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Apple Earnings Good or Bad?

Finance Gourmet — Mon, 23 Apr 2012 20:06:32 +0000

Apple reports earnings on April 24. This report is actually for earnings from the 2nd quarter of Apple’s fiscal year, even though corporations on a calendar year are reporting first quarter earnings right now. (Several tech companies reported earnings last week.)

After a rough week for the company in the headlines, these earnings will likely be used as a gauge for the short-term future of Apple stock.

Recently, Apple has been the subject of legal action from the Justice Department regarding alleged price-fixing for ebooks. Although this makes up a tiny portion of Apple’s revenue, it is a major key in how the Apple store works. If there is a problem with this model for books, there could conceivably be issues in other markets as well.

What is not in doubt is that Apple will continue to dominate the tablet computer market and that its prolific iPhone will continue to be a huge player in the smartphone market. There is little doubt among analysts that things in the marketplace look good for Apple in both the short and long-term.

In fact, the only real question about Apple stock these days seems to be whether the company’s shares have risen too far, too fast. The stock, which hit $600 earlier, has declined to closer to $575 per share. There are two main concerns about Apple’s stock. One, is have investors simply gotten ahead of themselves, in which case share prices would hold at this level or rise much more slowly going forward. The second is has the company’s extraordinary growth finally topped out, in which case, share prices might need an actual reset in the marketplace.

As CEO Tim Cook likes to point out, the markets Apple is in are huge and they are growing. Additionally, it isn’t like Apple has an 80 percent market share in mobile phones. There is theoretically plenty of room for Apple to grow there.

However, just because Apple doesn’t dominate the entire smartphone market, it may dominate the smaller high-end smartphone market. In other words, if everyone who wants, and can afford, an iPhone already has one, then the company’s growth is on shaky ground. There are few analysts, however, who espouse this theory.

Some technology pundits have begun suggesting that Apple will see reduced subsidies from carriers for the iPhone. However, Apple has multi-year agreements with carriers, so any impact from such a move would be down the line. In addition, unless a dazzling Windows Phone or Android phone comes to market, Apple still has remarkable leverage with carriers. In fact, some analysts question whether Sprint gave up too much to be in the iPhone market. That isn’t something that you worry about right before a company is forced to agree to less favorable terms.

Expect Apple’s stock price to move dramatically following the earnings announcement, but the expect whatever movement occurs to be tempered over the coming weeks as clearer heads prevail.

Check Apple’s investor relations webpage to listen in on an audio webcast of the earnings conference call.

No related posts.

Apple Earnings Good or Bad? originally published at Personal Finance Blog - FinanceGourmet.com

Tech Earnings Week

Finance Gourmet — Sun, 22 Apr 2012 16:59:37 +0000

This past week featured the earnings release of several major technology companies, coming closely on the heels of major earnings announcements from other tech companies, including Google and Apple.

IBM Earnings

First up, IBM reported revenue of $24.7 billion leading to earnings of $2.78 per share. The consensus estimates from analysts were a bit higher for revenue, but a bit lower for earnings per share. The company did raise its full-year earnings guidance, but it wasn’t enough. Investor reaction wasn’t pretty with shares dropping 2.4 percent the following day, and continuing down. The technology giant closed on Tuesday before reporting earnings at 207.31 and closed Friday at just 199.55. IBM’s results have also been blamed for the general downward direction of the markets for the end of the week.

Still, IBM has a long history of boosting its share prices, primarily by buying back enormous amount of stock each year.

Intel Earnings

Intel’s earnings didn’t make investors any happier. The stock has had a pretty good run-up as of late, so anything other than a gangbusters quarter was likely to lead to a poor reaction. Intel shares got it. The stock closed before earnings on Tuesday at 28.48, but finished the week at 27.60.

The company reported revenue for the first quarter of $12.9 billion and net income of $2.74 billion. Earnings per share were 53 cents.

Microsoft Earnings

Microsoft reported earnings on Thursday. Unlike Intel and IBM, the software giant’s earnings news did not disappoint investors. Rather, the stock rallied more than five percent on Friday.

The company reported third-quarter results (of its fiscal year) of $17.4 billion in sales and a $5.1 billion, or 60 cents per share, profit. Although 60 cents is slightly lower than last year’s 61 cents a share profit, that number included a one-time tax benefit to the company’s bottom line.

