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Monday, April 6, 2009

10 Top Earners in each Segment will Fuel the Rally

As we enter the season when companies report their Q1 earnings, many assume that earnings for the first quarter of 2009 will be disappointing. But the reality is that currently the market is looking for news that is "not as bad as expected."

Earnings from these ten companies are likely to give a glimpse into the health of their segments. If their individual earnings are reported in line or better than lowered consensus estimates, their good fortune is likely to sustain the market's upward momentum -- particularly in their respective groups.

Retail - Walmart (WMT)
As we've seen, Walmart is leading the retail sector to recovery. Their sales have given no sign of slowing. As the largest retailer in the world, their should be no gloom and doom on the street if Walmart exceeds expectations again for the quarter. Walmart will announce their preliminary March sales this Thursday and their Q1 earnings on May 14th.

Banking - Citigroup (C)
Many believe that Citigroup is still a shakey firm -- that they still have not revealed all the toxicity on their books. But Citi’s CEO said last month that business was profitable in Jan and Feb. It is unlikely that March business was any different. If Citi releases a profitable first quarter it will provide a signficant boost to the financial group and the market in general.

Auto - Ford (F)
Despite the declines from a year ago, GM, Ford, Chrysler and Toyota all posted double-digit improvements from February. In Jan industrywide U.S. sales hit their lowest point in more than 27 years. But if conditions improve by another double digit bump in April, that could bode well for earnings prospects (less loss than thought) in the whole sector. Ford in particular is the only major U.S. carmaker that is coping without U.S. taxpayer money. Jim Farley, Ford's group vice president for marketing said last week, "We're getting more traffic. We don't have to close everyone with incentives." Ford execs say that the company has been restructuring over last three years and they are in a different position than others. If Ford, posts better than expected results, confidence that positive business restructuring is indeed possible in this troubled segment just may lift investor spirits.

Software - Microsoft (MSFT)
Microsoft is exposed to the tech industry probably more than any other single company. Since Microsoft has already given negative guidance for the year, an increase in any lines of its business -- PCs, servers, handsets, or applications may finally prove that this industry is not dead after-all.

Chips and Computers - Intel (INTC)
It is likely that the industry will look closely at what Intel sees as results for later in the year. Although profits were down during Q4, the street was more enamored by Intel statements of a firm second half. Should those management sentiments persist, look for computer stocks to continue to move higher.

Advertising - Google (GOOG)
Google's results are likely a perfect indicator of whether companies have decided to continue to advertise. If Google’s revenues and earnings are up, it likely means that companies aren't as bad off as the perma-bears would have us believe.

Internet Hardware - Cisco (CSCO)
Again Cisco's earnings will not be as important as its management's discussions on its views of the future. By earnings call time at Cisco, they will likely have a fairly decent view on how the broadband stimulus provisions will effect their ongoing business in the next 2-3 years. The discussions on massive new Internet build-outs will likely be quite positive and boost the internet hardware group.

Basic Materials - Dow Chemical (DOW)
Dow Chemical (DOW) because of its tremendous use of a wide variety of commodities, Dow will likely be a great barameter of general industry activity. If Dow’s revenues are above expectations, industrial activity is probably not as dire as many had predicted for Q1.

Telecom - Verizon (VZ)
Although the Q4 climate was obviously tough, "Verizon has shown that it is able to compete effectively in this economic environment," said Chairman and CEO Ivan Seidenberg. "We grew profits and maintained strong cash flows throughout 2008. In the fourth quarter, we continued to produce top-line growth, fueled by strong sales volumes for broadband, wireless and strategic business services." If Verizon continues this type of execution it Q1 2009, it will no doubt lead the telecom sector higher.

Online Sales - Amazon (AMZN)
Last quarter Amazon earned $225 million on revenue of $6.7 billion, up 18 percent from a year ago. Those results easily topped Wall Street estimates. Analysts had expected Amazon to outperform, but the magnitude is impressive. As more and more retail transactions move to an online modality, Amazon's success will nullify some of the shakeout of brick and mortor and high end retail softness in Q1.

It will be a quite interesting 6-8 weeks ahead. The swift and steep bull move is likely to continue.

1 comment:

  1. A much overlooked yet major cause of the Stock Market melt down was excessive overvaluation.Today, valuations are lower than they have been for decades.For example Microsoft at a PE ratio of 10.5 or Walmart at a PE of 15 is opportunity knocking loudly.The recession will end as all do,earnings growth from our best companies will resume,and future returns(next 5 yrs. or more) will be higher than otherwise.The true drivers of return are earnings growth bought at sound or low valuations.The lower the valuation the hiher the upside-swift and steep bull may prove to be a gross understatement.


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