Category Archives: earnings conference calls

Warren Buffett’s latest portfolio moves: the 4Q14 13-f

February 18, 2015 By in Constructing a Portfolio, earnings conference calls, Portfolio management, securities markets, Securities regulation, stock market Tags: , , , , , , 4 Comments

Investment managers subject to SEC regulation (meaning basically everyone other than hedge funds) must file a quarterly report with the agency detailing significant changes in their portfolios.  It’s called a 13-f.  Today Berkshire Hathaway filed its 13-f for 4Q14.  I can’t find it yet on the Edgar website, but there has been plenty of media coverage.

Mr. Buffett has built up his media and industrial holdings, as well as adding to his IBM.  The more interesting aspect of the report is that it shows him selling off major energy holdings–ExxonMobil, which he had acquired about two years ago, and ConocoPhillips, which he had been selling for some time.  Neither has worked out well.

There’s also a smaller sale of shares in oilfield services firm National Oilwell Varco and a buy of tar sands miner Suncor–both presumably moves made by one of the two prospective heirs working as portfolio managers at the firm (whose portfolios are much smaller than Buffett’s.  Buffett has told investors to figure smaller buys and sells are theirs.)

Three observations:

–the Buffett moves would have been exciting–maybe even daring–in 1980.  Today, they seem more like changing exhibits in a museum.

–if I were interested in Energy and thought it more likely that oil prices would rise than fall, I’d be selling XOM, too.  After all, it’s one of the lowest beta (that is, least sensitive to oil price changes) members of the sector.

But I’d be buying shale oil and tar sands companies that have solid operations and that have been trampled on Wall Street in the rush to the door of the past half-year or so.  That doesn’t appear to be Mr. Buffett’s strategy, however.  His idea seems to be to cut his losses and shift to areas like Consumer discretionary. (A more aggressive stance would be to increase energy holdings by buying the high beta stocks now, with the intention of paring back later by selling things like XOM as prices begin to rise.)  NOTE:  I’m not recommending that anyone actually do this stuff.  I’m just commenting on what the holdings changes imply about what Mr. Buffett’s strategy must be.

–early in my career, I interviewed for a job (which I didn’t get) with a CIO who was building a research department for a new venture.  I was a candidate because I was, at the time, an expert on natural resources.   The CIO said the thought there were three key positions any research department must fill:  technology, finance and natural resources.  All require specialized knowledge.    I’d toss healthcare into the ring, as well.  I’d also observe that stock performance in these more technical areas is influenced much less by the companies’ financial statements than is the case with standard industrial or consumer names.

Mr. Buffett is an expert on financials–he runs a gigantic insurance company, after all.  On tech and resources, not so much, in my opinion.  Financials are the second-largest sector in the S&P 500, making up 16% of the total.  Tech makes up 19.5%; Energy is 8.3%; Healthcare 14.9%.  The latter three total 42.7% of the index.  As a portfolio manager, it’s hard enough to beat the index in the first place.  Being weak in two-fifths of it makes the task even harder.

1Q15 earnings for Apple (AAPL)

January 28, 2015 By in earnings conference calls, Stock ideas Tags: , , , , , 1 Comment

the earnings report

Last night AAPL reported results for 1Q15 (the company’s fiscal year ends in September).  Earnings came in at $18 billion, up 37% year-on-year.  EPS came in at $3.06, a 48% yoy advance (the difference is due to the company’s aggressive stock buyback program, which has shrunk the number of outstanding shares).  These figures were far in excess of the Wall Street consensus, which was centered around eps of $2.60.

This is the first time in at least two years that AAPL has had a positive earnings surprise this large.  The $18 billion also sets a new all-time record for profits by a publicly traded company.  Lots of positive media reports, focusing on the records shattered.

As I’m writing this, the stock is up almost 8% on the news.

the highlights

I hven’t looked carefully at AAPL quarterly earnings for a whole (there’s been no need to).  I’d almost forgotten the teeth-achingly saccharine quality of the Applespeak the company uses in dealing with the investing public.