The big news out of Redmond was that personal computer sales rose last year. Many technology pundits have been forecasting a decline to the rise of personal computing devices like tablets and smartphones. That data translated into a four percent increase in Windows sales ahead of next year’s release of Windows 8, which, once again, is considered a make or break product for the company.

It wasn’t all good news. The company reported lower sales in its entertainment business, which consists primarily of its Xbox gaming system. The aging platform is reaching saturation, where pretty much anyone who wants to have a current Xbox system already has one. Since the company isn’t expected to release an update to the system in the near future, this is an area where weakness will likely continue.

EMC Earnings

EMC is the world’s largest maker of corporate data storage equipment, and the owner of VMware. It’s earnings, therefore, show specific insight into how big business technology spending is going.

The company earned 37 cents per share on revenue of $5.1 billion, an increase of 11 percent. The company attributes much of that gain to continuing demand for cloud computing. However, the company’s outlook for the future disappointed investors who dropped the stock down four percent on Friday.

eBay Earnings

On Wednesday, eBay reported quarterly revenue of $3.3 billion, and a profit of $725 million or 55 cents per share.

The company, which also owns popular payment service PayPal, foretasted similar profits for next quarter.

Unlike the others, eBay’s earnings impressed investors who pushed the stock price from a Wednesday close of $35.87 to a close on Friday of $40.29.

Tech Forecast for 2012

The outlook for technology stocks for 2012 looks mixed right now. If the economy manages to maintain its slight upward growth, it looks like the tech bellwethers will be in good position to capture the upside. However, if economic growth fizzles, it looks like customers and business will have no problem quickly retrenching and quashing tech spending for the remainder of 2012.

If you are going to be investing in tech during 2012, keep a sharp eye on the economic indicators going forward. The industry does not have the momentum to rise in the face of an overall decline in the economy for the remainder of the year.

No related posts.

Tech Earnings Week originally published at Personal Finance Blog - FinanceGourmet.com

Google Lower Cost Per Click Doesn’t Matter

Finance Gourmet — Fri, 13 Apr 2012 04:44:54 +0000

Google just reported its quarterly earnings. They did very well, beating pretty much every analyst’s numbers. Those who want to nitpick will complain that the price per click has gone down. However, that isn’t really surprising considering that the number of clicks went up. There are some issues coming with Google’s stock, but this isn’t one of them.

Google Cost Per Click Down

Google’s advertising model is based on advertisers paying either “per click” or “per impression.” Actually, advertisers pay per every thousand impressions, but that isn’t the point. Advertisers who pay using the per click model pay a certain amount each time someone clicks on their ad, but nothing if the ad goes unclicked.

A smart online advertiser using the per click model will determine how much each click is worth. There can be many ways of determining this, and numerous intangibles are considered by some advertisers. However, the most simple concept would be something like this.

Maximum payable cost per click = Amount of revenue generated per click / Number of clicks necessary to generate revenue.

In other words, if you generate $1 per transaction (this is called a conversion) and it takes you 10 clicks to generate one transaction, you can pay no more than 10 cents per click, which break even. You’d have to pay nine cents per click to generate a profit.

Google chooses which ads to display using an algorithm that takes into account several factors including the quality of the ads, how often they are clicked, how often they convert, and so on. However, all other things being equal, the highest paying ad is placed first. Furthermore, each advertiser can set various limits on the way their ad dollars are spent. When an advertiser’s limit is reached, his ads no longer display, regardless of their offering price.

With this in mind, we can see that if the number of clicks go up, the cost per click will go down, assuming all other factors are unchanged.

Here is how it looks.

Advertiser A offers 50 cents per click, up to 1,000 clicks per some time period.
Advertiser B offers 25 cents per click, up to 1,000 clicks per some time period.

That means that:

The CPC will be 50 cents so long as there are 1,000 or less clicks.
The CPC will be less than 50 cents if there are more than 1,000 clicks.
The more clicks there are beyond 1,000, the further the CPC will drop.

As you can see, if advertisers make no changes to their advertising budgets and limits, the CPC will always drop when the number of clicks increases.

In fact, if the number of clicks and the the CPC increase at the same time, then that is an indicator that advertisers have dramatically increased their ad spending on Google. Because, in order for both the CPC and the number of clicks to increase, the additional CPC must offset the lowering power of an increasing number of clicks.

