Confused US investors keep stock analysts and companies guessing
WASHINGTON – It’s Thursday, and as of the noon hour ET, stocks are flat to slightly negative. This despite generally great earnings reports. Contrariwise, insanely positive trading dominated Wednesday’s US market action. After disappearing without a trace Tuesday, the bulls apparently decided to return today. Their irrational exuberance essentially reversed Tuesday’s market plunge. This bungee-jumping sentiment of confused US investors continues to keep stock analysts and corporate CFOs guessing.
All three major averages, including the recently wobbly NASDAQ, closed up close to a full percentage point or more in the green at Wednesday’s 4 p.m. ET closing bell. But now, in turn, we have a boring Thursday. Let’s take a brief look at this roller-coaster market action, with particular attention to Wednesday’s sharp and impressive rally.
Confused US investors wonder what’s up with Netflix?
One big contributing factor in Wednesday’s Carnival of the Bulls were mostly positive numbers coming in from many corporations during our latest earnings season (Q1). Those numbers continue to seem better than average, save for Netflix (NASDAQ:NFLX). That streaming giant reported profits, of course. But Netflix also reported a drop in the number of new subscriber signups. Ominous?
Netflix’ numbers gave heartburn to fellow Communications sector companies. Most companies in this sector benefited greatly from the effective house arrest of most American families over the past year, courtesy of the
WuFlu coronavirus lockdowns. This made a likely majority of Americans almost fully dependent on streaming video services and social networks for their entertainment choices.
Given the slow and apparently reluctant move to knock off the lockdowns now that we have viable vaccines, at least some investors viewed Netflix’ declining new customer numbers as tells. The declines could mark the beginning of the end for the Covid-19 inspired streaming video party for all those Americans who suddenly found themselves with nothing else to do. Maybe airlines and cruise companies can begin picking up the slack. But who knows.
Bottom line here: All those newly vaccinated Americans have started discovering other things to do besides binge watching the latest new series on Netflix or Amazon Prime. Even as the Feds keep telling them to wear those all-important, ineffective masks at all times, of course. (2-year olds in Michigan, too, demands noted virologist Gretchen Whitmer.) Stock analysts are beginning to notice the potential for an investing sea change in this sector.
Cleveland Cliffs’ recovery story continues to baffle stock analysts
CNBC today noted the continuing ambivalence and confusion of investors and stock analysts alike.
“So far, companies have largely topped Wall Street expectations this earnings season, but strong first-quarter results are not lifting the market higher after a run to records pushed valuations near multiyear highs.
“‘The streak of strong positive EPS surprises is likely to continue, but elevated valuations have now become pervasive; sentiment is too optimistic; and a potential change in corporate taxation is an overhang,’ Maneesh Deshpande, head of equity derivatives strategy at Barclays, said in a note.”
True, Maneesh. But stock analysts, as usual, tend to ignore various companies as they arise from the (formerly) dead. Several stocks I either invest in or watch avidly show signs of turning around or adding to recent turnaround action.
Set to report earnings Thursday, the always volatile Cleveland Cliffs (NYSE:CLF) pulled back hard Tuesday. But the shares made headway Wednesday, so I added a few more shares to the position. UPDATE: The numbers were good but not quite what analysts had expected. But CLF shares remain up on the day in Thursday action. Most stock analysts continue to ignore the potential of this old-style industrial play that’s still regarded strictly as a materials play.
Cliffs still has some ways to go as it digests its massive restructuring activities. But this longtime iron ore miner, now transformed into a vertically integrated steel company, could ride the wave of a the continuing US construction and manufacturing boom.
Freeport McMoRan, BHP Group, Dow, Inc.: More materials sector stocks coming back to life?
Along those line, I also started inching back into another mining stock, Freeport-McMoRan (NYSE:FCX). (And yeah, that’s how the company spells it.) Copper is FCX’s main squeeze, although they have a good bit of gold in them thar hills. (Or jungles, as they operate a huge gold mine in Indonesia.) This adds to our large portfolio’s position in another mega-miner, Australia’s BHP Group Ltd., formerly known as BHP Billiton (NYSE:BHP). Those shares continue to perform well. Even so, the Materials sector itself remains something of a gamble.
Another surprise: Dow, Inc. (NYSE:DOW), which, after a merger of convenience with Dupont (NYSE:DD), became a large entity that then split back into three discrete companies, with Dow reverting back to the chemical company it always was. More or less. After settling down after its reinvention, the company seems poised to get back into the growth business.
Dow’s shares have firmed lately. This, plus a nice dividend, keeps it in the portfolio. That remains the case even though the shares got hit for a nearly 5% loss by lunchtime on Thursday. This despite reporting profits considerably above analysts’ expectations. “Sell on good news,” I’d guess. But it looks like another buying opportunity to me.
Confused US investors should stare at the cloud(s) to find some answers
Microsoft (NASDAQ:MSFT) is back in the large portfolio after I sold our shares for a decent profit about a month ago when the market looked too chancy. At circa $260 per share now, a modest investor like this writer can generally afford to pick up only a few shares at a time. But with the zero commission era upon us, a commission-costly practice like this is no longer an issue. Meaning, you can dollar-cost average purchases of too-expensive-per-share stocks just like you used to dollar-cost average mutual fund purchases not so long ago. Possibly an ongoing opportunity for today’s confused US investors. Nice.
Post-Steve Ballmer, this company keeps doing the right things, particularly in the growing cloud culture, so it’s well worth acquiring on dips. Which can prove sharp at times.
Speaking of new management and the cloud, the large portfolio happily owns a few shares of long-time dog IBM (NYSE:IBM). Investors keep waiting for Big Blue to deliver on its promises to reinvent itself. But, until recently, IBM consistently failed to find its way as its old mainframe business gradually resides into history. More or less.
But IBM’s more recent C-Suite crew somehow found a new way forward. Now the All New Big Blue looks like it could make some serious money with its own cloud operation. That could put some pressure on Microsoft and Amazon (NASDAQ:AMZN) whose massive clouds currently dominate that growing tech landscape. And it could un-confuse those confused US investors looking for long-term growth possibilities. Even in today’s likely over-inflated markets.
As a result of its good results, IBM jumped up a whopping $5.39 per share Wednesday, although they backtracked a bit today. But figuring on the final return of Big Blue makes me feel like a genius anyway. Happiness. But never hubris.