Intel surprises on earnings but I think it’s already in the stock price

It was as much of a surprise as Apple’s (AAPL) earnings miss. On October 18, after the New York market closed, Intel announced third quarter earnings of 69 cents a share, 6 cents a share above the Wall Street consensus.

And the biggest contributor to Intel’s surprise was its PC chip group, which contributed $4 billion in pre-tax profit. The company’s unit focused on servers and cloud computing added $1.2 billion in pre-tax profits. And Intel’s chip group that produces low-power chips for tablets, embedded processors, and smart phones turned in a $140 million loss.

Revenue climbed 28% from the third quarter of 2010 to $14.2 billion. Analysts had been looking for revenue of $14.23 billion.

The strong performance in the data center and cloud-computing segment was expected. Growth rates in both markets are strong and Intel has aggressively pushed new generations of server-chips in the market. Its new server chip, the Xeon E5, is due to go on sale in early 2012.

But Wall Street analysts had projected much less revenue and much lower earnings growth for the PC chip unit as PC growth slowed under the dual pressure of a slowing economy that has kept consumer sales down and on a shift from PCs and laptops to tablets and smart phones.

That shift wasn’t in evidence this quarter. Read more

Update Corning (GLW)

A company gets my attention when it raises its dividend 50% as Corning (GLW) did on October 6. Especially when it combines that dividend increase with news of a $1.5 billion stock buyback. And even more especially when it adds in extremely clear guidance for investors to expect a 30% drop in sequential earnings per share because of a slowdown in its industry and some loss of market share. (Corning is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ )

I think the message from Corning’s management is extremely clear. They think that their company has a great long-term future (hence the dividend increase), that it seriously undervalued (hence the stock buyback), but that the near term is likely to be very rough (hence the negative guidance.)

Let’s take those three points one at a time, last-to-first, okay? Read more

Banks down, techs up today equals good news for earnings season that begins next week

Today the U.S. stock market is paying attention to sectors. Technology is up. Financials are down. I think that’s good news for investors are we head into earnings season with Alcoa (AA) kicking off third quarter reports after the close on Tuesday, October 11.

Today, as of 2:30 p.m. New York time the Technology Select Sector SPDR (XLK) is up 1.9%. That performance is a major reason that the technology heavy NASDAQ Composite, up 1.69%, is out performing the Standard & Poor’s 500 and the Dow Jones Industrial Average today.

The Financial Select Sector SPDR (XLF), on the other hand, is headed in the other direction, down 0.2% today.

So why is today’s performance by these two sectors good news? Because it shows that investors might be able to push fear to the side for long enough to pay attention to earnings for the next few weeks. I expect financial stocks to deliver disappointing earnings for the third quarter and for technology stocks to surprise to the upside.

For that to turn into actual movements in stock prices, though, investors have to actually pay attention to the results.

Big banks are looking at hits to earnings coming at them from every direction. Read more

Let’s say this rally runs for a while—like maybe right into earnings season. What about a good buy or two? (I wouldn’t recommend getting giddy here, though. Remember that the August 31 high on the Standard & Poor’s 500 is 1219 and the July high is 1344. This market is in a trading range in my opinion until it demonstrates otherwise, though there is a question of where the top is, 1219 or 1344. The bottom seems pretty clear at 1120.)

You can go for stocks in the crushed commodities sector such as Freeport McMoRan Copper & Gold (FCX), which I recommended on September 23 http://jubakpicks.com/2011/09/26/update-freeport-mcmoran-copper-gold-fcx-3/ .

You can add shares of crushed industrials such as Johnson Controls (JCI). (This stock, like Freeport McMoRan is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

Both stocks are obviously very responsive to news that suggests the euro debt crisis might not take down the global economy. Freeport McMoRan was up 5.9% yesterday morning and Johnson Controls 6.2% in the big “euro-crisis-is-over” rally.

But both stocks are also still way—and, I mean, way—off their 52-week highs. Freeport McMoRan is trading at $33.31 today when its 52-week high is $60.75. Johnson Controls is at $27.56 when its 52-week high is $42.92.

But I’d like to suggest a third category of shares that’s worth a look especially if this rally extends until the start of earnings season on October 11. (Alcoa (AA) reports that day and the company’s earnings announcement marks the unofficial start of earnings season.)

And that’s crushed technology stocks. Stocks in the sector dropped along with everything else in the recent market plunge. Third and fourth quarter earnings are historically the strongest for technology stocks. And at recent valuations, I think earnings season could give them a lot of momentum, making them a good alternative for investors who might be overweight commodities or industries.

What technology stocks? Besides those in my September 20 post http://jubakpicks.com/2011/09/20/the-neglected-technology-sector-looks-like-a-good-candidate-for-an-end-of-the-year-rally/ take a look at F5 Networks (FFIV). Read more

As technology rallies go, the rally of the last week and month is suggestive but not yet totally convincing.

For the week ended on September 16, a number of stocks in the sector such as Nvidia (NVDA), Intel (INTC), Oracle (ORCL) and Marvell Technology Group (MRVL) convincingly beat the 5.42% gain for the Standard & Poor’s 500 Stock Index. Nvidia was up 11.38%, Intel up 11.52%, Oracle 12.42%, and Marvell 10.81%, according to Morningstar.com.

That’s not especially surprising. High beta stocks, like most technology stocks, should rise faster than the general market when the broad market is climbing. Nvidia, for example, has a beta of 1.61, meaning that it is 1.61 times as volatile as the broad market. (By definition the broad market of stocks has a beta of 1.) Add in the way that technology stocks have been pounded in 2011–even after this rally Marvell Technology is down 18.22% for 2011 and Oracle is down 6.07%–and you’ve got a recipe for a tasty bounce.

But the technology rally is suggestive since it’s a reminder of the coming seasonal sweet spot for technology shares. Technology companies see a huge positive swing in revenue every year in the third and fourth quarters. I suspect we’re going to get some kind of November/December rally in stocks this year once the global economy (and especially the EuroZone)  has managed to survive September and October’s very rough spot without falling apart. The historical seasonal pattern for technology shares—added to the underperformance of technology stocks in 2011—will push the sector to the front in any rally. The sector’s performance could actually be quite explosive since the sector is under owned—for many investors technology shares have fallen off the radar screen—and any rally strong enough to generate “believers” will have a very strong bank wagon effect.

In most years sometime around October 20 or so is a good time for checking the technology weighting in your portfolio. This year last week’s rally says that you ought to start that checkup—and start adding to your technology weighting–a little early.

A technology rally would lift all boats but not equally. Microsoft (MSFT) was up only 5.36% last week, actually trailing the S&P 500 and Cisco Systems (CSCO) was up just 5.06%. On the other hand, Broadcom (BRCM) rose 6.67% and EMC (EMC) 6.9%, both more than the S&P 500.

I think this week’s rally in technology shares—even if it doesn’t hold long enough to roll right into an end-of-the year rally–provides a pretty good template for where to put your money this year. (Just to be completely clear, I’m not saying that the U.S. stock market is about to launch another big nine month rally or that any end of the year rally in U.S. stocks is sustainable. I think we’re all too aware of the big problems that are still lurking out there. All I’m looking for is a relief rally if, as I continue to think likely, European governments get their act together enough to kick the Greek and Italian debt crisis down the road into 2012 or 2013. In other words, don’t fall in love with anything you might buy now and look to take profits when the news flow of not-quite-so-bad-as-expected news starts to diminish in January or so.

Okay what did last week’s technology rally tell us about where to place our technology bets for the last quarter of 2011? Read more