The other big news out of Google’s earnings today was the so-called stock split being used to shore up the founder’s control of the company. This isn’t really necessary, and we’ll explore why tomorrow.

Google Lower Cost Per Click Doesn’t Matter originally published at Personal Finance Blog - FinanceGourmet.com

Dow 13,000 What Does It Mean?

Finance Gourmet — Fri, 02 Mar 2012 17:27:14 +0000

As always, the mainstream media perked up about the stock market and investing world when the Dow Jones Industrial Average passed the made-f0r-headlines 13,000 level. The guys that write news story headlines love round numbers, maybe because everyone else does too. But, just like our infatuation with round number birthdays, such as turning 40, there is no real difference between Dow 12,956 and Dow 13,000, just like there is no real difference between being 39 and being 40 years old.

Is Dow 13,000 Meaningful?

The 13,000 number is purely psychological, but it does provide an opportunity to take a look at how the stock market and the economy are doing lately.

First, and foremost, most storied correctly noted that this is the first time the Dow has managed to gain the 13 K level since 2008. That is significant for two reasons. One, 2008 basically marks the beginning of the stock market crash caused by the bursting of the housing bubble and the subsequent financial crisis, all of which triggered what has become known as The Great Recession. Two, it means that maybe some investors should be seeing a recovery in their portfolios.

It is tempting to draw the conclusion that this means the market is back and fully recovered. However, that would be jumping the gun. While the stock market is a leading indicator, it’s pricing is currently based on pretty much everything going right in the near future. In other words, this level is precariously balanced between the Greek debt crisis lessening, the U.S. economy continuing to improve, and Washington D.C. not ruining the whole thing in a rash of election year politics.

Lost Decade Lost?

Perhaps more significant than the mental importance of a round number like 13,000 or what it means relative to 2008, is what this level is starting to represent in the bigger context.

Over the last few years, investment product marketers, particularly annuities, have made a lot of hay out of what is called, “The Lost Decade.”

The lost decade refers to the concept that if you invested some money 10 years ago, you have the same or less money than when you started. Of course, to them, the solution is an investment product with a guaranteed rate of return such as a variable annuity or equity-index annuity.

We’ll leave that discussion for another day, but let’s take a look at where we are with the recent market improvement.

The week of March 4, 2002 saw the Dow close at 10,572.49, significantly less than the market’s current 13,000 level. Now, that is hardly an eye popping return for the last 10 years, but it starts to throw cold water on that argument, particularly if the market continues to improve.

The other thing to notice is how quickly this whole thing happened. From that 13,000 of 2008 to under 7,000 in 2009 took less than a year. That scared a lot of people and many of them pulled their money out of the stock market or stopped putting money into their 401k plans or IRAs. Unfortunately, as history has shown time and again, that was exactly the wrong move.

From the 6,600 level in March, 2009 the market made a wrenching set of moves up and down shaking confidence even further. But, given the benefit of hindsight, the market essentially climbed right up from that low to over 10,000 by the beginning of 2010. 2011 started around 11,500 and now, in 2012, we are talking about 13,000.

However, there has been no “all clear.” No one says the economy is out of the woods. It is only recently that unemployment has started to come down and that other economic statistics have started to go up. In other words, if you have been waiting for things to get better or more stable before you moved back into the market, you are already too late. This is why most people never get the 10 percent historical return in the stock market. When you pull out when things are low, chances are you don’t get back in until they have already recovered.

What will the next 10 years bring? I don’t know, and neither does anyone else. What I do know is that if you maintain the proper asset allocation, rebalance your portfolio annually, and stay invested, you’ll be richer than you are today.

Dow 13,000 What Does It Mean? originally published at Personal Finance Blog - FinanceGourmet.com

Stock Market 2011 Results

Finance Gourmet — Sat, 31 Dec 2011 21:04:33 +0000

The results of the stock market for 2011 are basically flat. While the Dow Jones Industrial Average can claim a small gain, the S&P 500 Index ended 2011 with a small loss. Likewise, the NASDAQ ended down for 2011 as well.

2011 Dow Jones Up

The Dow finished up for 2011 thanks in part to the makeup of the index. The stocks in the Down Jones Industrial Average contain only large U.S. companies. While financial companies make up a significant number of the stocks, their impact is limited because the Dow Jones Average is a price-weighted index. That means that higher priced stocks have more influence on the average than lower priced stocks.

