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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Stocks retreated from their all-time high on Thursday, as the S&P 500 fell 0.1%. The narrower Dow Jones Industrial Average (DJINDICES: ^DJI ) was down 0.4%.
Two Dow components, Intel (NASDAQ: INTC ) and American Express (NYSE: AXP ) , reported results for the fourth quarter after the closing bell. As bellwethers for different segments of the economy, technology investment and consumer spending, respectively, both reports were instructive:
With regard to American Express, forget the misleading headlines that include "American Express profit doubles" – here are the headline numbers that are actually meaningful:
- Quarterly revenue of $8.55 billion was exactly in line with Wall Street expectations, as provided by the Thomson Financial Network.
- Adjusted earnings-per-share (EPS) of $1.25, which exclude restructuring and litigation expenses and other items, missed analysts' consensus estimate by $0.01 – the first miss in at least two years. Nevertheless, that EPS figure represents a 15% increase over the year-ago period.
In a statement, CEO Kenneth Chenault said "We ended the year on a strong note, with cardmember spending up 8 percent despite mixed reports during the holiday shopping season." Amex's resilience in the fourth quarter is consistent with its focus on relatively well-heeled consumers, and suggests that wealthier Americans are beginning to gain confidence in the economic recovery.
As far as confidence in American Express's stock is concerned, when it's selling at nearly 17 times next 12 months' earnings-per-share estimate, and yielding a mere 1.1% in terms of its dividend, I think there are better opportunities among large-capitalization blue chip names.
One of those names happens to be Intel. As with American Express, revenues were essentially in line with Wall Street's expectations ($13.8 billion vs. $13.72 billion); but fourth-quarter earnings per share of $0.48 fell short of the $0.52 consensus estimate.
During the earnings conference call, CFO Stacy Smith told investors and analysts that "relative to our expectations at the beginning of the quarter we saw higher PC Client Group revenue slightly offset by slower growth in our Data Center Group."
That observation is unnerving, because the PC business is the one experiencing a secular decline, while the data center business is meant to be a growth driver. Back in October, Ms. Smith had said, "Don't pin me down to exactly 10% growth [for the Data Center Group], but we're going to be within spitting distance of that for the year." Instead, full-year growth came in at just 7%.
Nevertheless, at just 14 times next 12 months' earnings-per-share estimate, Intel's valuation isn't terribly demanding, and the shares yield 3.5%.
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