Earnings That Are Driving the Market

by: Brian Nichols

Earnings are the ultimate indicator of how a company performs. Analyst expectations are what we bet on; it’s how investors judge what to expect. Sometimes analysts expect too high earnings and a stock will trade above value, and sometimes they expect too low and the stock price is lowered. After watching the last two weeks of earnings be announced, I have concluded that analysts underestimated the growth of the financial and technology sectors.

Stocks such as Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), US Bancorp (NYSE:USB), PNC Financial Services (NYSE:PNC), and others posted earnings that surpassed expectations. In the technology sector Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) are the only companies who need mentioning their results encapsulate other companies within the technology sector that posted much better earnings than expected.

Below are 6 companies who moved the market with their stock performance on Friday July 22nd after earnings were announced. Some of the earnings are good while others are bad, yet most investors would agree that earning season is yet to disappoint.

Advanced Micro Devices (NYSE:AMD). The company saw heavy volume throughout the day as its stock experienced solid gains. The company posted 2nd quarter profit of $61 million versus a loss of $43 million year over year. The company posted these numbers despite seeing a 5% decrease in revenue. This shows the company’s business plan of cutting cost is working to improve its financial strength. The company did comment on decreased sales in desktop and servers. The Fusion processing units accounted for 50% of its sales revenue in mobile division. The company expects third quarter revenue to grow 10%. The company is trading $2 off the 52 week high of $9.58.

This turnaround year over year is remarkable, yet I would not buy into Advanced Micro at this point. I think the company will prove me wrong but I need to see the Fusion units develop more to counteract the decline in PC sales. The PC made up a large part of their business and while they posted good earnings I would like to wait and see if the earnings are consistent and if the company can maintain the low costs.

Intel Corporation (NASDAQ:INTC) regained the losses experienced on Thursday July 21st after posting impressive earnings. The quarter beat Zack’s estimates by 6 cents, with reported revenue of $13 billion. This represent an increase of 21% year over year, with the data center providing strong growth to counteract a PC business that slightly decreased. Third quarter guidance from Intel increased more than 25% year over year, which shows that despite dropping PC numbers the emerging markets are growing. The company is trading very close to the 52 week high of $23.96.

Intel could be one of the better stocks to trade in today's market. Since 2009 the company has increased the dividend from .14 to .18. The stock's performance has produced gains in the amount of 63% since 2009. With a solid dividend, consistent performance, and increased earnings you find a stock that has been safe in an uncertain economy.

Yahoo (NASDAQ:YHOO) came close to its 52-week low during the past two trading sessions. Yahoo has slightly recovered as investors see the price as a good entry point. Yahoo fell from $14.55 on July 19th to a low of $13.38 on the 21st. As of this time Yahoo is trading at $13.96 as Stochastic Indicators along with Relative Strength show a stock that is oversold.

Yahoo is a company in which I have little interest as a long term investment. The stock had seen better days during the years of 2003-2007. Net Income and Profit Margins increased during 2010 yet revenue slightly decreased. This shows that Yahoo's business is being operated in a more effective way. However investors like to see revenue and growth. In an industry powered by Google (GOOG) I would find it hard to choose Yahoo after comparing the earning reports from Google and Yahoo. Google is the present and future; I would hate to make an investment into a company that is only finishing second place.

McDonald’s Corporation (NYSE:MCD) reached all-time highs as the company reported second quarter revenue that increased by almost $1 billion. Profit topped analyst expectations with an increase of 15%, boosted by McCafe’s success. Net Income was reported at $1.35 a share while the average analyst estimate expected $1.28 a share.

McDonald's traded at all time highs today and I have no reason to think it will come down. The company announced great earnings for a stock that just keeps getting better. If I had to pick one restaurant stock to own, McDonald's would be first in line.

Nokia (NYSE:NOK) saw an increase from $5.79 to $6.13 from July 20th to the 21st, only to fall more than 3% as of this writing on July 22nd. The increase in price came after Nokia released quarterly earnings which surpassed expectations. Revenue was down 7% year over year and the outlook was far from encouraging. Mobile phones continue to decrease in sales and had only $5.53 billion of cash and securities compared to more than $9 billion at the end of fiscal 2010.

So many people are down on this stock -- and for good reason. The company has failed to evolve with time and is now being forced to change. Nokia has several issues they must overcome. I would not purchase this stock even though they have a good chance of turning their company around. They have money, they have good management, and they have a name, which means they have a chance. It was not too long ago that Apple (AAPL) was in a similar situation. I am not saying that Nokia will turn things around and become Apple, but I am saying there is a chance that they will become a good story.

SanDisk Corporation (SNDK) saw impressive earnings for the second quarter of 2011. The results were well ahead of any Wall Street expectation as the company reported net income of $1.02 per share. For the 3 months ending on July 3rd the company saw revenue in the amount of $1.37 billion. The company is currently trading with gains of 10%, still $8 off the 52-week high of $53.60.

I am not completely sold on SanDisk but I am getting very close. The company delivered record earnings showing an increase in revenue and a cut in cost. In order for this achievement to take place you must have solid management with good operations in place. As I said, I am not completely sold but I am getting very close, I just need to see a little more.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.