More substantive thoughts:

–the Steve Jobs era is over  Jobs left the company with powerful earnings momentum, an upscale image, design flair and the iPod, the iPhone and the iPad.   He also left behind some bad stuff–a dogmatic belief in a tablet size that was too big and a smartphone size that was too small.  After struggling for some time, the company has now thrown off both those mistakes.

–the Apple brand/ecosystem has huge power  Pentup demand for a larger smartphone drove iPhone sales in the  holiday quarter to 74.5 million units, a 46% yoy gain.  Inventories fell to unusually low levels during the period, suggesting sales were constrained by AAPL’s manufacturing capability.  (Stocks are now back at normal levels.)

In other words, even though Samsung and other Android suppliers were offering a clearly superior product, Apple users by and large continued to use their dated phones in the hope that the company would finally come to its senses.  Where else would this happen?  AAPL reported that 1Q15 was the highest period ever for Android users switching to the iPhone, suggesting that the small number of prodigal sons/daughters were returning to the fold.

—earnings growth will continue strong  Only a small percentage of AAPL  smartphone owners have upgraded to the iPhone 6  …10%? – 15%? of the total.  This seems to me to imply that AAPL’s yoy earnings comparisons will continue to be healthy for at least the next several quarters, despite a lower dollar value of foreign currency sales.

odds and ends

–Computers were strong for AAPL; tablets were weak

–Sales in Greater China were very good

–The strong dollar means currency was a negative factor in the quarter, even though the raw numbers down’t seem to reflect that.  Currency will continue to be a problem.  Curiously, the yen seems to have been more of an issue than the euro (implying that AAPL hasn’t made much penetration into the EU?).  Hedging will temper currency losses for a while, but AAPL, like most companies, gives little detail on the nuts and bolts of its hedging operations.  So it’s very hard to figure currency effects.  AAPL, however, is guiding to a strong yoy earnings gain in 2Q15 despite this.

 

 

December 2014 earnings for Microsoft (MSFT)

January 27, 2015 By in earnings conference calls, Stock ideas Tags: , , , , , , 3 Comments

the report

Last night MSFT announced earnings for the December 2014 quarter, which is the second fiscal quarter of 2015 (ends in June).  At eps of $.71 a share, results were in line with analysts’ expectations, even though income was dinged by $.02  by restructuring charges and $.04 from an IRS audit adjustment.

Overall, the report was a mixed bag.

On the one hand, the restoration of MSFT to relevance under new CEO Satya Nadella continues apace.  On the other, the renewed vigor that the traditional MSFT business has been exhibiting recently appears to be coming to an end.  In particular,

–In the earnings release on the MSFT website (data are humorously difficult to download if you don’t own Office) the company made it clear that the period of extra oomph to sales of Windows caused by the termination of XP support has come to an end.  Sales had been boosted both by some former XP users upgrading to new machines and by others simply buying a newer OS.

–It’s also clear that we’re entering a period where currency effects–the decline of the euro and the yen vs. the dollar–are going to have a significant negative impact on earnings.  I think this means a drop of somewhere between 5% and 10% vs. where profits would be without currency movements.  This loss takes two forms:  a decline in the value of foreign currency-denominated assets, which is recognized immediately (in 2Q15 the figure was ($390 million); and the lower dollar value of foreign currency-denominated sales.  Part of the latter is recognized in income immediately but most sits on the balance sheet as deferred revenue before reaching the income statement (this is a long-winded way of saying that some currency losses won’t be booked for a while).  And, of course, the euro is about 8% lower today than it was on December 31st.  MSFT estimates the 3Q15 loss at 4% of revenue.

The net result of these two negatives will likely be that eps for MSFT will be flattish over the coming twelve months, rather than the +10% that most analysts appear to have been forecasting.  (How they justified these numbers in the face of the strong dollar is another issue.)

the stock

As I’m writing this, MSFT shares are down by 10%, in a market that is off by a bit less than 2%.

It’s also a day on which I’m sure lots of people didn’t make into work (and those who did are in a bad mood), as well as one where a raft of negative-surprise earnings releases have been issued.  So it’s not a good day to announce bad news.

Still, I’m personally a bit surprised by the extent of the negative reaction.  I’m not sure quite qhat to make of it, other than it’s very negative.

