The Dow Jones Industrial Average
Just as we looked yesterday at the Dow's best performers during the second-quarter earnings season that's coming to a close, today I want to turn to the stocks that got left behind. In particular, three stocks fell short of expectations for the quarter, while a fourth only managed to match them. Let's take a closer look at these four stocks.
The worst offender of the second-quarter earnings season was ExxonMobil
Exxon's woes came from a variety of sources. Prices of both crude oil and natural gas were down from last year's levels. Yet Exxon also suffered from declines in production, in part because of some controversies that the company has had to deal with in Iraq. In the long run, though, Exxon's prospects shouldn't be too greatly affected by a single quarter, and much more important will be how the industry reacts to changing macroeconomic conditions. In particular, if the recent step-up in economic prospects proves to be correct, then some of the fears that have pushed energy prices down are likely to reverse themselves.
Looking for insurance
The problem Travelers continues to face is weakness in the investments it depends on to generate income to help offset its claim losses. With bond yields continuing to be extremely low, Travelers either has to make riskier investments or try to increase premiums to put itself in a better position to survive future disasters. Heavy competition limits Travelers' ability to boost premiums, while increasing exposure to risky investments leaves the company open to market risk. Either way, Travelers could continue to see extreme volatility in future quarters.
The problem, though, is that a strong dollar has had an impact on the multinational fast-food giant's earnings. In addition, Europe's woes held back some of the company's growth. If Europe really is getting healthier, though, then McDonald's troubles there could reverse themselves in short order, allowing the company to get back on its feet and recover its stock losses during 2012.
Can't hear you now
Merely meeting estimates was Verizon
The big concern, though, is whether the mobile giant can reduce the huge amount of money it spends subsidizing smartphone sales. With the iPhone 5 due out within the next couple of months, Verizon needs to demonstrate that its new pricing plan is a viable component of a broader strategy to defend the value of its network and stop letting phone-makers take more than their fair share. If Verizon can succeed in reaching that goal, it could make a huge difference in earnings for years to come.
What the future holds
Even though these stocks had challenging quarters, the important thing now is how they respond to their setbacks. Each of these companies has the ability to bounce back strongly. We'll look forward to seeing what progress they've made when they start reporting third-quarter results in October.
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