Wednesday, April 15, 2009

Glimmers of Hope In Earnings

There was some really good hidden news this week. Two important companies came out with earnings, Intel and CSX. Well, Intel was not exactly hidden, but not many people paid attention to CSX

I'll start off with Intel, which was hammered today for not giving a future guidance. Intel smashed earnings expectations. This is important because, as I mention earlier, technology stocks are some of the hardest hit during a recession and for Intel to bring in earnings 3 times higher than expectations says a lot. We know that Intel is becoming more efficient, which is what you want to happen during a recession. Intel also reported higher revenue expectations, which to me shows that maybe the earnings expectations have finally come down enough where companies can beat them and bottom out. But it is even more important that tech companies, including RIMM, are beating their expectations because the tech sector is such a leading indicator of the economy. 

So then why are Intel shares declining right now? I couldn't tell you; I think the shares should be trading on the upside. The reason stated for the decline is that Intel did not give a guidance, but was that really a surprise considering they didn't do that last quarter? Intel did not give a guidance last quarter and look what happened, it smashed earnings expectations. Intel did say that PC demand had bottomed out, which was all the guidance I needed to hear. At least we know, Intel can go no where but up now. Intel also owns over 80% of the market share, which puts in an amazing position to rebound when the economy does. Intel will be one of the names that will skyrocket when people are confident the economy is going to be on a rebound in 6 months. It will definitely outperform the market. The new emerging markets, such as India and China, will be increasing demand for Intel's products, giving Intel many more years of strong revenue growth. People are just caught up right now with the lack of future guidance, which is sending shares lower, but it will only be a matter of time before people realize the tremendous upside Intel has. 

As for CSX, they also smashed earnings expectations. The railroad giant posted earnings of 62 cents compared with expectations of 51 cents per share. Railroads tend to still make solid profits during a recession because they charge so much money to transport goods. But CSX is significant because it also shows how the expectations may have come down low enough where companies can beat them. CSX is even more important because it is in the transport industry, which like tech, is one of the leading indicators of the economy. CSX, like Intel, is a company that has gotten its game together. CSX is cutting costs and coming up with new innovations to make themselves more efficient like making some of their trains two freight cars tall, allowing them to carry more cargo in one trip.

Intel and CSX are among the leaders in two of the most important business sectors. During a recession, the one beneficial thing that comes out of it is that companies downsize and become more efficient. Until that happens, you will not see companies beat earnings and stocks begin to rise. With Intel and CSX, we are seeing hopes that it is happening. If companies continue to become more efficient, I think we are ready for a rebound in stocks, and a few months later, the economy. 

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