I have no desire to sell the MSFT I own.  On the other hand, I have no burning desire to buy more.

If I thought 2015 would be a sharply up year for stocks, I’d probably be thinking of selling to buy something with more upside potential.  But I expect the market to basically move sideways this year.  So I’ve got to be more concerned that this decline is just the first stop on a down elevator.  Right now, I don’t think that’s right, either.  But that’s where analysis has to be focused.

My biggest reaction is that I’ve got to look even more carefully through the stocks I own to uncover exposure to weak foreign currencies.  Ultimately, I guess, I believe this is the cause of the sharp MSFT price drop.

The main thing the MSFT report tells me is that Wall Street is much less far along than I would have imagined in discounting currency losses to US-based multinationals from a declining euro.  A second observation is that the European stock markets have probably been as poor at factoring in earnings gains that euro-based firms are achieving from their dollar exposure.

 

 

 

 

technical analysis: double bottom

November 13, 2014 By in Casinos, counter-trend movements, earnings conference calls, Energy, Hong Kong, Macau, major changes in market direction, market bottoms, Technical Analysis Tags: , , , Leave a comment

Regular readers will know that I’m not a particular fan of technical analysis, at least as a primary tool in determining the investment attractiveness of the equity market or of individual stocks.  A hundred years ago–maybe even sixty years ago–it was the tool, because there was nothing else.  Before the SEC, company financials were a joke, and they weren’t easily available in a timely manner.  Watching the trading patterns of the “smart money” was arguably the best an average person could do.

Nowadays, the SEC’s Edgar site has all US-traded companies’ filings available for free the instant they’re made.  Most companies also have extensive libraries of their own available on their sites.  Firms now webcast their earnings conference calls for all to hear.  If you don’t feel like listening, transcripts are available for free soon afterward from Seeking Alpha.  

So it isn’t so much that technical analysis is bad per se.  It’s just that like the horse-drawn cart it’s been replaced by fundamental information that’s quantum leaps better.

support/resistance

Still, there are some aspects to technical analysis that I find useful.  One is support/resistance.  This is the idea that price levels where there has been significant past trading volume, preferably over an extended period, will act as floors to support stocks as they fall, as well as ceilings to impede their advance.  Both holding at and breaking through these levels are often significant events.  In particular…

double bottom

When the market has been declining for an extended period of time, or has dropped particularly sharply (the “magic” numbers technicians use are typically losses of 1/3, 1/2 or 2/3 of the prior advance), it often stabilizes for no apparent reason and begins a significant upward bounce (+10%?).

The fact that prices are now going up isn’t enough by itself to establish they have reached an important low.  In almost all cases (March 2009 was, on the surface at least, a significant exception–see below), stocks begin falling again within a few weeks and find themselves approaching the previous low.  If the market touches–or almost touches–the previous low but begins to rebound again (in the US, the market may briefly trade lower than the previous low–we’re daredevils, after all), this is often a strong sign that resistance is forming at the old low.  This revisiting of the low is the necessary second part of the double bottom.

There can be a triple bottom, too.  More often, in my experience, the market begins a new, upward pattern of higher highs and higher lows after the second bottom.

Fundamental conditions must also be in place for this bottoming to happen.  Stocks have to be cheap; investor pessimism must be high; the downtrend must be protracted enough for at least some investors to think that conditions won’t get worse.

In essence, what the double bottom tells us is that intense negative emotion that has been driving prices sharply (often irrationally) lower has begun to play itself out.

current examples

Double bottoms happen with individual stocks and stock groups, too.

Look at the Macau casinos traded in Hong Kong.  Some, like Galaxy Entertainment, have lost half their value over the past ten months.  But the group appears to have bottomed in late September-early October.   The stocks bounced off their lows, returned near them several weeks later and appear since then to have established a new upward pattern.

I haven’t looked carefully at energy stocks–but the oils are a group where I’d be looking for similar behavior.

the March 2009 case

The S&P 500 appeared to me to be bottoming in early 2009.  As is usual during recessions, government programs were being put in place to stop the economic bleeding.  Anticipating this, investors had pretty much stopped selling.  However, in late March investors were horrified to hear that Congress failed to pass the proposed bank bailout bill/  Some (Republican) Representatives were even saying they would prefer a rerun of the Great Depression to a bank bailout.  The S&P fell more than 7% on the news, but recovered all its losses when the bill was passed the following day.  If we erase those two trading days, early 2009 exhibits a “normal” bottoming process.

