be enough to make the market happy. Wall Street analysts have steadily raised projections for the railroad’s quarterly official earnings—from 89 cents a share to 95 cents a share—in the last month. But unofficial expectations are even higher. Last week, for example, Citigroup raised its earnings projections to $1.02 a share. When that’s happening in published reports, it’s a good bet that the unpublished whisper number is even higher. (For more on why I think this is a sell on the good news earnings season se my post https://jubakpicks.com/2010/04/06/are-stocks-headed-for-an-earnings-season-of-selling-on-the-good-news/ )
But I’m not selling just to avoid a potential post-earnings drop in the shares.
I added Union Pacific to Jubak’s Picks as a bet on the strength of the U.S. economic recovery in general. I got a 5.3% return on that thesis from my March 19 buy to today April 21.
But now I think it’s time to go for stocks with more focused growth prospects, the kind of growth companies that are likely to grow faster than the economy in general. I wrote about some stocks that fit this bill in my post https://jubakpicks.com/2010/04/20/go-for-the-growth-and-where-to-find-it-at-a-reasonable-price/ . I’m selling Union Pacific to make some room in my portfolio for one of those more focused growth plays.
As of April 21, 2010 I’m selling Union Pacific out of Jubak’s Picks with a gain of 5.3% since I added the stock on March 19, 2010.
Full disclosure: I don’t own shares of any company mentioned in this post.
Glad I held on to this one. Took some profits today with a 41% gain.
Jim – Great Call on QCOM! (I wiish I’d taken your advice 🙁
majorski, QCOM results are an uncanny replay of last quarter. Slight earings beat and then really disappointing guidance. I didn’t expect these guys to be quite so predictable. If the pattern holds, they’ll increase guidance as the quarter goes along. You might be able to get a proftiably trade out of that–you could have last quarter. But I wonder how long the market will keep on playing. Here’s what crushed the stock:
“Qualcomm sees Q3 EPS 51c-55c vs. consensus of 55c
Sees Q3 revenue $2.5B-$2.7B vs. consensus of $2.66B.”
Curious what the view is on Guangshen Railroad (GSH), as a long-term speculative play on China, but following same thesis as UNP. Railroads should at least match domestic growth, and China’s growth 4-5x that of America’s make it seem a better long-term pick. And as a long-term pick, the hot money is flowing elsewhere in China, leaving it less overvalued than many other options. Any takers?
Railroads should do nicely since reports I have been reading indicate coal shipments are up and increasing. Utility companies drew down their stocks that are now depleted so they are buying in heavy volums because the price of coal is rising. PVR is a nice play with a nice 8% Dividend!
Off topic
That explains it…
“China Property Stocks Fall on Citigroup Forecast, Cancellations ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNIzAHMVQXvw&pos=6
Jim, Thanks for getting us out of QCOM just in time!!
Off topic…
Somebody just sold 60 Million shares of FSUMF on the Ausie exchange…
creativekev, I sold because I didn’t want to get greedy with AAPL – I was playing with ‘gambling money’ using long calls so my returns were, well, embarrassing. (But I HAD been doing my homework!) If I owned the stock I agree, I would probably sell only a portion – and looks like you got a little lift near the close of trading today… Best of luck!
Longer term, my best guess:
1) yes, the Verizon iphone should have RIMM quaking… Some are already writing their elegy.
2) But I am fairly certain that a feature update for the iPad will follow soon after any tablet computing competitors emerge. Particularly, one with a front-facing video camera presumably for conferencing. …and why not 4G? Moreover, much depends on the OS software and that will evolve and improve platform-wide allowing simultaneous applications. BTW, Apple COO Tim Cook yesterday claimed that he is ‘completely addicted’ to his iPad. …wonder what it is running? Ultimately, I think the vision for iPad insinuation into our daily lives depends on clever, integrated uses for positional awareness (eg GPS), cross-gizmo compatibilities (iphone, iPad, macbook, desktops all integrated?), and working it on ‘the cloud’. What’s planned to be ‘up there’ besides advertising and rain?
One of the twists in the smart phone that caught my attention was that the apps on iPhones bypass Google. I can’t help but to think that the potential ad revenue that Apple my be able to pick up due to this could be huge? This comment coming from the only adult in the US who doesn’t carry a cell phone.
francolargo,
Your selling AAPL today could well be a very smart move. I thought about selling some today, but decided to wait until tomorrow – I figure I’ll let it run higher if it has some steam left. Of course, it could drop tomorrow on profit-taking.
Looking out farther to rest of year: What are the catalysts for AAPL? I admit the new iPhone (whose lost prototype gave away the key features) due in summer could be one, but not significant – we already know what an iPhone is. Product refreshes on Macs and iPods are similarly minor events. The true catalyst that has the potential to shoot AAPL a lot higher would be the announcement of a launch date for a Verizon iPhone. This is what I’m holding onto some AAPL for. But in the interim it could certainly pull back, as you said.
Never bought this one. Instead, bought and sold CNI. Did well.
Jim:
I’ll second the request on AAPL. I have become a very loyal customer of Apple over the past year. Bought some when it hit $200 and thought it was high. I simply had to own some stock in a company who’s products and service I believe in.
On topic: I bought CNI somewhat before your buy recommendation on UNP, so I passed on the UNP. I am not as optimistic as you on the recovery so I’m going to keep CNI. I think countries that don’t have the debt problems like the US and some natural resources that they can sell are good places to put some money. Energy pricies should keep rising. I like railroads for those reasons and CNI, in particular.
As a sympathetic alternate viewpoint…
I appreciate the reasons for this sale, but I find myself asking, “What will be different this week for UNP contrasting it with last week for CSX?” If loadings are really up, why shouldn’t UNP be able to match their previous quarter as did CSX? That quarter UNP earned $1.08, which is still above the whispers. There may be something out there but I haven’t seen it. I agree that it’s fairly expensive stock for it’s growth, which is also why I don’t expect a lot of hot money ‘riding the train’.
creativekev – I sold my AAPL today and will look to go long again on any significant market pullback. I think this next quarter rides on two things:
a) continued strong iPhone sales – when will the new iPhone be released – June or July? After the ‘lost phone fiasco’, Apple better rush that new product to market because the old one suddenly looks so ‘been there’…
b) How will the 3G iPad sell once it is available? In yesterday’s conference call the Apple COO said that iPad pricing was ‘very aggressive’ by Apple’s standards, so the sales numbers will need a little perspective there. But are they popular already? They’re contributing to significant wifi network issues and reduced bandwidth on college campuses. Looking ahead, I’m glad I’m not an AT&T 3G customer!
Jim,
Somewhat off-topic but you alluded to blowout earnings from AAPL. You’ve written about AAPL in the past. Do you have any plans to revisit your thinking about AAPL? It’d be great to read your take on this popular stock.