Most financial stocks have very low share prices these days, and as a result, their performance doesn’t drag as heavily on the average. Bank of America was the worst performer in the Dow having lost 58.3 percent for the year.

The Dow Industrials finished up 5.5 percent for the year. That is three consecutive positive years for the Dow, although nobody is dancing in the streets over this year’s performance, where many components had flat or down years.

The top 5 Dow stocks for 2011 were McDonald’s (up 30.7%), IBM (up 25.3%), Pfizer (up 23.6%), Home Depot (up 19.9%) and Kraft Foods (up 18.6%).

2011 S&P 500 Down

For 2011, the S&P 500 Index finished down for the year, although it’s performance was essentially flat, down less than 0.1 percent for 2011. Unlike the Dow average,t he SP500 index is weighted based upon each stock’s market capitalization. The dismal performance of the financial stocks included in the index have large market caps and weighed heavier, pulling the index down.

For example, IBM’s high share price (around $185 per share) means that it’s positive returns for the year count a lot toward the up side for the Dow versus Bank of America’s terrible performance being only a small impact thanks to its $5 a share price. On the S&P 500 Index, however, Bank of America’s $56 billion market cap gives it much more pull.

NASDAQ 2011 Performance Down

The Nasdaq Composite Index was also down for 2011. It finished the year down about 1.8 percent.

Other Stock Markets in 2011

International markets didn’t do as well as the U.S. In Europe, the growing Euro crisis has engulfed not only Greece and Ireland, but Italy and Spain as well. Britain’s main index, the FTSE dropped 5.6 percent for the year and the main German index, the DAX, was down approximately 15. That is its first down year since 2008.

Elsewhere, the Asian index, the Nikkei was down 17 percent.

For 2011 Gold was up 10.2 percent for the year (down from this summer’s +33 percent peak). Oil was up 8.2 percent for the year.

2011 Market Recap

So, what does the market performance for 2011 mean for investors?

Almost nothing.

The small gains and losses for the year hide the extreme volatility that took place during the year through bone-headed gridlock in Washington, particularly over raising the debt-ceiling, and the building financial crisis in Europe.

Overall, regular investors would be wise to take very little stock of how the markets overall performed during 2011. Instead, investors should focus on finding good companies with strong management since those are the only ones poised to benefit from what looks to be weak economic growth during 2012.

For American’s regular lives, the markets offer no real solution or problem to the ongoing economic issues. Recent economic data suggests that the economy might FINALLY be turning a corner, assuming the current my-party-is-more-important-than-the-country mentality in Washington can either be overcome, or sidelined by a nation that has grown largely disgusted with everything the comes out of the nation’s capital.

If jobs continue to get created and Congress doesn’t break the fragile economy, 2012 might see better investment performance, and more importantly, set the stage for real economic growth and investment performance in 2013.

Happy New Year, Everybody!

Stock Market 2011 Results originally published at Personal Finance Blog - FinanceGourmet.com

S&P 500 Down for Year 2011

Finance Gourmet — Mon, 19 Dec 2011 04:12:33 +0000

Reuters has an article today noting that the S&P500 index is in negative territory for the 2011 year. That’s bad news for the huge number of investors invested in index funds. The benchmark for many mutual funds and other investment’s performance is down approximately 3 percent year to date. To get make the market index positive for 2011 would take a return above 1,257.64.

Ironically, most investors are used to getting a so-called “Santa Claus” rally at the end of the year as money managers position their balance sheets and investments ahead of end of year reporting. However, this year, the problems in Europe, their affect on the Euro, and the potential collateral damage in the U.S. markets has kept investors from being in a merry mood.

As the year winds down, trading volume typically declines in the markets. Mutual funds, hedge fund managers and other money managers that are up for the year, sell everything and hold cash through the end of the year to lock in their gains.

Smaller investors, aware of the holidays, also position themselves to have only those investments they wish to hold for the long-term. That not only frees them up from having to watch the markets while at Great Aunt Margret’s house, it also prevents any surprise capital-losses or capital-gains that might upset carefully planned tax strategies.

