2 Winners and Losers in Euro Crisis
02/09/2012 10:33 am EST
Some S&P 500 companies have reported huge European revenue gains despite the ongoing debt crisis, while others have been hit quite hard. Here are two from each category.
While US investors in the last quarter feared a new recession triggered in part by the ongoing European debt crisis, US companies were still making money in Eurozone nations. A recent article in The Wall Street Journal reported that of the 39 companies in the S&P 500 that reported sales to Europe, revenue was up 11.4%.
Compared to 2010, the 2011 sales to Europe were a bit lower, but still accounted for well over 24% of the global revenue of the 39 companies. (See the report here.)
Apple Inc. (AAPL) was one of the big winners, as the company reported a 55.1% gain in revenues from Europe, followed by a 31.5% increase from Caterpillar Inc. (CAT). On the other side of the ledger is Western Digital Inc. (WDC), whose revenue from Europe dropped 32.3%, and Linear Technology Corp. (LLTC), whose European revenue was down 28%.
Looking at the performance over the past year, it is no surprise that Apple leads the pack, gaining 33.1%, followed by Caterpillar, which is up 14.3%. Western Digital was also higher by 11.3%, while Linear Technology lost 2.9%. Those stocks with deteriorating trends in European revenues may be more vulnerable to selling as the year progresses.
- There is also trend line resistance, line a, just above $480
- The relative performance, or RS analysis, broke through resistance, line c, in July 2011, signaling that AAPL was again outperforming the S&P 500
- The on-balance-volume (OBV) is back above its weighted moving average (WMA) but has not yet broken through the bearish divergence resistance at line d
- There is first support now at $454-$460 and then stronger support in the $430 area. The weekly uptrend, line b, is in the $390 area
Caterpillar Inc. (CAT) has made little upside progress this week and is now near the 2010 highs of $116.55. The weekly Starc+ band is now in the $118 area.
- The RS line moved through its weighted moving average at the end of October and then dropped back below it in December
- The RS overcame stronger resistance, line f, in January, confirming that CAT was a market leader
- Volume has been strong over the past month, as the OBV has moved through its downtrend, line g, and its weighted moving average
- There is first strong support now in the $98-$104 area
- There is resistance from April 2011 in the $42 area with additional resistance at the early-2010 high of $47.44
- There are Fibonacci price targets from the flag formation in the $54-$55 area
- The break in the long-term downtrend in the RS, line c, confirms the price action
- The weekly OBV has also overcome its downtrend, line d, and has surpassed the early-2011 highs, as it is acting stronger than prices
- There is initial support at $37.40-$35.92 with stronger support in the $33-$34 area
Linear Technology Corp. (LLTC) has also just overcome its weekly resistance, line f, and is just below the May 2011 high of $35.30.
- The weekly Starc+ band and the 2011 high are in the $36.14-$36.30 area
- The RS line is still below its downtrend, line g, and has failed so far to move above the November highs. This is not an encouraging sign
- The OBV is also lagging the price, as it is well below its downtrend, line h. This in not impressive, and a drop below support at line i would be negative
- There is initial support now at $32.50 and then at $31.30
What It Means: The European revenue data is quite interesting but is only of investing value when it lines up with the technical action. It’s no real surprise that Apple Inc. (AAPL) and Caterpillar Inc. (CAT) lead the list of top earners in Europe. CAT shares look a bit tired, but the long-term RS analysis suggests the stock should be a good buy on a correction.
The completion of the long-term triangle (flag) formation in Western Digital Corp. (WDC) is likely positive for the intermediate term. It should be monitored for a buying opportunity, while the weak technical action in Linear Technology Corp. (LLTC) suggests that it should be avoided.
How to Profit: An apparent resolution of Greece’s debt deal may be enough to push the S&P 500 to the 1360-1370 area, but buyers should not be chasing the long side at current levels.