Sunday, July 09, 2006
morning sobre a bolsa
Could Second-quarter Earnings Be Last Hurrah For Investors?
07-07-06 06:29 PM EST
SAN FRANCISCO (Dow Jones) -- For the past three years, through hurricanes, record oil prices and steadily climbing interest rates, one thing has supported the U.S. stock market: Companies have been making money hand over fist.
The second quarter will likely see more of the same, with companies in the Standard & Poor's 500 index forecast to generate earnings growth of 12.3%, according to Thomson Financial. That would be the 12th consecutive quarter of double-digit profit gains -- a run that's only been bettered once since 1950.
After that, though, things begin to get trickier.
"Second-quarter earnings will be powerful, but where do we go from here?" asked Michael Metz, chief investment strategist at brokerage firm Oppenheimer & Co. "The recent rise in rates and the weakening of the consumer [are] making the earnings outlook more and more murky as we go into the third quarter."
Earnings season kicks off Monday, when Alcoa Inc. (AA) , the world's largest aluminum maker, reports results. General Electric (GE) is scheduled to report earnings July 14.
Results from other Dow Jones Industrial Average members, including Citigroup Inc. (C) , Coca-Cola (KO) , Microsoft Corp. (MSFT) and Johnson & Johnson (JNJ) , are due the following week.
The consensus on Wall Street still calls for earnings to continue to climb strongly for the rest of the year. Analysts polled by Thomson expect S&P 500 profits to grow 15.3% during the third quarter and 14.8% in the fourth. Only in the first quarter of 2007 do they see the run of double-digit gains ending.
But Metz said he's concerned that earnings growth could erode more quickly.
"The second quarter will mark the peak in earnings momentum for the next several years," he said. "There's lots of anecdotal evidence about weakening consumer demand, and I think it's going to get worse."
Reports that home owners are struggling to sell properties at the right price may undermine consumer confidence, he noted.
Metz also cited a recent update from Wal-Mart Stores Inc. (WMT) . The world's largest retailer said Thursday that June sales grew 1.2%, at the low end of its initial projection, as budget-tightening consumers focused spending on necessities.
On Friday, industrial conglomerate 3M Co. (MMM) said it expects earnings for the second quarter to miss its previous outlook, partly because of lower sales.
Others see the earnings slowdown hitting even earlier.
Abhijit Chakrabortti, U.S. equity strategist at J.P. Morgan Chase (JPM) , said he expects earnings to grow just 7% during the second-quarter as information- technology companies, financial-services firms and consumer-focused businesses disappoint.
"The market will need to see a reasonable sized earnings beat combined with positive guidance for the third quarter and beyond for the second-quarter earnings season to provide a positive catalyst," he wrote in a note to clients on Thursday.
Just meeting second-quarter expectations won't be enough because there are " rising doubts that any near-term earnings performance can be repeated" and increasing concerns about inflation and interest-rate risks, he added.
Technology
Technology companies could be most likely to disappoint during the second quarter, Chakrabortti and others said.
Analysts surveyed by Thomson expect tech earnings to grow 10% in the quarter, but that would be the slowest rate of increase for at least two years, according to John Butters, research analyst at Thomson Financial.
That forecast has also dropped from a 15% estimated growth rate at the beginning of the second quarter, Butters added.
The dip in confidence came after Intel Corp. (INTC) forecast lower-than- expected second-quarter profit and Microsoft Corp. (MSFT) announced big plans to increase spending in late April, Butters noted.
On Friday, Intel rival Advanced Micro Devices (AMD) warned that second-quarter revenue would miss its earlier forecast due weak demand for chips used in personal computers.
Business Objects shares lost a quarter of their value Friday after the software developer slashed second-quarter earnings estimates.
The Philadelphia Semiconductor Index, a technology benchmark, has dropped by almost a quarter during the past four months.
Frank Husic, managing partner of Husic Capital Management, said hedge funds run by the $600 million investment firm are short technology stocks, a position they've held for some time. (Short sales allow investors to bet on share-price declines.)
Stocks that dominated the 1990s, such as those of Microsoft Corp., Dell Inc. ( DELL) and Cisco Systems (CSCO) , "aren't going anywhere for some time," Husic said.