The final two weeks of the year may produce enough of a rally to push the S&P 500 into positive territory, but it won’t be enough to make anything more than single digits show up in the 2011 column for all of those investor marketing materials and mutual fund prospectuses.

As anyone who lived through it (all of us) can tell you, 2011 doesn’t deserve to go down as a “good year” and it most certainly won’t look that way on paper when the math is all said and done.

Mutual Fund Returns 2011

I thought it would be interesting to see how some of the big mutual funds were doing in light of the single-digit change (positive or negative) likely coming for the S&P 500 index. Keep in mind that many of these funds do not use the S&P500 for their benchmark. However, investors are free to compare their investment returns to whatever they wish, and I always remember that I can have a low-expense S&P500 Index based ETF for much less than any mutual fund, so if they better at least make me feel good about it.

Unless otherwise specified, all funds listed are the “main” share class. Check the ticker symbol listed if you are really interested.

Year to Date Returns as of Market Close Friday, December 16, 2011 according to Morningstar.com.

PIMCO Total Return Fund (PTTRX) +3.68%
Fidelity Contrafund (FCNTX) -2.47%
American Funds Growth Fund of America (AGTHX) -7.19%
American Funds Capital Income Builder (CAIBX) +0.28%
American Funds Income Fund of America (AMECX) +2.94%
Vanguard 500 Index Fund (VFIAX) -1.07%
Dodge & Cox International Stock Fund (DODFX) -18.62%
Dodge & Cox Stock Fund (DODGX) -6.87%

As you can see, some funds are right there and some are getting hammered. International funds, particularly those with heavy investments in Europe, are understandably volatile. Bond funds are less volatile, although many are not in positive territory either. It’s hard to make much money in bonds when prices are held hostage by a zero percent interest Fed policy.

This year wasn’t necessarily pretty, but considering the state of the economy for much of the year and the slow improvements in the U.S. job market, there really isn’t much reason to think the stock market would react any differently.

S&P 500 Down for Year 2011 originally published at Personal Finance Blog - FinanceGourmet.com

Market Up on Good Economic News

Finance Gourmet — Thu, 15 Dec 2011 19:39:36 +0000

Just a quick update today:

The stock markets ticked up today on a little bit more good economic news. Following recent good labor market news and the Fed holding interest rates at zero, comes statistics showing last weeks jobless claims were at a 3 1/2 year low.

Also, several large companies reported good results.

Furthermore, two regional business surveys from the Federal Reserve showed better than expected growth for December.

Finally, the general business conditions index for New York was higher again showing an increase in both new orders and hiring. That’s yet more good news for the job market.

We’ll have new articles about end of year tax strategies, financial planning for those in extreme circumstances, and more in the coming days.

No related posts.

Market Up on Good Economic News originally published at Personal Finance Blog - FinanceGourmet.com

S&P 500 Equal Weight Index Not a Lost Decade

Finance Gourmet — Mon, 05 Dec 2011 21:29:51 +0000

Bloomberg has an interesting snippet about that so-called “lost decade” everyone keeps talking about. It turns out if you had invested in the stocks of the S&P 500 equally (equal weight) back at the market peak of March 24, 2000, you would have had a 66 percent gain through December 2, 2011, not a zero percent gain.

Unfortunately, most people who invest in the S&P 500 Index do so in the same way the index is calculated, capitalization-weighted. That means that you buy more of the bigger companies and less of the smaller ones. There are some index funds and ETFs that allow you to invest in the S&P 500 Equal Weighted Index.

There are actually numerous ways in which this was not a lost decade for investors, most importantly, if you KEPT INVESTING, which is what both savvy and not-so savvy investors did when they did not turn off their 401k contributions through this turbulent decade. Those investors could have much more money today than the beginning of the decade and are primed for a much bigger recovery when the U.S. economy finally pulls out of its doldrums and moves ahead.

Stock Market 4th Quarter Turn Around

Finance Gourmet — Fri, 14 Oct 2011 20:21:48 +0000

Sometimes it seems like the stock market is just messing with people. After seemingly running off of a cliff to end the third quarter of 2011, the market has recently staged a rally. Take a look at a chart for the Dow Jones Industrial Average and you’ll see a low point on October 3, 2011. It’s almost like the market wanted to make sure that your third quarter statements looked bad before any sort of upward movement.

