Sunday, October 27, 2013

Another Profitable Earning's Week

                This week was not as exiting or profitable as the last two, markets were generally up and earnings announcements continue. Yet this week some saw some massive gainers, amongst which were Microsoft, Amazon, and Boeing.

                This week although pretty flat for me personally, highlighted the heightened uncertainty in the Stock Market, next Wednesday the Federal Reserve will announce whether or not they will start to dial back on the $85 billion monthly stimulus program. The popular consensus is that they will not, the Federal Reserve wants to see some undeniable evidence that the U.S economy is growing steadily enough not to require federal assistance, and they don’t have it.

                Personally I believe the Federal stimulus program had to go in September, the last time the Fed had met to discuss its future, now after the Government Shutdown and the debt ceiling limit postponed until early next year I feel like the Federal Reserve should not start tapering until mid-next year.

                But eventually the stimulus program has to end, so there is no point in debating its future, what’s truly important is the results of the Earnings that were announced this week and the earnings that will be announced next week.

                Some big names announced their 3rd Quarter results this week were the Defense Contractors Lockheed-Martin, and Boeing. Earnings for these contractors were supposed to disappoint due to the Government Shutdown and reduced military spending yet they did not, both Boeing and Lockheed Martin beat earnings expectations and saw their shares rise this week, yet I would not recommend buying into defense contractors for one reason, they are two reliant on government contracts.

If the Government debt standoff showed anything it showed that the Government does not collect enough money to run the Country, and eventually spending is going to have to be cut and military contracts cost the Government Billions of dollars every year. Putting the two and two together it is obvious that in the future the military contracts Defense companies like, Lockheed Martin, Northrop Grumman, General Dynamics, and Boeing rely on will either be allowed to expire or are going to be cancelled. Now this won’t happen for at least a few years, since most Military contracts are not due to expire until 2015, but still with the politics in Washington affecting Government spending I would not want to put my money into companies that rely heavily on Government funds.

Defense Contractors were not the only companies that announced earnings this week, Internet retail giant; Amazon announced its 3rd Quarter 2013 results also. Now Amazon is huge, with a market value of some $166 billion! Amazon has grown so large that it’s starting to carve into Wal-Mart, the undisputed king of retail, share of the market. Amazon beat average earnings estimates which predicted revenues to be at $16.76 billion, revenue topped $17.09 billion, and after this news shares surged 9.39% to close at $363.39. Amazon has just one problem…..its unprofitable! Amazon lost $.09 a share (this matched estimates) or a loss of 41 million.

This loss irritates me, since Amazon has the potential to become extremely lucrative. But my feelings aside shares of Amazon are up over 52% this year, considerably better than other traditional retailers. Normally I would discourage investing into an unprofitable company but Amazon is a special case, its revenues are growing, and it’s not like the company is hemorrhaging money, what I think Amazon needs is a financial advisor to manage their funds more affectively.

My recommendation when looking at Amazon is to look at the numbers and ask yourself what they mean to you, to me Amazon’s numbers show some unreasonable spending that has to be cut back in order to make the company profitable. I do not have the confidence to say buy it or not buy it but this is my analysis of the company.

Another giant that reported earnings this week was Microsoft, I admit I am biased against this company, I cannot stand Microsoft products, and I feel that the software company is a dinosaur that is watching its dominated PC market slowly die. But Microsoft announced earnings that were actually impressive, since the company is trying to reinvent itself as a device and services company, since it’s buying of Nokia’s phone business.

Microsoft reported earnings of $18.53 billion in revenue and 5.24 billion in profit ($0.62 per share). Also sales of new Microsoft tablets, and its office system supplemented for declining sales of windows. This shows that Microsoft is on its way to revitalizing its self. Shares of Microsoft were up 5.96% on Friday, closing at $35.73 a share.

My recommendation for Microsoft is to buy and hold, if you are looking for a quick profit this stock should be avoided since Microsoft is a steady blue chip company that will not see a resurrection for at least a few years. If you are the type of person who wants to put their money somewhere where you could watch it grow at a faster rate than a standard bank account, then Microsoft might the perfect match for you. Microsoft pays a high dividend of 3.13%, with this in mind it may be another retirement stock to put your 401K in.

There were other companies that announced earnings this week such as Ford, and Caterpillar, and generally Wall Street found overall earnings good enough to send the DOW up over 100 points this week, next week though several other large companies are announcing earnings, such as Apple, Facebook, General Motors, and Exxon Mobil.

My advice for these companies is to avoid buying into Apple stock until after the company announcing earnings on Monday, since Wall Street is forecasting another bleak Quarter for the technology giant. With this said Apple would make a great investment since the company is currently undervalued, and may be issuing a large buyback soon. I would buy into Apple after the company announces earnings since stock will probably fall and you could take advantage of the low prices.

As for Facebook, I stated my opinion on the social media giant in my first entry. I believe the company is highly overvalued, and that with shares surging over the last 3 months this Quarter announcement might send shares falling back to level where I think they should be trading at, in the mid 20’s. Yet Facebook may surprise people and shares might continue to go up but in the long term Facebook, and social media in general is a terrible investment, since it relies too much on advertising and produces little real profit.

General Motors on the other hand might be a good investment, since Ford announced good earnings GM might just be the next automaker to surprise Wall Street, as for Exxon Mobil, I would not buy into the Oil giant, because of falling oil prices that may have a negative effect on the world 2nd largest corporation.



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I will be posting an article every Friday and looking back at the political and economic events of that week, both personally impacting events and suggestions about my opinions on the future of the market. (I apologize for the late posting this week, I have been very busy)

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