"Tech was the last cycle's winner, but it developed too much, and now there are too many tech companies with too much market cap," he added. "The group will continue to disappoint for some time."
Chakrabortti has spotted signs of what he calls a "deepening slowdown for the sector," such as a substantial decline in Taiwanese industrial production of electronics parts and components.
Energy
With crude prices hitting record highs again Friday, oil-company earnings are projected to climb at the healthiest clip of any industry.
Profits in the sector are expected to jump by 31% during the second quarter, according to Thomson's analyst survey. That's up from forecasts of 19% growth at the beginning of April.
With crude prices almost a third higher than a year ago, J.P. Morgan's Chakrabortti said oil companies are the most likely to beat expectations this quarter.
Exxon Mobil (XOM) , Chevron Corp. (CVX) and Valero Energy (VLO) will likely be the biggest earners, Thomson data show.
The energy industry as a whole remains the biggest contributor to overall earnings growth. Without the sector, S&P 500 earnings are forecast to climb 9.6% during the second quarter, Thomson said.
Husic has invested in oil-services companies including Todco (THE) and Natco Group (NTG) because they're benefiting from increased spending by big energy firms.
"I'm definitely there because they'll do extremely well in earnings," he said.
Husic is also investing in metals and mining companies such as Oregon Steel ( OS) and thinks industrial manufacturers like Caterpillar Inc. and Boeing Co. ( BA) will thrive.
These companies -- along with energy firms -- are benefiting from soaring demand from emerging economies in Asia and elsewhere, Husic said.
"I see a completely different leadership in the market from the 1990s," he said. "Companies that make things for the emerging world will do best."
Countries such as China need commodities to fuel their economies but don't yet have the expertise to build large, complex manufacturing plants that have been created by the likes of Boeing and Caterpillar, he explained.
Metals, mining and chemicals companies are expected to lift earnings by 17% during the second quarter, according to Thomson. That's the second strongest sector behind energy.
Financials
Husic also said he's avoiding financial-services stocks because of the flat yield curve.
The yield curve charts the difference between long-term and short-term interest rates. These have converged during the past year, which has made it harder for banks to make money by borrowing at low rates and lending at higher rates.
"It's pretty hard to borrow at 5.10% and lend at 5.20%. Making 10 basis points is a tough way to make a living," Husic explained. "The average organization that lives on the yield curve won't do well."
Financial-services companies are forecast to generate 13% earnings growth in the second quarter, according to Thomson.
But that's been buoyed recently by strong earnings from investment banks such as Goldman Sachs Group (GS) , Morgan Stanley (MS) and Bear Stearns (BSC) , Butters said.
Regional banks are expected to generate no earnings growth in the second quarter, Thomson data shows.
J.P. Morgan's Chakrabortti said he is more concerned about commercial banks, which, due to rising rates, are going to have to start paying interest on deposits that, up to now, were non-interest bearing.
"Expectations for financials have been revised up," he said, but "we are concerned that bank earnings may modestly miss."
Analysts at Fox-Pitt, Kelton expect more than a third of the banks they cover to miss second-quarter profit expectations.
Associated Bancorp. (ASBC) , First Horizon (FHN) , Greater Bay Bancorp. (GBBK) , TCF Financial (TCB) and Umpqua Holdings (UMPQ) could report weaker results or give a more cautious outlook, they said.
Consumer impact
Husic and Chakrabortti also see weakness in the earnings of companies that depend on the consumer, such as retailers and restaurants.
Higher rates will dent consumers' spending power, Chakrabortti said, while Husic is concerned about the impact of oil prices.
"We expect continued pressure on consumer discretionary sectors, basically anything that doesn't do well with $75 oil, such as restaurants and retailers," Husic said.
Chico's FAS (CHS) , a clothing retailer, reported strong first-quarter profit growth in May but lowered its full-year forecast. The stock has lost more than 16% since then and is down more than 40% so far this year.
Oppenheimer's Metz said investors should be backing companies that sell to consumers in emerging economies.
"That's where the growth in incomes and the standard of living will take place, rather than in the U.S., where things may stagnate, unfortunately," he said.
(END) Dow Jones Newswires
07-07-06 1829ET
Copyright (c) 2006 Dow Jones & Company, Inc.
