WASHINGTON, October 22, 2014 – It’s been a weird Wednesday on Wall Street. While Apple’s (AAPL’s) blowout fiscal 4th quarter results were good enough to blast the onetime tech darling out of its longtime trading range, one-time tech and computer king IBM (IBM) shattered the Dow Jones Industrial Average with poor quarterly earnings and a startling lack of corporate direction.
Meanwhile, Yahoo! (YHOO) also reported a great quarter. However, much of that was due to the faltering search and web site’s windfall profit, largely derived from September’s massive Alibaba (BABA) IPO. Yahoo! sold a substantial portion of its ownership in China’s dominant web player accounting for a large part of its gain.
The earnings performance of each of these stocks reminded us of those three characters in that classic Clint Eastwood spaghetti western, “The Good, the Bad, and the Ugly. Apple, of course, takes the headlining Clint Eastwood role here as “the Good.” Like Blondie, Apple’s motivations are often questioned. But in the end, the company is almost always a winner. It’s fourth quarter numbers, good enough to begin with, were impressively goosed by unexpectedly huge sales of the company’s new iPhone 6 models.
Bottom line, though: with both iPhone and Mac sales up dramatically in the 4th quarter, Apple as usual “beat” estimates and finally broke the stock out on an upward trajectory, kicking it away from its longtime trading range.
In Eastwood’s legendary Sergio Leone-directed western, “the Bad” was most certainly Lee Van Cleef’s nasty Angel Eyes, a real cowboy psycho who only relished killing. In our current scenario, we’d have to pick IBM to play that corporate role. In this case, “Big Blue,” once the biggest of the blue chips, fits the role perfectly. Lately, has evolved into a company that seems to specialize in killing the portfolios of its loyal shareholders rather than its hapless competitors.
IBM reported poor numbers Monday, which promptly tanked the stock and the Dow, even as the other averages were up. In many ways, the current hollow shell of Big Blue seems to have less a sense of its future than even Yahoo! does. (More on this shortly.)
Not known as a man who minces words, billionaire Mark Cuban denounced IBM and its current lackluster corporate leadership this morning on financial TV. “They have no vision,” he told CNBC. “What they’ve evolved into is a company that does [arbitrage] on acquisitions. It’s stock buybacks. Who is IBM anymore?” It’s Lee Van Cleef, Mark, that’s who.
Cuban wasn’t done. Noting that IBM was once a company with highly recognizable products and computer engineering expertise, they now “specialize in financial engineering. To me, that’s not a future.”
Wrapping up our analogy, let’s now visit “the Ugly.” In the film, that would be Eli Wallach’s sometimes nasty, sometimes funny, sometimes pathetic Tuco. Sometimes a killer, sometimes showing some semblance of humanity, Tuco seemed to represent existential nothingness in the film. Neither good nor bad, he was ambiguous and probably stood for nothing at all. And that’s where the hapless Yahoo! comes in.
The Street viewed Yahoo’s quarterly numbers, reported Tuesday evening after the bell, as very positive news for YHOO stock, long regarded as a serial underperformer on the NASDAQ. Shares were up slightly more than 2% in this afternoon’s trading, breaking out of a month-long post-Alibaba droop.
Complicating matters however, Yahoo’s CEO, Marissa Mayer failed to shed any light on what her company planned to do with all that BABA loot. While she reported “a good, solid third-quarter” that included roughly $200 million in revenues derived from ad sales on mobile devices—long a weak point for YHOO—the really big number showed up in the company’s net earnings of $6.8 billion, nearly all of which—$6.3 billion—was attributable to the Alibaba share sale.
While this was a clear earnings beat even without the Alibaba number, many investors and analysts had expected Mayer to enlighten them on her company’s promise to return a nice chunk of the Alibaba windfall to YHOO’s long-suffering shareholders. But she had less than nothing to say on the subject.
This has to lead to suspicions that the glamorous former Google (GOOG) star—the latest in a string of hoped-for savior CEO’s YHOO has hired to turn the company around—could end up being just another empty suit. Mayer’s tech credentials are impeccable. But being the queen of the tech weenies doesn’t necessarily mean that she has the vision, the marketing and the bottom line chops to lead Yahoo! out of the Internet Sinai and into the promised land of increasing market share and profitability. Time will tell.
But, having clearly been able to estimate the approximate value of Yahoo’s Alibaba windfall months ago, it’s hugely surprising that the company still seems to have no clue how to worm its way back into the top echelon of Silicon Valley giants. Mayer’s tactic seems to be a continuing search to buy out small tech companies that will help YHOO grow incrementally.
Granted, YHOO’s acquisition of Tumblr was likely a good move. But other seemingly random acquisitions or intentions seem to possess no rhyme or reason. Mayer has been urged to merge YHOO with AOL. But at least thus far she’s resisted, and logic seems to be on her side. After all, how would a merger of almost legendary Internet losers somehow magically produce a winner?
That said, though, the company could have at least determined how to make those shareholders happy at long last. Disappointing them without an announcement was simply a bad move. Now, unless YHOO comes out with a blockbuster surprise in this department, the sales and short sales of its stock are likely to resume, despite today’s usual Johnny-Come-Lately analyst buy recommendations. Yahoo! remains “the Ugly” in our Clint Eastwood spaghetti Western analogy until proven otherwise.
Today’s trading tip
Only one. The Maven has begun to sound like what used to be called a “broken record” back in the glory days of virgin vinyl. But your best bet here is to hold onto your cash.
Our short positions have done their job and we discarded them this morning—perhaps prematurely, though. Fifteen minutes before today’s close, all the averages are headed south again, likely due in part to the resurrection of last week’s Fear Factor.
This time, it’s the glorious return of the ISIS meme on this side of the Atlantic, as apparently random shooters killed one soldier and attempted to invade the Canadian Parliament in Ottawa. The city is effectively on lockdown as there’s evidence that other shooters may be or may have been in position in other city locales including a popular shopping mall.
ISIS, of course, has threatened the U.S. for its current bombing runs against its ragtag but effective ad hoc army in the Middle East. But it added Canada to its hit list as well when Canada stepped up to contribute to the creaky and thus-far uncoordinated international effort against these Islamofascist thugs.
It’s hard to say at this point just where the Canadian attackers came from or exactly how coordinated their action is or was intended to be at this point. But today’s violence serves once again as notice that this game is far from over and that all democracies need to take Middle Eastern terrorism more seriously.
All western countries have by now been thoroughly infiltrated by terrorist cells, whether loyal to Iran, ISIS or even the original Al Qaeda. To deny this, and to fail to put in place a meaningful strategy for wiping this cancer out permanently keeps everyone in continuing jeopardy.
On the business front at least, markets don’t like this kind of deadly uncertainty, and we’re seeing that in this afternoon’s nasty, negative close. So we’d advise continuing caution at this point. There’ll be better days to play.
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