Of course, there is a long way to go until the end of the year and pressing economic matters like the debt crisis in Europe, the joint budget cutting committee and an unemployment rate that won’t go down are still to be resolved.

For the time being, non-day trading investors should remember that short-term movements in the stock market are notoriously difficult to predict.

End of Year Portfolio Rebalancing

Many experts recommend rebalancing your long-term portfolios like retirement accounts (IRAs, 401k, and other retirement plans) once a year. Traditionally, many people do it near the end of the year. If you haven’t rebalanced your portfolio since last year, it’s a good time to start thinking about doing it soon.

Stock Market 4th Quarter Turn Around originally published at Personal Finance Blog - FinanceGourmet.com

2011 Stock Market Update Q3

Finance Gourmet — Sun, 02 Oct 2011 20:44:29 +0000

The third quarter just closed on September 30th and it was not a pretty sight for short-term investors. The S&P 500 closed at 1,131.42 which is down 14 percent for the third-quarter. It started the year by opening on January 3rd (the 1st and 2nd were Saturday and Sunday, respectively) at 1,257.62. That is a drop of a little over 10 percent year to date. The Dow Jones Industrial Average is off 5.74 percent year to date.

The stock market took a huge dive starting July 21st and has never pulled itself back up. For those of you looking for the culprit, let me help you out. The debt ceiling deal was reached at the end of July, which means the 21st was pretty much the height of the shenanigans. The markets have had no truly good news since to pull themselves back up by.

Outlook for 2011 4th Quarter Stock Market

Don’t expect the news cycle to save the stock market during the fourth quarter of 2011. In the 4th quarter, we’ll see increasingly competitive rhetoric building in the Republican Presidential primary, the product of the debt ceiling committee, which most are projecting will fail, and the start of the holiday shopping season, which will likely get spun in the mainstream media as a disaster early on, no matter how it ends up going in the end. Furthermore, the Fed is out of the picture having approved its latest financial stability plan, “the twist.” And, finally, the European debt crisis has no indication that there will be any sort of grand resolution by year end.

In other words, there is not likely to be any sort of overall good news politically, economically or anecdotally. In fact, most of the news around the stock market will likely be bad news, not good news.

So, what will push the stock market up in 4th quarter of 2011?

The best answer is probably nothing. The markets may move in an upward trend over the last three months of the year if investors starting looking ahead to 2012 and liking what they see. (Remember, the stock market is a leading indicator.)

The other possible savior may come from earnings reports. With the third quarter over, companies will be reporting their 3rd quarter earnings in the coming months. If a sufficient number of companies are able to report good enough earnings, coupled with positive outlooks for next year, the markets could see a significant boost for the end of 2011. In other words, a Santa Claus rally is not out of the question. However, if this market is going to go up for the rest of 2011, it’s going to have to do it on its own.

Stock Market Outlook for 2012

How does the stock market look for 2012? That question isn’t as hard to answer as it may seem.

The news cycle has already punished the stock market, and it will continue to do so for the foreseeable future. The eventual Republican Presidential nominee will do their best to paint the economy as an unmitigated disaster and the short-term impact of billions of dollars of government spending cuts may just make that a self-fulfilling prophecy. (Don’t forget, tax-cuts and lower regulation are not short-term economic boosters, those things take time to work their way into the economy. The impact of government spending, or lack thereof, has an immediate impact, even if the full repercussions aren’t felt for many years.)

In other words, people aren’t likely to be in a big investing mood. On the other hand, most trades on Wall Street are computers talking to other computers and they might start to like what they see.

The U.S economy has been mired in a recession for longer than is typical. The boom (some say bubble) coming out of Silicon Valley may well be the last spark that is needed to push the economy forward and most economists do expect some growth next year, no matter how weak.

In other words, 2012 or 2013 is the start of the next bull market. Long-term investors may as well get in now, or wait until after the stink from the Congressional Joint Select Committee failure clears the air. Either way, buying low means buying when things sound bad but the future looks like the only way is up.

If your investing horizon is longer than the next 12 months, that time is now.

Disclaimer: This is not an offer to buy or sell securities. This is not specific investment advice and should not be relied upon for you investing decisions. Consult a financial professional for financial advice specific to your situation. Consult a tax professional for specific tax advice.

2011 Stock Market Update Q3 originally published at Personal Finance Blog - FinanceGourmet.com