 

 

3Q14 for Intel (INTC): keeping the faith …or not

October 16, 2014 By in Current Market Thoughts, earnings conference calls, Industry Analysis, semiconductor manufacturing, Stock ideas, Technology Tags: , , , , , , , Leave a comment

INTC reported 3Q14 results after the close on Tuesday.  Earnings per share came in at $.66, which beat the brokerage house analyst consensus by $.02.  The company’s guidance for 4Q14 exceeded analysts’ expectations as well.

The stock gained about 3% in the aftermarket   …but plunged at the open yesterday.

There are two main points at issue, as I see it:

oversupply?

1.  Some analysts think INTC’s outlook is too bullish.

a. Last Thursday, Microchip Technology (MCHP), a maker of a broad range of commodity semiconductors, warned that its 3Q14 would be weaker than it had previously thought.  The reason:  weakness in China in September.  The company also predicted that a general semiconductor industry downturn is now beginning.

MCHP is saying,  in effect, that it is in much better touch with end users of its products than most other semiconductor firms, including INTC.  It records revenue only when an end-user buys a chip from a distributor–not when the chip leaves the factory, which is the common industry practice.  It believes others will soon figure out they have much too much inventory floating around in their distribution systems (already booked as revenue) and will be forced to cut back production to bring them back into line with demand.  If so, MCHP is sort of like the canary in the coal mine for chipmakers.

b.  INTC recorded healthy growth in its PC business.  Third-party research services like IDC say demand was basically flat.  Is INTC inadvertently stuffing the channel?

INTC’s response to this worry is:

–it’s a specialized maker of microprocessors

–corporate demand is strong, partly because Microsoft (MSFT) has stopped supporting Windows XP, but also because corporations are beginning to replace the now-decrepit PCs they’ve been duct taping back together for a decade.  This trend will last for a long time.

–third-party researchers like IDC are fine for tabulating demand in the US and the EU, but can’t easily see the businesses of no-name computer makers in the emerging world who are strong INTC customers.

–yes, inventories are higher today than they were a year ago, but they’ve just returned to normal from extremely low levels.

mobile?

2.  INTC’s mobile chip business is losing $1 billion a quarter, even as the company has become the second-largest vendor of tablet microprocessors in the world.  Can this end well?

The company has gone from a standing start to having chips in maybe 40 million tablets being made this year.  It is concentrating on low-end tablets in emerging markets, entering into long-term R&D and development arrangements with Chinese firms–and, for now at least, more or less giving its chips away to get them into machines (the reality is more complicated).

The company thinks it can begin to whittle away at those losses, beginning next year.  Profitability in 2016?  My guess is yes, but who knows?

my take

If INTC is ever going to crack the mobile market, the time is now and the company’s strategy is sound (it’s also the only one I see available to it).  Suppose it loses $5 billion on the effort and has to reassess.   Not good   …but then $5 billion represents only about 3% of the firms stock market value.  A risk, yes, but one worth taking, I think.

The cyclical downturn thesis is more worrying. When it comes down to it, though, I’m unwilling to generalize from MCHP’s business softness.  Arguably, the weakness MCHP is seeing comes from the Beijing orienting the economy away from construction and low-end commodity-like activities.  The move to higher value-added business should mean greater demand for microprocessors, not less.  So on this front, too, I’m willing to give INTC the benefit of the doubt.

The stock is trading at 15x earnings (high for it but a discount to the market) and yielding a tad under 3%.  If I had to put numbers to my thinking, I’d say that, in the absence of a serious semiconductor swoon, downside is to $25.  Upside if tablet losses begin to abate in 2015 is maybe to $45.

If I thought upside and downside were both equally probable, I should have been a seller at $35.  I wasn’t.  I’m now guessing that upside/downside has deteriorated from 2/1 to each equally probable.  But at $31, I’m still a holder.  I’m not a buyer, though.