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Börsipäev 11. oktoober

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  • Rev Shark:

    When Good News Isn't
    10/11/2005 8:57 AM EDT

    "There are no facts, only interpretations."

    -- Friedrich Nietzsche

    With earnings season kicking off, it is time once again to contemplate the eternal question: is good news good news or is good news bad news? The impact of earnings reports is a function of expectations and interpretations, not factual information. It is impossible to effectively trade stocks during earnings season if you we do not appreciate the context in which news is released.

    One of investors' most common mistakes is assuming "good" earnings news means a stock will jump. It certainly seems like a reasonable proposition but like most things in the stock market it isn't that simple. The reaction of a stock to earnings depends primarily on expectations; beating analyst estimates isn't enough if everyone expects that to happen.

    A great example of this was Intel (INTC:Nasdaq) last quarter. The stock had run up sharply in front of its earnings report and some commentators thought that buying in front of the report would be a good idea because they expected strong numbers. The numbers turned out to be pretty good but the big problem was that the good news was already fully priced into the stock. Once the news hit, the stock spiked down and it's been in a nasty downtrend ever since.

    This quarter we have the opposite setup in Intel. The stock is down about 20% from the point were folks bought in front of earnings last quarter. The recent price action seems to indicate much lower expectations this quarter. Because expectations are lower there is a much higher chance that an in-line report will be interpreted by the market as a positive.

    Earnings season can be very dangerous and many folks are inclined to gamble by buying in front of a report. It is a good way to create some excitement but it generally isn't smart speculation. I'll discuss this further but betting on earnings reports is not a good tactic if you consider the potential risks vs. the potential returns.

    This morning we do have some good earnings from Genentech (DNA:NYSE) and Alcoa (AA:NYSE) and that's boosting the market to start the day. Expectations appear to be tame and that is positive for the market. Crude oil is trading up but overseas markets are frisky. The bulls have some ammunition for a bounce but they are swimming upstream against some ugly charts.

    Gary B. Smith:



  • RBC Capital usub pigem play no. 2 võimalikkusesse:

    Nokia upgraded to Outperform at RBC Capital; tgt raised to $22 (NOK) 16.82 : RBC Capital upgrades NOK to Outperform from Sector Perform and raises their tgt to $22 from $20, based on: 1) strong handset demand as they enter the holiday selling season, 2) their conviction that the co finally has a competitive product portfolio, 3) and their view that the co should benefit from stabilizing operating margins. Firm also says that although infrastructure pricing remains competitive and margins should decline in 3Q05, they are looking for stabilizing trends in 4Q05.
  • (AAPL) also reports this afternoon with cons Q4 EPS estimates of $0.37 on revs of $3.74 bln.

    Many are expecting the company to beat, seeing as the cons estimates are well above AAPL's guidance of $0.32 on revs of $3.5 bln.

    Q1 cons estimates call for EPS of $0.48 on revs of $4.53 bln. Any guidance will be watched, but most expect it to be conservative.

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