I’m not sure if the potential fallout from Hurricane Sandy was playing a role in investor nervousness today, or maybe it’s the simple fact that third quarter earnings from corporate America have indicated a big trend of falling revenues. As we’ve pointed out several times by now, the only way companies seem to be growing profit right now is by cutting costs. Revenue growth just isn’t there.
In that same cost-cutting vein, another day, and another round of job cuts from a couple of well-known companies. Newell Rubbermaid (NWL) said today it would cut over 2,000 jobs, while at the same time announced a dividend hike. Rockwell Collins (COL) also announced 1,250 layoffs, or 6% of its workforce. This afternoon, UBS (UBS) announced plans to cut up to 16% of the company’s workforce, nearly 10,000 employees. The news may make Wall Street happy regarding higher dividends and profits, bit it certainly doesn’t bode well for an already fragile jobs picture.
Elsewhere, Apple (AAPL) shares traded lower following the company’s earnings miss/guidance. A couple of bright spots in today’s cautious tape included Eastman Chemical (EMN) and Expedia (EXPE), with both trading nicely higher on their respective earnings beats.
As always, we have all the latest earnings reports and analyst moves over at The Dividend Daily.Is Amazon.com Stock (or Any Stock for That Matter) Bulletproof?
When I first saw the earnings release from Amazon.com (AMZN) yesterday, I wasn’t surprised the company missed analyst estimates. After all, AMZN has been prone to earnings flops in the past.
The shares dipped a bit after hours, as expected. But because the stock had been falling most of the week going into the call, we may have had some short-covering from those betting on a much bigger stock drop. Hence, a possible reason why the shares opened higher this morning. That’s right — after a terrible earnings miss, Amazon shares are up more than 4% this morning.
Amazon is unique in that company management doesn’t really worry about how Wall Street will react to earnings and company moves. CEO Jeff Bezos has said for years that his focus is on long-term growth, not pandering to the short-term whims of analysts or investors. In that vein, the company continues to build out new warehouses as part of its strategy to push the retail envelope with same-day delivery. Amazon certainly benefits from its customer service abilities, and with many shareholders as satisfied customers, the stock has been able to avoid any severe declines in recent years.
However, one must wonder when the separation will come in regards to loving a company’s product/service and what should be an appropriate price to pay for owning shares of the company. I marvel at how the company admits to losing money on many items they sell, but how high volume is their saving grace. As I discussed the earnings with one of our analysts here at Dividend.com, someone pointed out how Amazon Prime may wind up being the company’s bread and butter, similar to how Costco (COST) makes its profits on membership dues, while everything else is a wash. There is certainly nothing wrong with that as a model, but what investors will want to pay for that model in due time, as opposed to what the valuation is now (you don’t even want to know), is the $64,000 question. For now, analysts are just going with it. Whatever the company says will suffice for now — until one day maybe it doesn’t.
I bring this point up because often times investors are draw to stocks that are trading parabolic (rising quickly) like Amazon. Folks love the stock and the brand, and blindly buy and hold it for long periods of time. Often times in those cases, the eventual outcome for those particular share prices is not anywhere close to what Amazon currently presents. The love from Wall Street often disappears quicker than most investors/traders would have imagined, and with that, eventually too so does investor capital.
These are all lessons to store as we proceed forward in our quest to build wealth in a consistent matter, which should be centered around assets that grow and pay us over time, and not for the short term fascination that many in the business media build false hope around. For those who have been fortunate to ride the Amazon.com wave over the last few years, be aware of how factors can and will change, and eventually valuations end up mattering for all companies.Looking Toward Next Week
Looking ahead to the next week for stocks, third quarter earnings will continue to come our way. On tap are results from the likes of Pfizer (PFE), Exxon Mobil (XOM), Chevron (CVX), and Ralph Lauren (RL), just to name a few. The focus will also continue to be on the economic data, the Presidential election, and as usual, the latest Wall Street analyst calls.