It's easy to get excited about a new year and the market's historically bullish tendencies during election years, but did you see what happened in Germany?
A bond auction this week resulted in negative yields. Yes, you read that right. Folks are willing to buy German paper that they know will be worth less in six months because it's apparently better than their other perceived alternatives.
Back home, there are also more than a few companies that aren't pulling their own weight in this supposed economic recovery.
There are still plenty of companies posting lower earnings than they did a year ago. Let's go over a few of the names that are expected to go the wrong way on the bottom line next week.
Latest Quarter EPS (Estimated)
Year-Ago Quarter EPS
|Cree (Nasdaq: CREE )||$0.26||$0.55||Add|
|Linear Technology (Nasdaq: LLTC )||$0.39||$0.64||Add|
|Xilinx (Nasdaq: XLNX )||$0.37||$0.58||Add|
|Freeport-McMoRan (NYSE: FCX )||$0.64||$1.63||Add|
|Flextronics (Nasdaq: FLEX )||$0.20||$0.25||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Cree.
The LED lighting specialist posted back-to-back quarters of negative revenue growth before posting flattish top-line results its last time out. Analysts see a return to revenue growth when Cree reports its fiscal second-quarter financials on Tuesday, but margins continue to be a problem. The pros feel that Cree will earn about half as much as it did a year earlier.
Linear Technology -- a provider of analog integrated circuits -- needs to get its bottom line moving in the right direction. Wall Street is banking on a profit of $0.39 a share in its latest quarter, well short of the $0.64 a share that it posted a year earlier.
The trend isn't helping. After landing comfortably ahead of analyst income expectations for three consecutive quarters, Linear barely missed in its most recent quarter. This isn't the kind of momentum one likes to see heading into a report that is already problematic.
Xilinx is also seeing its profitability shrink. The maker of programmable chips already spooked investors last month when it hosed down its sales guidance after a drop in large customer business in its communications segment. Chip makers can and will be volatile.
Freeport-McMoRan has interests in silver and gold, but it still lives and dies by its copper stronghold. That hasn't been a good place to be lately. Copper futures dropped a sharp 23% in 2011, contrasting gains in other metals and commodities. China's weakening economy has been part of the problem. Copper purchases in China fell for the first time since 2008 amid the slowdown. The rest of the world obviously isn't doing a whole lot better.
Finally, we have Flextronics. The contract manufacturer for electronics knows that this is a lull. Flextronics repurchased $182 million worth of its stock during the latter half of last year, and expanded its buyback program three weeks ago. Share repurchases help improve earnings on a per-share basis, but it won't be enough to help Flextronics when it reports on Thursday. Analysts still see a 20% dip in profitability.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
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