Q2 Earnings Coming in Strong

We saw a pretty solid performance from stocks this week, with the averages posting another green finish in spite of some weakness on Friday.

That little down draft came on news that Caterpillar’s (CAT) third-quarter results had fallen short of expectations. Caterpillar is viewed as a major indicator of global growth because of its exposure to emerging and highly cyclical markets. Analysts were looking for $1.74, so when CAT came in at $1.52, one of the largest Dow components took the market lower with it.

But here’s the upside. The company’s profit was up 44% from last year. So needless to say expectations were running high into the report as the Street traded big on strong Chinese growth.

But other than the small speed bump on CAT, earnings have once again been looking great.

Technology has been flexing some muscle. This gives you a good explanation of where these crazy valuations are coming from in social networking. All the giant tech companies are seeing tons of demand and growth while sitting on piles of cash.

Apple alone has $78 billion, up another $18 billion from last year after delivering an unbelievable quarter that blew past estimates.

Other big names have been connecting too. Google, Inc., eBay, Intel, IBM and GE all came in ahead of expectations.

So even though we are still dealing with a lot of uncertainty with the debt ceiling and the EU, corporate profits are awesome, and that’s the single most important factor influencing stocks.

Updates:

Earnings season is in full swing, so let’s talk about some stocks.

McDonalds (MCD) was a winner in the up market, adding 3.6% on the week after reporting strong Q2 results that came in ahead of expectations. The company continues to see balance growth across all its major regions. Dollar items remain in favor with consumers as unemployment remains high. McDonalds also seems to be coming with higher commodity costs pretty well, saying it expects continued strength throughout 2011. Shares hit a new all-time high on the news, and when you throw in the 3.3% div yield, MCD is looking like a winner.

Shifting into a laggard, we saw EZCORP (EZPW) take a shot to the ribs this week after falling short of expectations. Shares down about 8% on the news, but considering EZPW was up about 25% in the last month and expectations were sky high going into the release, the damage was relatively contained. And the big miss? EZPW’s 53 cents was a penny short of the consensus. Moving forward, the pawn and payday loan trend is still very much in play, and EZPW reinforced that by backing its full-year guidance of $2.55 a share.

Moving back into the winners column, Check Point Software Technologies (CHKP) gained 5.73% on the week after easily beating expectations and raising its full-year guidance. The recent wave of hacking incidents and security breaches has been driving demand for internet and enterprise security systems. Check Point is a leader is this space and is reaping the benefit. Shares hit an all-time high on the news.

Sticking with technology, Apple (AAPL) was the home-run winner of the week, delivering another monster quarter that blew past expectations. The company is up to its usual mind-bending control of the market, selling every single iPad is produced during the quarter. Shares hit a new all-time high as everyone remembers why Apple is the wrong company to bet against.

We saw some interesting movement from our healthcare stocks this week. The world’s largest prosthetics maker, Stryker (SYK), dipped lower after meeting expectations of 90 cents per share. But the market got a little spooked because when including a one-time charge related to an acquisition, earnings would have been 79 cents. Overall, the picture still looks solid. The company went ahead and reaffirmed its full-year revenue and earnings guidance, so that shows an optimistic tone in a growing economy.

AmerisourceBergen (ABC) also dipped lower, falling 3.5% on the week on news that the merger of two competitors would threaten one of its largest contracts. How that situation plays out is yet to be determined, but it looks like the market is a bit concerned about its impact. The generic drugs industry has been strong and is forecasted to remain that way as a secular demographic trend drives demand for drugs. We’ll be watching ABC and the story very closely to make sure we’re in the right place to capitalize on that trend.

And finally, we have our favorite private-equity firm Blackstone (BX), leading the pack with an 11.9% gain on the week after going yard with Q2 results that came in well ahead of expectations. Blackstone is looking like a huge beneficiary of the economic and asset gains of the last year, with revenue more than doubling from last quarter. The company’s margins were also on the upswing, pushing top-line growth through to income. And even though the 52-week high is less than $2 away at $19.63, the valuation still looks great.

That’s all for this week. Until next time, here is a good article that discusses the strong demand technology companies are seeing. Enjoy.

Companies Tech Spending Spree Lifts Revenue

Your Investment Partner,

Mike

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.