It hasn't been a very good second quarter for the markets. Another round of troubles in Europe, combined with worsening US economic news, including three straight poor jobs reports, have sent markets lower. Although US indexes bounced off recent lows, the S&P 500 (SPY) has lost 5.2% as we approach the end of the quarter. But some large names have fared much worse. Here are five that had a bad quarter, and will look to rebound next quarter.
Qualcomm's decline in the quarter started in mid April, when the company reported earnings. Although they beat on the top and bottom line, the company's guidance for revenues of $4.45 to $4.85 billion and earnings per share of $0.83 to $0.89 were below expectations of $4.8 billion and $0.90. Qualcomm blamed a variety of issues, including supply constraints, lower royalty rates, and admitting that competitors were stealing business (due to those supply constraints). Some saw the weak guidance as a sign that customers were holding back on iPhone purchases as they wait for the new one to come out later this year.
After the post-earnings decline, many analysts came to Qualcomm's side, arguing that the selloff was over done and fears of supply constraints would be calmed by year's end. However, shares did not see much benefit, and took their next leg down about 10 days ago when Nokia (NOK) warned, as Qualcomm is the top supplier for the Lumia phones.
Qualcomm shares now stand at their lowest levels since the start of 2012. The dividend yield has been pushed up to 1.8%. Earnings estimates for this quarter (fiscal Q3) and next have come down since the above mentioned earnings report, but estimates for the fiscal year have held up. Currently, 38 analysts rate the stock as a buy (13 strong buys), with 4 holds, 1 underperform, and 1 sell. The average price target currently is $71.04, implying about 28% upside. Qualcomm will look to rebound as the new iPhone is eventually released.
The Chinese search giant has seen shares under pressure as fears of a China slowdown were evident in the company's first quarter report. Earnings per share beat, but revenues missed, and that's not a good sign for a high growth name like this. Also, Q2 revenue guidance of $847.2 to $867 million was a little lighter than many had hoped for. The midpoint was a bit below the $860.2 million expected at that time.
The Q2 revenue guidance was for growth just under 60% (year over year), compared to the 75% in Q1 and 82.5% in Q4. Revenue per user was down 7.6% quarter over quarter, following a flat quarter over quarter from Q4 to Q1. Recently Goldman Sachs analysts reiterated their neutral stance on the name, cutting the price target from $160 to $135. That still implies about $20 upside from here, but the average price target from all analysts is above $183 currently.
Baidu is expected to more than double revenues between 2011 and 2013, from $2.3 billion to $4.95 billion. Earnings per share are forecast to more than double as well. However, Baidu trades at a very lofty price to sales and price to earnings number, when looking at the trailing numbers. For a high growth company, that means that the company better hit its marks, especially as China's growth slows.
JP Morgan (JPM):
JP Morgan was down double digits percentage wise when May 10th ended. Then after the bell they announced that a bad trade was going to cost them a few billion. The stock fell nearly $4 the next day, and dropped all the way to a quarterly low of $30.83 on June 4th. That is when US markets bottomed out, and JP Morgan has come back $5 since then, but has still lost more than 20% of its value this quarter. JPM Morgan CEO Jamie Dimon answered plenty of questions from Congress recently, but did not provide a full update on the trading loss. A more formal update on the situation is expected when the company reports its second quarter earnings next month.
The financial sector has rallied back thanks to more clarity over the situation in Europe (for now), despite a ratings downgrade from Moody's for several large banks recently. Analysts seem to constantly take down bank earnings estimates, which might be a reason why the company has beat nicely in three of the past four quarters. 25 of 33 analysts rate JP Morgan as a buy currently, with the average price target around $46, near where the stock started this quarter. The dividend now yields over 3.33% annually.
Cisco Systems (CSCO):
Cisco was down a bit during the first half of the quarter as markets were generally lower. But the real damage was done on the quarterly conference call, when they gave guidance that was much worse than expected. Cisco gave fiscal Q4 revenue guidance for 2% to 5% growth, but analysts were expecting more than 7%. Earnings per share guidance was for $0.44 to $0.46, below street estimates for $0.49. Cisco fell 10.5% the next day, and dragged down the rest of its sector with it. Shares are up just 2% since that day.
Cisco noted that Europe was weak (gee, what a surprise), along with slow public sector spending. The company also saw smaller deal sizes and longer sales cycles. Shareholders have been getting increasingly frustrated with CEO John Chambers in recent years, as the company's stock price is down over the past two years. The company has bought back plenty of stock, but buybacks have been ineffective, a main reason of shareholder frustration.
Most analysts still like the name, especially at $17 (started the quarter around $21). 26 analysts have some sort of buy recommendations, against 17 holds and 3 underperforms. The average price target is $21.40, a little more than $4 above current levels. The problem is that Cisco is only growing revenues in the mid single digits currently, and when you get any weakness out of Europe or the US, it points to revenues that grow very slowly or are flat. That doesn't create a winning scenario for investors, which is why a change at the top is desired by many. I thought the post-earnings drop was a bit too much, but I also stated that Cisco was not one of my top tech picks.
The automaker has struggled during the quarter over weakness in Europe and poor sales in April, which led to increased incentives in May. On the positive side, the company returned to investment grade thanks to a ratings boost from Moody's. May auto sales were also weak, and a bleak US jobs picture has many analysts concerned over the auto industry's ability to fully come back.
After a couple times where shares dipped below $10, Ford's stock has settled in nicely in the low $10s range. A few times the stock has made a run at $11, but failed to get above $10.90 each time. Revenues are expected to increase by just 2.5% this year, with earnings per share actually expected to decline. 12 of 18 analysts rate the name as a buy, down from 14 of 20 just three months ago. The average price target of $15.75 implies 50% upside, but this is a name heavily correlated to the global economy. Right now, the auto industry doesn't seem like the best investment.
Performance / Conclusion:
The following table shows the performance of these five names, quarter to date so far. All are down roughly 18% to 21%.
It wasn't a great quarter for the markets, but these five names have performed even worse. European weakness has definitely impacted names like Cisco, Ford, and JP Morgan, and the slowdown in China has started to take its toll on Baidu. Qualcomm is in a bit of a lull right now, but that could end as production of the new iPhone ramps up.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.