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What Investors Missed in the Market Last Week

By Daniel Miller – Oct 24, 2016 at 4:26AM

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Here's a look at three companies that made big moves or big headlines last week.

Image source: Getty Images.

Markets failed to maintain gains from early in the week after General Electric (GE 2.12%) posted a weaker-than-expected quarter, which beat down investors' psyches. "When a bellwether like GE gives a tepid -- if not grim -- outlook for economic activity, investors are going to react to that, and pretty negatively," said Mark Luschini, chief investment strategist at Janney Montgomery Scott, according to MarketWatch.

Despite the depressing GE financials, there were definitely events to celebrate in the market last week. Take Netflix (NFLX -0.22%) as an example.

Stranger things have happened (see what I did there, Netflix bingers?)

It's not strange, per se, for Netflix stock to shoot up. After all, it's been one of the most successful stock picks in decades for long-term investors. That said, a near 20% jump Tuesday after better-than-expected third-quarter results is something investors will take any day.

Analysts predicted that Netflix would generate $0.06 per share on revenue of $2.28 billion, but it beat on both accounts, generating $0.12 per share on $2.29 billion of revenue. The hero of the story, arguably, was that Netflix added 3.57 million new streaming video subscribers, which absolutely blew out its own guidance of 2.3 million.

When digging deeper, the growth story is clear: Netflix is going global. Netflix signed up 370,000 U.S. subscribers compared to its guidance of 300,000, but signed up 3.2 million total subscribers during the third quarter, well ahead of its 2 million forecast 

Netflix simply has a great mix of content, as it aims for a long-term 50/50 mix of original and licensed content. Right now, though, its original content of Stranger Things (a personal favorite), Luke Cage, and Narcos, among others, has generated some serious business for the company.

Glass half full?

Speaking of stranger things, it's not uncommon for stocks to trade abruptly higher after producing a quarter that simply wasn't as bad as everyone expected. That's exactly what happened with Harley-Davidson's (HOG 2.01%) third quarter.

The motorcycle maker's top line dipped 3.2% during the third quarter, to $1.27 billion. It was a solid beat compared to analyst estimates of $1.09 billion. The bottom-line decline was much worse, though, as net income dropped nearly 19%, and earnings per share were down 7%. Despite the rough financials, the stock moved 10% higher on the hopes that management is correct in thinking business will rebound next year.

With demand slowing, management decided to pull the trigger and cut costs where possible. More specifically, Harley-Davidson plans to lay off 225 salaried employees before 2017, roughly 5% of its workforce, and about 70 contractors. All in all, the upfront cost, from separation and reorganization costs, will check in at about $25 million, but should help the company's financials going forward.

At the end of the day, there are few brands as recognizable as Harley-Davidson, but management has to find a way to connect to a younger consumer to help breathe life into its stagnant revenue -- something the company has failed to convince investors it can accomplish.

Down the road

One thing for investors to keep an eye on this week is Ford Motor Company's (F 0.09%) third-quarter conference call. Looking at absolute numbers, it's going to be a brutal quarter for the automaker, as the Super Duty launch costs will hit and its recall, which was more expensive than originally thought, will both drag down earnings.

Another development that's worthy for investors to note is Ford's recent decision to idle four factories as inventories were piling up, and retail demand was a bit weaker than anticipated. Part of this was expected, as analysts have shouted for months that the U.S. new-vehicle market was peaking and that sales would plateau.

On one hand, we have a scenario that Ford is reacting to by idling factories to match supply and demand, which is a positive because it will help support residual values of vehicles. On the other hand, investors would obviously like to see no need for idle plants at a time when a Detroit automaker, known for producing SUVs, should be taking advantage of the country's renewed love affair with said cars.

Ultimately, one of this week's bigger storylines will be whether Ford was able to top estimates for a quarter that has been set up to be a difficult comparison, thanks to launch and recall costs. It'll also set the stage for other automakers, and the economy, in general, because the automotive industry has been an undeniable bright spot since the past recession.

Daniel Miller owns shares of Ford. The Motley Fool owns shares of and recommends Ford and Netflix. The Motley Fool owns shares of General Electric. 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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