07-07-06 06:29 PM EST
SAN FRANCISCO (Dow Jones) -- For the past three years, through hurricanes, record oil prices and steadily climbing interest rates, one thing has supported the U.S. stock market: Companies have been making money hand over fist.
The second quarter will likely see more of the same, with companies in the Standard & Poor's 500 index forecast to generate earnings growth of 12.3%, according to Thomson Financial. That would be the 12th consecutive quarter of double-digit profit gains -- a run that's only been bettered once since 1950.
After that, though, things begin to get trickier.
"Second-quarter earnings will be powerful, but where do we go from here?" asked Michael Metz, chief investment strategist at brokerage firm Oppenheimer & Co. "The recent rise in rates and the weakening of the consumer [are] making the earnings outlook more and more murky as we go into the third quarter."
Earnings season kicks off Monday, when Alcoa Inc. (AA) , the world's largest aluminum maker, reports results. General Electric (GE) is scheduled to report earnings July 14.
Results from other Dow Jones Industrial Average members, including Citigroup Inc. (C) , Coca-Cola (KO) , Microsoft Corp. (MSFT) and Johnson & Johnson (JNJ) , are due the following week.
The consensus on Wall Street still calls for earnings to continue to climb strongly for the rest of the year. Analysts polled by Thomson expect S&P 500 profits to grow 15.3% during the third quarter and 14.8% in the fourth. Only in the first quarter of 2007 do they see the run of double-digit gains ending.
But Metz said he's concerned that earnings growth could erode more quickly.
"The second quarter will mark the peak in earnings momentum for the next several years," he said. "There's lots of anecdotal evidence about weakening consumer demand, and I think it's going to get worse."
Reports that home owners are struggling to sell properties at the right price may undermine consumer confidence, he noted.
Metz also cited a recent update from Wal-Mart Stores Inc. (WMT) . The world's largest retailer said Thursday that June sales grew 1.2%, at the low end of its initial projection, as budget-tightening consumers focused spending on necessities.
On Friday, industrial conglomerate 3M Co. (MMM) said it expects earnings for the second quarter to miss its previous outlook, partly because of lower sales.
Others see the earnings slowdown hitting even earlier.
Abhijit Chakrabortti, U.S. equity strategist at J.P. Morgan Chase (JPM) , said he expects earnings to grow just 7% during the second-quarter as information- technology companies, financial-services firms and consumer-focused businesses disappoint.
"The market will need to see a reasonable sized earnings beat combined with positive guidance for the third quarter and beyond for the second-quarter earnings season to provide a positive catalyst," he wrote in a note to clients on Thursday.
Just meeting second-quarter expectations won't be enough because there are " rising doubts that any near-term earnings performance can be repeated" and increasing concerns about inflation and interest-rate risks, he added.
Technology
Technology companies could be most likely to disappoint during the second quarter, Chakrabortti and others said.
Analysts surveyed by Thomson expect tech earnings to grow 10% in the quarter, but that would be the slowest rate of increase for at least two years, according to John Butters, research analyst at Thomson Financial.
That forecast has also dropped from a 15% estimated growth rate at the beginning of the second quarter, Butters added.
The dip in confidence came after Intel Corp. (INTC) forecast lower-than- expected second-quarter profit and Microsoft Corp. (MSFT) announced big plans to increase spending in late April, Butters noted.
On Friday, Intel rival Advanced Micro Devices (AMD) warned that second-quarter revenue would miss its earlier forecast due weak demand for chips used in personal computers.
Business Objects shares lost a quarter of their value Friday after the software developer slashed second-quarter earnings estimates.
The Philadelphia Semiconductor Index, a technology benchmark, has dropped by almost a quarter during the past four months.
Frank Husic, managing partner of Husic Capital Management, said hedge funds run by the $600 million investment firm are short technology stocks, a position they've held for some time. (Short sales allow investors to bet on share-price declines.)
Stocks that dominated the 1990s, such as those of Microsoft Corp., Dell Inc. ( DELL) and Cisco Systems (CSCO) , "aren't going anywhere for some time," Husic said.
"Tech was the last cycle's winner, but it developed too much, and now there are too many tech companies with too much market cap," he added. "The group will continue to disappoint for some time."
