Analyzing US Earning Season - The Story So Far

The Earning Season for the US market is underway. So far, off the 5990 listed companies in US, 50 have reported their 3rd qtr earnings. 16 has shown positive growth and 25 negative growth and when combined together, they reported a 17% fall in the EPS with Basic Material Stock leading the fall. As far as analyst performance is concern, for 13 stock they prediction was below the actual earnings and for six they over estimated the earnings. In the last quarter all these stock had a 40% negative growth in the earnings. Its still early days but less keep a close eye and compare it with the past to see if the corporate America is recovering or not.

The Unsung Hero of Dow Jones Index

A common mistake many of us make is to just look at the Index to see the performance of the Market - the risk is that you will lose many good investment opportunity as Index does not always reflect true picture of the market.

Here is the example of Dow Index:The Index is down 3% from its 10 year levels and is down 10% from its level 1 year ago but still you had a stock Travelers Cos which has been best performing stock in Dow Jones over the same period giving you an impressive return of 133% over 10 year period & impressive 40% over a year period.

While the worst performing are the big names like Alcoa, Bank of America and General Electric.

One last observation, despite such impressive gains in the stock price OF Travelers the Dow still fell, that is because it just has .30 weight in the Index. The Dow was down because the stocks with high weight Microsoft, GE, P&G, Pfizer and BOA has not done well. Moral of the story - never just look at the Index for analysis - dig down deepto see who is dragging the Index up and who is Pulling the Index Up.

The Tenbaggers Story for Asia

Peter Lynch, one of the greatest investors of all time in his Book published in1989 "One Up On Wall Street" coined the term Teenager meaning "a Stock whose value increase ten times its purchase price".

In the current Rally which started on March 9th, only 7 stocks in Asia has give you a return of more then 10 bagger - meaning the stock price has increased by over 10 times compared to what it was on March 09.

Topping the list is UT Holdings from Japan where the stock price has risen by 15 times. the other stocks are:
Company Country Baggers
Exoma Energy Australia 13.5
Hoosiers Corp Japan 12.98
Arigene Co Korea 11.58
Meo Australis Australia 11.54
Aditya Birla Australia 11.33
Sino Tech Singapore 10.21

Off the list only for two stocks UT Holdings and Sinomen their was one buy recommendation each and rest did not have any buy recommendations at all. While Aditya Birla had two sell recommendations.

I have used Bloomberg to generate the results.

enjoy your week end.

Analyzing Analyst Recommendation!

The Asian markets have been one of the best performing markets globally with Shenzhen Composite being the best performing index giving you a return of 81% year to date followed by Jakarta Composite Index a return of 73% with New Zealand right at the bottom with return of just 13%.

Bloomberg has enhanced its equity idea generation tool which can do some amazing analysis on the fly and I was playing with it and came up with some interesting information for the Asia-Pac region.

Their are over 11594 stocks listed on the Asian Stock Exhcnages and off these stocks, 4156 stocks have at least 1 buy recommendation.

Of the 4156 stocks the stock with the highest number of buy recommendation is Hyundai Mobis with 38 buy recommendation and just 2 sell recommendations. others in the list of top 5 were

Another interesting observation about the recommendation is the county split - meaning the large number of buy recommendation is from Kore, while high number of sell recommendation is from India. Here is the detailed list;

Company #Buy Reco $Sell Country

Hyuandi Motors 37 0 South Korea

Samsung Electronics 37 1 South Korea

Posco 34 1 South Korea

LG Electronics 32 1 South Korea

Stock with hihest number of sell recommendations

Company #Sell Reco #Buy Reco Country

NALCO 31 2 India

Ambuja Cement 27 4 India

Ranbaxy 25 3 India

ABB 25 2 India

ACC Ltd. 24 9 India

Analyzing Market Rally, US Earnings and Inflation

When some one ask about my view on the markets, my answer to them is - market is like a wild horse on the run - neither anybody is interested in taming it nor does anybody knows how to tame it - so sit tight - enjoy the fun but be warn of the impending danger.

So what is the reason market is giving for the rally - its the earnings projection. Lets step back and look at the current US earning season. The sales growth fell as consumer demand was still sluggish but the companies have reported increase in profitability and the reason behind this is that the companies went in for large scale cost cuttings and got benefited from low commodity prices and thus able to improve profitability.

So what is market discounting then, it is discounting the revival of sales and profitability into positive growth rates in two quarters time.

But what could spoil the rally - the high commodity prices and the impending inflation. The commodity prices have increased by over 50% on average and the impact of it will be felt in coming months as all the new contracts were settled at current high prices as against the low levels of last year - so the margins will be under pressure.

Why will the inflation move up? the current rally is funded largely by cheap money and if inflation factor kicks in the interest rates have to move up thus spooking the rally and also the performance of the companies.

If you look at the inflation linked bonds yields in the US, the market is already pricing in the inflation and I have written in detail about it earlier as well.

So Stay cautious and remember markets does not move in just one direction only.

Prayers for Indonesia Bomb Blast Victims

I am shaken, three Bombs exploded in Jakarta today morning, my heart goes out for the families of those who got killed and for the people in Indonesia as they are hard working trying to make out a living. I am shaken as I was in Jakarta yesterday for a presentation and one of the point of discussion was the Indonesia being the fifth leg of BRIC group or the CLSA economist coined the term Chindonesia - China, Indonesia and India and every one were upbeat about the prospect in the third fastest growing Economy in Asia. Some People do not want to Live and Let Others Live.

Every one is upbeat after the Bumper results of Goldman Sachs but its performance has nothing to do with real economy so not sure why to feel upbeat about. I am still shaken to write more so will be back tomorrow with my take on the earning season.

Indian Budget: Beyond Numbers

The Indian Finance Minister announced the Budget yesterday to a mixed reaction, the equity market was more decisive falling by 800 points (but you cannot take stock market reaction as the true barometer).

Every one is talking about the numbers and the numbers between the lines. The only number I want to talk is the budget deficit which has reached its highest level in last 20 years meaning the government is spending more then it is earning and spending is were I have an issue - if you look at the quality of life and the infrastructure it has fallen so despite spending the quality of life has not improved so to me it is wasteful spending of money.

Today it is difficult to find a decent government (read affordable) school or hospital, stretch of decent road, proper supply of quality water or electricity so the growth of 9% or 6% has just translated into good economic numbers without improving the quality of life for vast majority of population.

I just came back from India after a week long holiday and it was an eye opener for my small kids, at peak of summer there were regular power cuts (it was the same story when I was a kid), the pollution and the traffic jams on the roads were same it was earlier (my heart went out to the Auto and bus drivers who have to live with that pollution). The crowd in the non A/C buses in 40 degree heat was same it was when I use to travel in them.

What has changed is the quality of life in the surrounding which people have control on and are able to afford it - they have the latest A/C, LCD, Computer, Car, Office but once you move out of your comfort zone it is a mess.

Coming back to budget, with a mandate behind the government could not lay down the path to improve the quality of life for the people. Handing out money under different schemes as we have seen has not yielded any substantially benefits. What people are not realizing even though the government is doling out benefits to masses but as it is done out of borrowing the masses eventually have to pay for it if not today then tomorrow.

I am still waiting for a visionary budget which will not cheer the markets but improve the quality if life.