The “forward 4-quarter” estimate for the SP 500 as of Friday, March 15th, 2013 was $111.96, down a whopping $0.06 on the week, and down $1.92 since we rolled into the first quarter, 2013.
The p.e ratio on the forward estimate is 14(x).
The earnings yield is 7.17%.
490 of the 500 SP 500 companies have reported q4 ’12, with year-over-year earnings growth +6.1% and revenue growth of +3.6%, both much better-than-expected, pre- January 10th.
We think Q1 ’13’s earnings and revenues, which officially start April 9th or 10th, should be similar to Q4 ’12, i.e. low expectations, surpassed with better-than-expected actual results. We might not hit those same percentage gains, but I expect q1 ’13 to be better than the current +1.5% for earnings growth.
This coming week, we start to hear what are 1st quarter, 2013 numbers for a number of companies, with quarter’s ending February, ’13:
Monday: Micron Tech (MU) – DRAM company which one hedge fund manager described in the late 1990’s as “an airline with a fab attached”. All that means is that MU’s capex is often greater than the profits it generates over longer periods of time, meaning that as a company MU destroys capital. However, if you can get the cycle right, as in 1990 to 2000, you can make a boatload of money on the stock. DRAM prices are expected to be firm in 2013, and are thought to be up for the first quarter of 2013 already. MU could be interesting this year. Just know what you own.
Wednesday: We hear from Lennar (LEN) which is a homebuilder, Fedex Corp (FDX), the freight company and Transport component, both before the opening bell, and Oracle (ORCL) after the closing bell Wednesday. That is a good cross section of the economy, with growing bullishness around housing and homebuilding, FDX up almost 20% year-to-date, and Oracle giving a good look into “enterprise” technology.
Thursday: Nike (NKE), a consumer staple reports after the bell, with China and margins the key focus.
Friday: Luxury retailer Tiffany (TIF) reports pre-open.
Think about that: we get a look at a national homebuilder, a global transportation company with tentacles in every aspect of international business, an enterprise technology company with perspective into corporate tech spending, and a mid and high end retail perspective. All of the companies have a January or February quarter end too. I think TIF might have a January 31 quarter end, but the rest give us a pretty good look through the end of February, and the conference calls will likely include March commentary in terms of the business update. (Long LEN, FDX, ORCL, NKE)
Although every sector of the SP 500 remains overbought, the benchmark keeps chugging ahead.
Stat of the week:
Although I could have gotten the same info from going back through the pile of ThomsonReuters, “This Week in Earnings” reports, that is about three feet high and sits next to my desk, JP Morgan’s Market Insights Market Bulletin, which came out late Friday, March 15th has some info we have been thinking about for a while.
What has been the quarterly revenue growth rates for the SP 500 off the March ’09 low ? (The following is courtesy of Joe Tanious, CFA of JP Morgan via Sharika Cabrera, our JP Morgan coverage):
q4 ’12: +3.2%
q3 ’12: – 1.1%
q2 ’12: 0%
q1 ’12: +1.5%
q4 ’11: 0.4%
q3 ’11: +1.8%
q2 ’11: +2.6%
q1 ’11: +1%
q4 ’10: +1.4%
q3 ’10: +0.4%
q2 ’10: -0.1%
q1 ’10: +0.5%
q4 ’09: +2.3%
Commentary: Q4 ’12’s revenue growth run rate has been one of the strongest off the ’09 lows. Not included in the JPM report is that Financial sector revenue is +20% in q4 ’12. Although I havent confirmed that by going back through all the TWIE reports since March ’09, that without a doubt has to be the best y/y growth rate for the Financial sector in 4 – 5 years, possibly as back as far as 2006.
There is some other great data in the JP Morgan report I will get into during the week. (It is St. Patty’s Day and I’m late for a party, and remarkably lazy as well.) Great report, by Tanious. If you can get it, take a minute to read thoroughly.
Joe’s conclusions are a little different than ours: he thinks that any further market appreciation will essentially be from p.e expension on the SP 500. Joe doesn’t put much faith in SP 500 earnings growth growing much faster than mid-single-digits. I have a little more confidence in the US recovery, despite the job-killing and redistribution-of-wealth policies emanating from Washington. I still think we get close to 10% or even hit 10% y/y earnings growth for the SP 500 by q4, 2013.
The SP 500 faces very easy earnings “comp’s” in the back half of 2013.
Is Cyprus a big deal and is the Eurozone Crisis awakening again ? The region needs some economic growth. We’ll find out Sunday night at 8 pm central, when futures and the Nikkei opens for trade.
New position this week in Devon Energy (DVN). We have been looking for oversold names. Good summary of the stock by Colin Temple, a Twitter bud. Here is his blog review of DVN http://www.dydd.org/?p=3648, at www.DYDD.org. (Long DVN)
We are still long an inverse SP 500 position, SH. Painful. If the pattern holds, the correction will come early April, with q1 ’13 earnings. However this q1 rally is much different than 2010, 2011 or 2012. (Long SH)
Sandisk and IBM, both good breakouts this week. SNDK took out the October, 2011, high of $52 and change, while IBM took out the October, 2012, high of $211 and change. Still like ’em both. (Long SNDK and IBM).
Remember, “retail is detail”. I think the stocks and sector is looking quite gamey. However betting against retail at any time unless you have individual short positions has been folly. With companies not reporting monthly comp’s, analysts dont have the monthly crack habit of data to feed the models. (Long a bunch of retail names);
Cristina Padgett of Moody’s (MCO) published the Moody’s High Yield Research on the covenant quality of high yield bonds this week, and the index continues to flash yellow. We have upgraded our high yield funds to PIMCO’s higher-quality, high yield (i.e. the New Normal and all that) and have the JNK for a trade here. The problem with the Moody’s credit research as good as it is, is that the index is just a year or two old, and yelling the “sky is falling” is a good way to attract attention to your work. I’m not saying Moody’s is doing that, but yelling “Fire” can get folks attention. As long as economic growth doesn’t turn down suddenly, I think the mid to higher-end of the high yield bond market is probably ok. Given recent economic data, I would fully expect Q1 ’13 GDP growth to come in better-than-expected when reported in late April. I think a number of economists are already lifting Q1 ’13 GDP estimates, based on housing, and some other data.
Lots of housing data this week: Lennar (LEN) reports Wednesday morning. Here is our preview from www.seekingalpha.com:http://seekingalpha.com/article/1275911-lennar-earnings-preview-valuation-is-full-but-cycle-still-early
Interesting article from Standard & Poors on the rapidly improving credit improvement being discounted in homebuilder bonds: http://ow.ly/d/17vb. Very few credits in the homebuilder sector are investment grade rated. Toll Brothers (TOL) was long thought to have the best balance sheet in the sector, but I notice SP only has them rated BB+.
Jeff Miller’s, A Dash of Insight blog:http://oldprof.typepad.com/a_dash_of_insight/2013/03/weighing-the-week-ahead-more-opinions-less-data.html. Always one of the best reads of the week.
Quote of the week (my own, I hope): “You can lose your money in the stock market, a lot faster than you can make it elsewhere”. Evaluate risk as well as reward throughout your entire investment process.
Thank you for reading, if only one person looks at www.fundamentalis.com, then it is worth the effort.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA