What to Look for This Earnings Season

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This earnings season comes at a vulnerable time. Europe, looking more and more like an excruciatingly slow train wreck, is trying to sort out its finances. The U.S. is fighting desperately to stave off a plunge back into recession. Equity prices bob every which direction on the comments of politicians on either side of the Atlantic. And in the midst of all this, companies are beginning to report their quarterly earnings.

I like to go into earnings season with an open mind -- but I also have certain things that I'm looking for from each of the companies we own in the Young Gun Portfolio. Here's what I'll be watching for with each stock, listed by the expected earnings release date.

  • Oct. 26: Ampco-Pittsburgh : I'll be taking a close look at sales of Ampco-Pittsburgh's cold-rolling steel equipment. Tied closely to both construction and the automobile industries -- and thus to global GDP growth -- small-cap Ampco-Pittsburgh has been wildly volatile lately. That's to be expected, but earnings time offers an update on how the business is actually doing. I'll also be watching the company's other segment (air and liquid processing) to make sure management continues to run a tight ship.
  • Oct. 27: Pacer International (Nasdaq: PACR  ) : From our newest purchase, I'll be watching primarily for top-line growth. The intermodal transportation industry is growing fast -- industry leader J.B. Hunt already reported strong revenue growth when it reported last week -- and I want to see that Pacer is making good on the opportunity. Additionally, I'll be looking for sustained cost savings and a debt-free balance sheet, since management said it paid off the last of the debt in July.
  • Oct. 27: Pebblebrook Hotel Trust (NYSE: PEB  ) : This has been the opportunistic hotel buyer's least acquisitive quarter to date, so I'll be looking to get a cleaner picture of the normalized cost structure for the business. I'll also be watching margins to see if they continue to climb. The traditional hotel metrics -- ADR, RevPar, and occupancy -- probably still won't be very meaningful, since many of Pebblebrook's hotels are undergoing renovations. I'll also be curious if they repurchased any shares, since management said the idea was being considered back at the analyst conference in September.
  • Nov. 1: Bridgepoint Education (NYSE: BPI  ) : Student counts will be first on my radar. All year, management has projected that the company, which has grown its student base 17-fold in the past four years, will lose students in the second half of this year. This is primarily maneuvering to avoid regulatory close calls and hopefully lessen political scrutiny, but still I've doubted that the student body will actually shrink as much as management has projected. Additionally, I'll be scrutinizing the regulatory-sensitive stats, including cohort default rates and the percentage of revenue from Title IV funding.
  • Nov. 3: Chiquita Brands (NYSE: CQB  ) : Chiquita's stock has gotten smashed lately, and our shares are down about 35%. Fortunately, we've kept this volatile stock a small position, so the recent drop has not had a material effect on our portfolio. As earnings come out, my eyes will be peeled to the performance of Chiquita's salad division. With generic-label salads relatively more popular during weaker economic times, I'll be looking at Chiquita's ability to maintain both its top line and its strong margins on its greens.
  • Nov. 4: Activision Blizzard (Nasdaq: ATVI  ) : By the time Activision Blizzard announces earnings less than three weeks from now, we most likely will not own shares. Our October $12 written calls obligate us to sell our shares at $12 this Friday, and I intend to let our calls be exercised. Thanks to two rounds of covered calls, our net sell price is actually $12.75 and our overall return on the trade will be 6.6% in three months. With shares currently flirting with $13, a straight stock purchase would have yielded a better return to date, but I'm happy with our solid return from our cautious, income-generating strategy. I'll still be watching earnings -- primarily for top-line growth, what's happening with MySpace, and management's general commentary -- and I'll consider opening another position. If the stock stays where it is, though, I'll be more likely to write puts than re-up our written covered calls.
  • Nov. 5: Berkshire Hathaway (NYSE: BRK-B  ) : I'll be primarily looking at how aggressive Warren Buffett has been with his newfound share repurchase plan. Though Berkshire's shares popped strongly upon announcement of the buyback authorization, the stock remains around 1.1 times book value today -- right at the upper limit of Buffett's buyback valuation limit. He's had plenty of opportunity to repurchase shares, so I'll be looking first and foremost to see what he's done. After that, I'll be doing the usual rounds on Berkshire's operating businesses, especially Burlington Northern Santa Fe. Not only does the railroad represent a huge chunk of Berkshire's earnings power, but its results are also relevant to another one of our holdings -- Pacer International.
  • Nov. 9: StoneMor Partners (Nasdaq: STON  ) : I'll be looking at two primary things for cemetery owner and operator StoneMor Partners. First, I want to have a look at the acquisition activity in the quarter. StoneMor grows by acquisitions -- cemetery revenue is tied to the death rate, so the way to grow is to acquire more cemeteries. Management has a track record of only closing deals when the prices are favorable, so I am fine with patience, but for this dividend to continue to grow (and we own StoneMor primarily for its yield), we need acquisition-fueled growth. Second, I'll be looking at the funding status of the company's trusts to make sure our current dividend remains safe.

As earnings come out, stay tuned for my thoughts and potential trades. As always, the best way to stay abreast of the latest from the Young Gun Portfolio is to follow me on Twitter.

Alex Pape owns shares of Berkshire Hathaway, Bridgepoint Education, Pebblebrook Hotel Trust, and StoneMor Partners. The Motley Fool owns shares of Activision Blizzard, Ampco-Pittsburgh, Berkshire Hathaway, Bridgepoint Education, Chiquita Brands International, Pacer International, Pebblebrook Hotel Trust, and StoneMor Partners and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard, Pebblebrook Hotel, and Berkshire Hathaway; writing puts on Bridgepoint Education; and creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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