These three companies just didn't live up to Mr. Market's expectations last week. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down. And boy, there's a lot of dirt to dig in these days.
You trade, I trade, we all trade ...
Let's start with E*Trade Financial (Nasdaq: ETFC ) , which this Fool's personal IRA portfolio calls "home." Fellow Fool Rick Munarriz was not surprised at all when the investment broker reported its sixth earnings miss in a row. Wall Street would have settled for a $0.28 loss per share, but got a much wider $0.60 deficit a share instead.
That's $320 million of red ink on $378 million in net revenue. Yep, the mortgage monster has reared its ugly head again. You and I might think of E*Trade first as an investment broker, but only $179 million of its sales came from fees, service charges, and commissions this quarter. The $324 million it earned in net interest on its portfolio of loans and assets puts that number to shame.
But the financing department is more than the biggest revenue generator -- it's also the company's biggest loser. Over half a billion dollars in provisions for loan losses put a serious damper on this quarter's results, and similar charges have been hounding E*Trade for a while now. So it's nice to see management unloading $6 billion of loans over the past year, along with cutting down customers' undrawn HELOC balances from $7 billion to $3 billion.
It pays to keep all of these banking issues in mind if you're thinking of an investment in E*Trade. The company is subject to many of the issues that sparked the current market panic. If you just want to look at a pure-play investment broker that could benefit from the intense trading we've seen lately, well, forget E*Trade. TD Ameritrade (Nasdaq: AMTD ) or Schwab (Nasdaq: SCHW ) might have more of what you're looking for.
I'm quite happy with E*Trade as my investment service. There's just no way I'd buy the stock today.
Now, let's delve into the mines of Freeport-McMoRan Copper & Gold (NYSE: FCX ) . The mining experts pulled in $1.31 of net income per share on $4.6 billion in revenue. The average analyst stands 5'7" tall and had expected $1.43 of per-share earnings.
The culprit was a sudden slide in copper prices, touching $4 per pound in late June and ending up below $3 at the end of the quarter. Today, the going rate is around $1.80 per pound. Ouch!
The stock market has been badly bruised this year, with the S&P 500 losing about 40% of its market value. But mining companies have done even worse, mirroring the dramatic changes in the selling prices of their materials. Freeport has lost three-quarters of its value since the New Year, and Rio Tinto (NYSE: RTP ) has lost 65%. Ouch again!
But the value investor in me sees more promise than problems here. We need these metals -- especially copper -- to keep the modern world running smoothly. While last year's prices may have been too high at times, the downturn we see today simply can't last forever. Freeport is a five-star CAPS stock for good reason, and can lean on a supremely strong balance sheet until the mining market turns good again.
You buy when there's blood in the streets. It's flowing in rich, dark, crimson streams around the big mining companies right now. Jump in while the liquid is hot.
That brings us to the last stop on this week's whirlwind tour: metal manufacturing maven Precision Castparts (NYSE: PCP ) .
Earnings from continuing operations came in at $1.89 per share, just below the $1.91 per share expected by the analyst gang, on sales of $1.82 billion. We're talking about 6% sales growth and 13% stronger profits over last year, despite the fact that Precision works in a seriously unloved industry. The company's biggest customers work in heavy construction, automobiles, and the aerospace industry. How can these guys grow when construction is at a standstill, carmakers struggle to survive, and nobody wants to fly anymore? Heck, Boeing's (NYSE: BA ) machinists are on strike!
Well, none of those industries has shut down completely. Strikes eventually end, and Boeing still has an order pipeline to fill. In other words, most of Precision's challenges right now boil down to delayed payments rather than canceled orders. This business rests on solid bedrock and will survive even a lengthy recession.
And it's on sale like everybody else. Remember, great companies will come out stronger after the storm, while the weaklings collapse. I think we have another winner here.
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