Wyatt Research Week in Review: April 17-23

Stock Market Today
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Earnings season is officially here in earnest.
The season of beats and misses unofficially began on April 11, when economic bellwether Alcoa (NYSE: AA) beat on earnings per share estimates but missed on revenue and saw its shares fall 4%.earnings season
The aluminum albatross was followed to the earnings stage last week by the bulk of the big banks. My colleague Bob Ciura highlighted JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) – the largest U.S. bank by assets and the leader in mortgage originations, respectively – which each made a decent showing despite weakness in their energy loan portfolios.
Wall Street saved the worst for last. Goldman Sachs (NYSE: GS) reported on Tuesday – a few business days late from its big-bank rivals and more than a few dollars short.
Goldman posted a 60% decline in net income and 40% dip in first-quarter revenue. It was its worst first quarter in 12 years.
Too many major companies reported quarterly earnings during the past week to get into too much detail in this limited space, but allow me to give a few thumbnail spotlights:

  • Netflix (NASDAQ: NFLX) added 6.74 million subscribers during the first quarter, beating estimates of 6.1 million. But shares tumbled 13% on Tuesday after the streaming-video provider projected that it will add just 2 million international subscribers in the second quarter. Analysts had been expecting 3.45 million overseas customers for the upcoming quarter.
  • Yahoo (NASDAQ: YAHOO) didn’t do itself any favors in its quest for a knight in shining armor to rescue it from the brink. The Internet portal company reported an 11% fall in revenue.
  • Intel (NASDAQ: INTC) beat earnings expectations but raised eyebrows with plans to lay off 12,000 employees. The chipmaker has struggled to transition from the decline of its former bread-and-butter PC business to the mobile age.
  • Coca-Cola (NYSE: KO) reported flat soda sales, which contributed to a 4.8% decline in net income and 4% revenue dip. Arch rival PepsiCo (NYSE: PEP) also saw sales fall but beat earnings expectations on the strength of its Frito-Lay snacks division.
  • McDonald’s (NYSE: MCD) supersized its profits, posting earnings of $1.23 per share, which beat the average analyst estimate of $1.16. Strong demand for all-day breakfast fueled a 5.4% gain in first-quarter U.S. comparable sales.

During a week in which the Dow Jones Industrial Average danced back and forth across the symbolic 18,000 level, the mixed bag of U.S. corporate earnings suggests that despite the CBOE Volatility Index hitting its lowest level of 2016, further fear and volatility could be lurking.
Here are some of my favorite Wyatt Investment Research articles from the past week:
Is This the End of the Road for the Oil Run? – For months, oil market bulls awaited a production freeze between major OPEC and non-OPEC producers. Then the Doha oil summit meeting in Qatar came and went last weekend with no agreement. Yet the momentum investors partied on, pushing up oil prices. Why? And was it justified?
Small-Cap Drug Company in Activist Cross Hairs – Starboard Value has found its latest target. And don’t be surprised if this small-cap drug company is forced into a buyout before year-end.
The Key to Wealth Creation: Investment Income and Patience – A few years ago, LPL Financial produced a report that showed that the average holding period of an NYSE-listed stock has trended down through the decades. The average holding period was just over eight years in 1960. A decade later it had been reduced to just over five years. By 2010, it had shrunk to six months. This inability to stay the course is problematic. As Warren Buffett once observed, “Successful investing takes time, discipline and patience. …You can’t produce a baby in one month by getting nine women pregnant.”
Are US Homebuilder Stocks About to Go Vertical? – PulteGroup (NYSE: PHM), the third-largest homebuilder in the United States, is currently embroiled in a bitter internal feud between its founding family and its current CEO over the future direction of the company. PulteGroup has been a notable underperformer, but not all homebuilders are created equal, and key economic indicators suggest that industry tailwinds are in the forecast.
Profit From Front-Running the ECB – Back in mid-March, the European Central Bank announced it was raising its monthly quantitative easing purchases from €60 billion to €80 billion. But the real news is that the ECB will add the purchase of “investment-grade euro-denominated bonds” issued by European companies in the eurozone. That could be a game changer for investors in European corporate bonds.
Beat the Buyback Bubble With These Dividend Darlings – Stock buybacks have helped boost the S&P 500 to all-time highs, but the good times seem to be over. U.S. corporations announced just $180 billion in share repurchases last quarter, which is the biggest slowdown since 2012. Buyback plans are said to be great ways to return cash to shareholders, but they still can’t compare with companies that pay dividends, which actually puts cash in shareholders’ pockets.
Just One Company Holds Its Own in a Battered Coal Industry – The coal industry was dealt another lump last week when Peabody Energy filed for bankruptcy protection. Still, one coal company could be a compelling deep-value play.
How Bad Perception Leads to Good Investing Opportunities – The direst geopolitical conditions invariably generate the greatest media noise, but they also produce investing opportunities for the intrepid contrarian.
Have a great weekend!

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