First quarter earnings season: Monday’s markets can’t make up their minds

First quarter earnings season: Monday’s markets can’t make up their minds

The predictable cascade of first quarter earnings reports has the power to move stocks mightily both up and down. But so far, this Monday is content to go nowhere.

Bored Moscow street vendor.
This Moscow street vendor seems to be about as bored with old Communists as we are with the capitalistic trading on Wall Street today. (Via Wikipedia)

WASHINGTON, April 13, 2015 – Q1 earnings season gets under way in earnest this week, with a slew of major firms coming out with their quarterly results. Whether they’re good or bad, the profits and the losses, whether expected by analysts or (that dreaded term) “unexpected,” this quarterly cascade of earnings reports has the power to move stocks mightily both up and down.

Thus far, Monday’s markets seem to be confused about it all, moving up modestly early in the morning, but then stalling out to near-perfect flatness even as we write this article around noon EDT.

For those not entirely familiar with Wall Street jargon, “earnings season” can be broadly defined as the four to eight week period following the end of a given business’ calendar quarter. Those calendar quarters often follow the regular calendar, which is why earnings season generally develops a head of steam a week or two after the close of the previous calendar.

Since the last day of March closed Q1-2015,* it’s “look out below” time for stock prices starting this week—even though there were already a few early-reporters last week, like the traditional and traditionally confusing numbers from aluminum giant Alcoa (trading symbol: AA).

Reports estimate that roughly 35 S&P 500 listed companies will report earnings this week, including many big banks. Financials are largely what have kept a cap on market action in 2015. After an initial surge earlier in the year, they’ve pulled back and stagnated.

The reason? An imminent or actual Fed interest rate increase would have likely helped them start making some real money again in their tired and uninteresting mortgage portfolios, not to mention giving them some motivation to start lending out to mom and pop all that government/taxpayer-provided filthy lucre that has just been sitting there not helping the economy in general since Dodd-Frank prefers to see it sitting in bank vaults rather than home or consumer loans.

Now, with the Fed’s interest rate increase plans deemed likely to be deferred until at least September by the financial cognoscenti, big bank numbers don’t look to be impressive this quarter, but you never know. On the other hand, if these stocks swoon, they might be a buy here for those few stalwarts remaining in the fast-fading buy-and-hold camp.

Given Monday’s modestly thus-far boring action, let’s cut our budding rant off here and take a look at a few of those banks.

Today’s trading tips

In past times, the Maven has actually started modest buy programs on banks at times such as now. You typically have to be patient, as these slow-motion bank plays can take from three to five years to unfold.

Right now, it’s select regionals, however, that seem to be a better bet, given that they have somewhat less constraints to deal with than the big boys.

An added problem for those “too-big-to-fail” behemoths, although it’s finally begun to fade, will still lurk behind the curtain until and unless a Republican is sworn in as president on Jan. 20, 2017.

That’s because Obama and the Dems (and Hillary, too, if that Arabian and Chinese money helps her buy enough votes) have all been doing the Marlboro Maneuver on the mega-banks since The One took office in 2009.

From that time forward and perhaps into the indefinite future, the feds have been hitting the big banks again and again and again with massive fines and penalties for the crime of doing what the feds pretty much ordered them to do—purchase (albeit at a swell price) the ashes of criminal enterprises like Countrywide Financial.

Every time investors think they’ve seen the last government sneak attack, the feds stage another, scooping up more and more borrowed and taxpayer-provided money for Washington to waste, as if this Democrat company town doesn’t already waste enough of it. It’s like the perpetually flowing money spigot the feds tapped into the gut of cigarette manufacturers years ago, siphoning off a percentage of their profits forever for the crime of selling a legal product.

It’s not a “tax,” of course, it’s a “penalty.” We’ll have more to say about this duplicitous nomenclature in a separate column.

Meanwhile, however, regionals, much less affected by this problem, have mostly dealt with their bad mortgages and are actually starting to make money the old-fashioned American banking way once again, lending it out to the 99 percent of us who actually need a small loan to get out of a business or mortgage rut or to buy a new house. Which is where we’re going with this idea today.

While Wells Fargo (WFC) is the one big bank you should be able to put into your portfolio without much remaining federal government risk, regionals might do better over a modest holding period, given how far down in the hole many of them still are, PE-wise. Regional banks we like are in places that might surprise you. Keycorp (KEY), Fifth Third (FITB) and Huntington Bankshares (HBAN) are all based in Ohio, believe it or not. First Niagara (FNFG) has business there, too, but is more of an upper New York State/Pennsylvania kind of bank. Its dividend is pretty nice, too.

In addition, there’s New York Community Bankcorp (NYCB), which analysts seem to perpetually hate but which delivers a swell dividend that tends to hover around 6 percent these days. NYCB and FNFG took over pieces of failed banks just like the big boys, but the merchandise doesn’t appear to have been acquired in completely terminal condition, by and large. And, interestingly, NYCB’s big, federally pushed takeover was yet another Ohio bank, Ameritrust.

Bigger regional banks are doing better as well, notably Winston-Salem-based BB&T (BBT) and Pittsburgh-based PNC (PNC), the latter of which had at least two or three years of serious indigestion after the feds persuaded it to jam Cleveland’s seriously ailing National City Bank down its gullet.

But the boys from Pittsburgh seem to have weathered that storm rather nicely and got a lot bigger in the process. (National City was the nation’s 10th-biggest bank at the time.) The problem for smaller investors, though, is that PNC has done so nicely that on a dollars and cents basis, it’s by far the priciest of these regionals, so buying round lots (100 shares or multiples thereof) is pricey. BBT is half the price. But both are doing well.

Meanwhile, even a frugal Domino’s Pizza delivery dude could afford a couple hundred shares of completely ignored banks like FNFG and NYCB, collecting swell dividends while waiting for a future capital gains payoff.

As always, nothing is guaranteed, and don’t ever say the Maven told you that it was. That said, the Maven has invested in all these banks at various times, and is looking to get back into at least two or three of them on any market weakness this spring or summer.

Just a final note if you decide to consider investing in these unsung and somewhat unknown banks. In general, the action in these stocks is boring, boring, boring. That said, though, they look to be at nice price points right now, for the most part. And given the vicious volatility of 2015 markets thus far, maybe that will be a big plus for this year’s battered portfolios.

*Note: Companies can operate on fiscal years that have little to do with the regular calendar. For example, the average company’s first quarter (Q1-2015), coinciding with a calendar quarter, would end on March 31, 2015. But any number of companies use a different fiscal year. So, Company B, say, also closes its quarter on March 31, 2015. But that might be the END of its fiscal 2015, meaning that it’s Q4 for Company B, and starting on April 1, they begin Q1-2016. There are a variety of good, bad and ugly reasons for this, and for the most part, average investors don’t have to be incredibly concerned about which quarter is which, given that today’s markets travel widely based on quarterly earnings, whenever they are reported.

Likewise, some companies end quarters in different months. There’s nothing that says they can’t. That’s why some companies’ earnings show up at different times from traditional “earnings season.” A minor detail, really, for the lay investor generally. But we just thought you’d like to know.

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