Chakrabortti has spotted signs of what he calls a "deepening slowdown for the sector," such as a substantial decline in Taiwanese industrial production of electronics parts and components.
Energy
With crude prices hitting record highs again Friday, oil-company earnings are projected to climb at the healthiest clip of any industry.
Profits in the sector are expected to jump by 31% during the second quarter, according to Thomson's analyst survey. That's up from forecasts of 19% growth at the beginning of April.
With crude prices almost a third higher than a year ago, J.P. Morgan's Chakrabortti said oil companies are the most likely to beat expectations this quarter.
Exxon Mobil (XOM) , Chevron Corp. (CVX) and Valero Energy (VLO) will likely be the biggest earners, Thomson data show.
The energy industry as a whole remains the biggest contributor to overall earnings growth. Without the sector, S&P 500 earnings are forecast to climb 9.6% during the second quarter, Thomson said.
Husic has invested in oil-services companies including Todco (THE) and Natco Group (NTG) because they're benefiting from increased spending by big energy firms.
"I'm definitely there because they'll do extremely well in earnings," he said.
Husic is also investing in metals and mining companies such as Oregon Steel ( OS) and thinks industrial manufacturers like Caterpillar Inc. and Boeing Co. ( BA) will thrive.
These companies -- along with energy firms -- are benefiting from soaring demand from emerging economies in Asia and elsewhere, Husic said.
"I see a completely different leadership in the market from the 1990s," he said. "Companies that make things for the emerging world will do best."
Countries such as China need commodities to fuel their economies but don't yet have the expertise to build large, complex manufacturing plants that have been created by the likes of Boeing and Caterpillar, he explained.
Metals, mining and chemicals companies are expected to lift earnings by 17% during the second quarter, according to Thomson. That's the second strongest sector behind energy.
Financials
Husic also said he's avoiding financial-services stocks because of the flat yield curve.
The yield curve charts the difference between long-term and short-term interest rates. These have converged during the past year, which has made it harder for banks to make money by borrowing at low rates and lending at higher rates.
"It's pretty hard to borrow at 5.10% and lend at 5.20%. Making 10 basis points is a tough way to make a living," Husic explained. "The average organization that lives on the yield curve won't do well."
Financial-services companies are forecast to generate 13% earnings growth in the second quarter, according to Thomson.
But that's been buoyed recently by strong earnings from investment banks such as Goldman Sachs Group (GS) , Morgan Stanley (MS) and Bear Stearns (BSC) , Butters said.
Regional banks are expected to generate no earnings growth in the second quarter, Thomson data shows.
J.P. Morgan's Chakrabortti said he is more concerned about commercial banks, which, due to rising rates, are going to have to start paying interest on deposits that, up to now, were non-interest bearing.
"Expectations for financials have been revised up," he said, but "we are concerned that bank earnings may modestly miss."
Analysts at Fox-Pitt, Kelton expect more than a third of the banks they cover to miss second-quarter profit expectations.
Associated Bancorp. (ASBC) , First Horizon (FHN) , Greater Bay Bancorp. (GBBK) , TCF Financial (TCB) and Umpqua Holdings (UMPQ) could report weaker results or give a more cautious outlook, they said.
Consumer impact
Husic and Chakrabortti also see weakness in the earnings of companies that depend on the consumer, such as retailers and restaurants.
Higher rates will dent consumers' spending power, Chakrabortti said, while Husic is concerned about the impact of oil prices.
"We expect continued pressure on consumer discretionary sectors, basically anything that doesn't do well with $75 oil, such as restaurants and retailers," Husic said.
Chico's FAS (CHS) , a clothing retailer, reported strong first-quarter profit growth in May but lowered its full-year forecast. The stock has lost more than 16% since then and is down more than 40% so far this year.
Oppenheimer's Metz said investors should be backing companies that sell to consumers in emerging economies.
"That's where the growth in incomes and the standard of living will take place, rather than in the U.S., where things may stagnate, unfortunately," he said.
(END) Dow Jones Newswires
07-07-06 1829ET
Copyright (c) 2006 Dow Jones & Company, Inc.
# posted by robertts12 @ 6:32 PM 
