Are You Protected As Earnings Sour?

We’re hip deep in corporate earnings this week. More than 1,000 companies are sharing their quarterly results with us. We entered the week with overall earnings reports producing a mixed bag — IBM (IBM) missed due to weakness in Asia, while Del Frisco’s (DFRG) and Darden International (DRI) cited weak consumer spending and restaurant traffic for falling short.

There were some high fliers last week in the form of General Electric (GE) and Chipotle Mexican Grill (CMG), but at best corporate earnings for the September quarter have been mixed thus far. According to FactSet, of the 97 S&P 500 companies that have reported their earnings through last week, 69% announced actual earnings per share (EPS) above the mean EPS estimate and 31% have reported actual EPS below the estimated mean EPS. Compared to the last four years, that’s below the 73% of companies that reported actual EPS above the mean EPS estimate.

This week, however, earnings season took a turn for the worse as more companies missed expectations, cut their outlooks or both. Here a sample of what was said this week:

• Medical device maker Varian Medical Systems (VAR) not only missed September quarter earnings expectations, but the company handed in current-quarter guidance that fell short of Wall Street analyst estimates.
• Consumer review website Angie’s List (ANGI) reported a wider-than-expected loss per share for the September quarter and issued current-quarter revenue guidance that fell short of Wall Street expectations.
• Falling profits and revenue, as well as a weak forecast, made computer chip company Altera (ALTR) one of the bigger S&P 500 decliners this week.
• Light-emitting diode (LED) chip and bulb company Cree (CREE) issued an outlook that fell short of Wall Street expectations in terms of revenues, margins and earnings.
• Communications chip company Broadcom Corp. (BRCM) gave a disappointing revenue outlook for the fourth quarter. Aside from seasonal declines in its infrastructure business, Broadcom blamed the revenue shortfall on intense competition and soft demand in several of its end markets.
• Semiconductor company Texas Instruments’ (TXN) shares fell after it cut its guideline for the current quarter and blamed spotty demand for chips used in cars, appliances, computers and industrial products.
• Dogged by lackluster economic growth and intense competition, McDonald’s (MCD) warned this week that global sales at established restaurants would be relatively flat for October and signaled that weakness would continue in the fourth quarter.

To be fair, there have been some companies that have reported solid results and upbeat forecasts. But as I write this report to you, they have not been the norm. I suspect we will continue to see mixed results in the remaining weeks of this earnings season. If I’m right, it means economists and analysts will be re-calculating and lowering their earnings expectations for the S&P 500 for the current quarter. That situation will have the effect of slowing earnings growth. As I have said to you in a prior PowerTrend Brief write-up, investors do not pay a premium for slower earnings growth.

Risk management is what you need to be mindful of as we navigate the rest of this earnings season. Subscribers to my investment newsletter, PowerTrend Profits, know I not only look at the upside opportunity when I examine a stock recommendation, I also weigh the potential downside risk as well. It takes at least 25% net upside to get me interested in a stock. Even then, I’ll often use stop losses to minimize our downside. The use of stop-loss prices, along with selecting companies that benefit from my Great 8 PowerTrends, lets my subscribers and me sleep at night.

Can you say that? If not, be sure to check out PowerTrend Profits today!

PowerTalk — Watching What You Want, When You Want with Slingbox
Joining me this week on PowerTalk is Brian Jaquet, senior marketing manager of Slingbox. We discuss not only the past, present and future of placeshifting — a new term that describes watching your television from anywhere — but also what it means for Sling Media and how the company looks to compete in this next battleground.

You’ve probably noticed that, given the rise of the DVR and on-demand programming, you and people like you that lead busy lives are abandoning what’s been called appointment TV.

Instead, we’re seeing a sharp rise in what is called placeshifting. In fact, I bet some, if not most, of you are placeshifters. A placeshifter consumes content on one device even though it is stored on another one. Slingbox invented placeshifting in 2004. During the ensuing years, “Slingbox” has become to placeshifting what Kleenex has been for facial tissues.

Brian and I discuss not only the past, present and future of placeshifting but also what it means for Sling Media and how the company looks to compete in this next battleground. Trust me, this isn’t a conversation you’ll want to save and listen to later. The information can help us make wise investing decisions now.

Listen to my PowerTalk conversation with Brian Jaquet of Slingbox

Read my PowerTrend Brief from last week, What to Do Now That Washington Hit the Snooze Button. I also invite you to comment about my column in the space provided below.