A Close Look at Earnings Trends

01/24/2014 12:01 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

After the first full week of non-financial earnings, MoneyShow's Jim Jubak closely examines the results to determine what trends are likely to impact investors in the coming weeks.

For the week ahead, let's watch earnings. The week of January 21 through, whatever, the 25th, was really the first big week of solid non-financial earnings. I think there's a pattern there and we need to look ahead and see whether it follows through because the pattern has not been particularly positive. It's not that earnings have been terrible. We're not seeing lots of misses, but what we're seeing is very, very, well, not enthusiastic responses to earnings, because companies are, basically, either just beating by a penny or missing slightly, but earnings are not really breaking through expectations. In a market that's at an all-time high, this is a problem.

Let's take the day of the 21st of January. Sixteen out of 17 companies reporting that they beat earnings. Most of them went down on the result. Johnson & Johnson (JNJ) is a good example. They beat by $0.04, which is a pretty decent beat, but in this environment, analysts and investors now are actually looking at how companies are doing this beat, because they're looking to see whether they're doing it by share buybacks, or cost cutting, or whether they're getting organic growth. In the case of Johnson & Johnson, the stock went down because the beat was, mostly, because the company was going to pay a whole lot lower tax rate for the quarter. This is not something; it was not expected by analysts, a big drop in tax rate, but not something that you can replicate quarter after quarter. Investors basically said this beat doesn't count.

We're getting about the usual number of companies beating estimates. We've had about 70 so far, but they're not convincing. We get a company like Abbott (ABT) that matches expectations, and then misses on revenue, or we get a company like US Bancorp (USB) that beats by a penny on earnings, but then the revenue's only in line. That's not enough to get people enthusiastic about stocks, when stocks are at these prices, and where there's enough background worry about China, housing prices, and emerging markets to keep investors on edge. That's what I would look for, for the rest of the earning season, to see whether we get some enthusiasm going here, because otherwise, it's going to be very hard in the short-term for stocks to move up.

This is Jim Jubak for the MoneyShow.com Video Network.

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