Ready for high earn­ings?

Financial Mirror (Cyprus) - - FRONT PAGE -

Ladies and gen­tle­men, we have just en­tered Earn­ings Sea­son. Wel­come to a cou­ple of weeks of mar­ket frenzy whereby huge cor­po­ra­tions will re­veal their sales and earn­ings fig­ures, and in­vestors will stand at the ready to buy and sell stocks ac­cord­ingly. As a gen­eral rule, sur­prises, whether pos­i­tive or neg­a­tive, have the great­est im­pact on the mar­kets; this quar­ter at Banc De Bi­nary, our an­a­lysts have been busy spec­u­lat­ing as to what happy sur­prises the tech gi­ants may re­veal.

In­tel, Ya­hoo, eBay and Google will re­port data this week, fol­lowed next week by Net­flix, Ap­ple, Face­book and Ama­zon. The tech sec­tor boasts the high­est pro­jected earn­ings growth rate of all the ten S&P sec­tors at 12.3% for the sec­ond quar­ter, which if true, would make for the best quar­ter since the start of 2012. Aside from the ob­vi­ous fact that many tech stocks are gi­ant house­hold names, why is tak­ing cen­ter sea­son?

In the sec­ond quar­ter, the U.S., the world’s largest econ­omy and home of the key tech su­per­pow­ers, has fi­nally picked up pace af­ter the aw­ful win­ter and dis­played pos­i­tive signs of growth. While a smart­phone could ar­guably be deemed a nec­es­sary pur­chase in to­day’s con­sumer so­ci­ety, own­ing the lat­est iPhone is still a priv­i­lege. It fol­lows that as over­all em­ploy­ment and con­sumer spend­ing power rise, so too will tech sales and stocks. The more the econ­omy shows signs of sus­tain­abil­ity, the higher stocks will climb.

Ac­cord­ing to Gold­man Sachs an­a­lysts, the tech­nol­ogy sec­tor cur­rently “ap­pears to be the most un­der­val­ued” and this is con­tribut­ing to the sparks of in­vestor op­ti­mism. While the Dow Jones and S&P 500 have bro­ken records re­cently, the tech­heavy Nas­daq in­dex re­mains over 700 points away from its all-time peak, and al­though earn­ings-per-share growth in the sec­tor has been an aver­age of 5.4% above the S&P 500 it that they are now stage in earn­ings over the past ten years, it is now just 1% above the in­dex. In­deed, there seems to be plenty of space for the bulls to ma­noeu­ver.

How­ever, keep in mind that the mood may be pos­i­tive, but it is cer­tainly not one of full con­fi­dence. Last week tech stocks de­clined slightly, with the Nas­daq los­ing 60.07 points on Tues­day. Many in­vestors re­main cau­tious and are now hold­ing out for the earn­ing re­ports be­fore pur­su­ing fur­ther ac­tiv­ity. That’s a wise move. If you’re look­ing to profit from the sea­son, tune in to the re­ports live and be pre­pared to place trades at the ear­li­est pos­si­ble op­por­tu­ni­ties for max­i­mum im­pact.

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