Moreover, for any analyst cognizant that life exists outside of a 10-company coverage universe, third-quarter and full-year estimates would likely be reined in. Near-term, this could preliminarily pressure stocks and spur doubts as to whether the market will respond positively to the usual game -- beating lowered estimates -- in late October and early November.
As for yours truly, I have redoubled efforts to read earnings-call transcripts as reminders of which names were overly optimistic on 2012, and in order to scrutinize their characterization of demand trends following the final month of the second quarter. Key buzzwords on which I am zeroing in are backlog trends, inventory destocking trends and new orders trends. I ultimately don't want your portfolio or psyche to fall susceptible to these judgment days, so do the work in the here and now. In that way, you'll be able to smile at the looming dark clouds while others are fretting.
Optimistic Company: W.W. Grainger
- Raised the bottom end of its fiscal year earnings guidance, and left top end unchanged.
- Conveniently overlooked any relevant comments on Europe in its 8-K and 10-Q SEC forms -- positive spin.
- Supported claims by pointing out double-digit percentage sales gains by month. However, the final month of the quarter was June, before a coordinated global economic slowdown ensued, especially in manufacturing. (This is an important sector for company, and has been an earnings driver.)
- Sales in the second half have been planned up 10% to 13%, with flat sequential gross margins. In English: Good luck with these targets, given global macro trends.
- Soz Says: Head for the hills. This is not worth losing sleep over the next three days.
Seemingly Realistic Company: Texas InstrumentsKey Attributes
- Orders slowed in June.
- Backlog coverage for September was lower than normal.
- Quarter-over-quarter revenue variance was worse vs. typical seasonality.
- Investment in research and development pared back a bit for the full year.
- Soz Says: Stock price is supported by QE expectations, but fundamentals don't support the valuation.