Technology Earnings Set to Begin Today GOOG
The market rallied, rather unconvincingly, after JPMorgan (NYSE: JPM) blew away analyst estimates. As noted in the morning alert on Wednesday, JPM reported 70% EPS growth, but noted a decline to revenues. Investors saw through the BS and as a result JPM finished flat and rivals like Bank of America (NYSE: BAC) and Citi (NYSE: C) finished 1% lower and Wells Fargo (NYSE: WFC) closed 2% down.
Earnings season is not off to a good start at all. Aloca (NYSE: AA) and JPM both reported impressive quarters, and maintained guidance, but their stocks were unresponsive to the great corporate news. Today Google (Nasdaq: GOOG) reports earnings for its first quarter. Google is my favorite company - and the only company I keep a long term position in.
In the quarter ended December 31, 2010 GOOG continued its extraordinary growth. Google reported annual revenue of $29 billion, up 25% from 2009. Net income earned was $8.5 billion, or $26.31 per share, which is up 30% from $20.41 last year. Google also indicated growth overseas remained strong. A few quarters ago, GOOG had a few disagreements with China, which resulted in a major decline for the stock, even while Chinese revenue accounts for less than 5% of Google's total sales.
Analysts expect GOOG to earn $34.60 per share this year and $40.17 next year. With those estimates, shares of GOOG trade at 17 times EPS. Google is a perennial 20 times EPS stock and considering the healthy industry trend, that multiple should not fluctuate. I am slightly less bullish than the analysts are, but applying a 20 PE to 2011 year EPS projection of $34.60 results in a target of $695.
Aside from the Google's earnings the market received plenty of other data today. The most notable of which is PPI, which is the price paid by wholesalers for goods, was announced this morning. Analysts expected March PPI to increase 1.1% over the previous year's month. The actual data, which I have a hard time truly believing because crude oil was 25% higher in March alone, only showed a 0.7% increase.
It is unclear how the market will react to this news. After all, Ben Bernanke is using tepid inflation as an excuse for greater monetary easing. The indices overseas were slightly lower today in Asia, and moderately lower in Europe. The European indices traded lower as sovereign debt fears, primarily Greece crept back into investments. And the yield on Greek bonds surged to 13% on default concerns.
While the U.S. market may follow its brethren indices from abroad lower, the bears need to take out 1301 on the SPX until I have any concern of a major decline ensuing. Until that point in time, I suggest we continue to add to our long positions.
One trade that I like yesterday is positioned for a quick 20% jolt and we entered yesterday and are already up 4% on it. In February I tried to anticipate a break out past $2.30 resistance but shares could not take out that price level. I limited our loss to 4% since the next area of support after that failed break out was $1.70. Shares tagged $1.60 last month, but made a higher low of $1.75 on Tuesday and rallied back up to $1.85 on Wednesday. I anticipate shares are attempting to make another run towards $2.23 resistance, which is a 20% move higher. Stops need to be kept tight, ours is $1.77, but I considered $1.82.
