The technology sector has been the disappointment of the earnings season, but today it should get worse after more big techs reported disappointing results after the close yesterday. In the short-term this will be bad but we are of the opinion that some of these players have been setting the stage for the late year rally we have been discussing. Sales of hot tech gadgets shall increase into the end of the year as the holiday shopping season takes off in the fourth quarter.
We have economic news due out today, and it is as follows:
- GDP - Adv - 1.9%
- Chain Deflator - Adv - 2.0%
- Michigan Sentiment - Final - 83.1
Asian markets finished down:
- All Ordinaries - down 0.82%
- Shanghai Composite - down 1.68%
- Nikkei 225 - down 1.35%
- NZSE 50 - down 0.17%
- Seoul Composite - down 1.72%
In Europe markets are trading lower this morning:
- CAC 40 - down 0.53%
- DAX - down 0.29%
- FTSE 100 - down 0.55%
- OSE - down 0.77%
We saw some interesting trading taking place in Pandora (P) shares yesterday as they were halted due to a sharp decline on news/rumors that Apple's new streaming radio service would be coming out rather soon. Shares finished at $8.20/share after having fallen $1.09 (11.73%) on volume of 16.7 million shares. We have long been bearish of shares here as the business model is too easily copied and the proverbial 'moat' is essentially non-existent (the barrier to entry is quite low). The company has made some strides in improving their results but we remain skeptical of the company's future prospects, especially with big tech companies moving in on their turf - start ups are one thing to deal with, deep-pocketed tech giants are an entirely different game.
We ran across an interesting story yesterday concerning LSI (LSI) which not only reported disappointing quarterly results but also gave guidance that was lowered and still managed to see their shares rise. The results and outlook could have been worse, true, but for investors to reward the performance by pushing shares higher by $0.46 (7.31%) to close at $6.75/share seemed a bit strange to us. Interest in the shares was high too, with 39.7 million shares traded. Investors were cheering, but the reaction from analysts was a bit more of what we were expecting with mixed reactions to the numbers (some thinking it was bullish and others moving their recommendations lower).
Investors pushed shares in Teradyne (TER) higher by $1.11 (8.15%) to finish the session at $14.73/share as 12.4 million shares were traded. The company beat their guidance for the quarter once again, although they did miss some Wall Street estimates, while also stating that they believed that revenues would grow roughly 15%. Make no mistake, the world economic issues have slowed growth and taken a toll on the company's results but we were encouraged by the company's operating results. This is a stock we have been behind in the past and could move into once again in the future but right now have no exposure to the shares.
Shares in Crocs (CROX) not only hit a new 52-week low, they managed to hit a new 2-year low as guidance fell short of what analysts had been expecting. Based on news coming out after the bell from other players in the industry yesterday we would expect the company to face even tougher headwinds than they are expecting at this time. The company came back from the dead a few years ago, but it now appears that consumers have cooled to the brand once again and with the company now having to deal with numerous markets (North America, Asia and Europe) we think that they really have their work cut out for them if they are going to turn the ship around. We would prefer to ride momentum in the retail sector than trying to play a turnaround story here. Analysts moved to downgrade and lower their price targets on the shares yesterday after their guidance projections fell short.
Those holding shares in Wynn Resorts (WYNN) hit the jackpot yesterday as shares rose $8.14 (7.25%) to close at $120.43/share after beating on earnings and doubling their dividend. The company also plans to issue a $7.50/share special dividend and stated that they want to be one of those companies which uses their predictable cash flows to provide investors with solid a solid yield that they can count on moving forward. We like the gaming sector and have taken some hits from readers who thought it silly to think that Las Vegas could drive results higher for these companies which have assets in both Asia and the US, but Wynn reported that that is the case. We think that it will work its way to others in the industry and as the economy improves so too will the growth rates in Macau.