5 Big Earnings Reports Next Week

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Second-quarter earnings reports are still in the early stages, and the data so far hasn’t been as bad as expected. Growth is still missing, but the expected contraction in profits has been “less bad” than many analysts had forecast as companies cut costs and energy prices remain relatively low.

earningsHowever, this picture is far from complete, and there are important unanswered questions. So far, earnings season has provided some reasons to be optimistic. However, the divergence between bonds, stocks and growth is still a big concern. Below we discuss five big-time companies and what to expect from their earnings reports.

We think that these reports will help provide the needed evidence to establish a stronger bias to the upside or downside. Fortunately, we won’t have to wait long to see the data and make a more informed decision.

These five reports should help fill in the blanks when they are released next week.

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Next Week’s Big Earnings Reports: Apple Inc. (AAPL)

Next Week's Big Earnings Reports: Apple Inc. (AAPL)
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Apple Inc. (NASDAQ:AAPL) is scheduled to report their second-quarter earnings on July 26 after the market close.

Despite AAPL’s history of innovation and their massive share of the smartphone market, like many other smartphone and PC makers, AAPL has struggled to continue innovating as they did in the past.

They have made a lot of money, but without new products, the company has been stashing capital offshore, buying back its shares and paying dividends.

AAPL’s earnings report matters for two reasons. First, it helps us understand more about the U.S. consumer. AAPL has been so much more profitable than its competitors by dominating the high-end/margin side of the smartphone market. According to comScore, this is still true, so iPhone sales should give us a good idea about the spending habits of the U.S. consumer. Obviously, better-than-expected sales will be good for the market.

The second factor will be AAPL’s market share and whether increased competition and a stronger U.S. dollar are eating into those high-end profits more quickly than expected. If that is the case, we would expect other companies to be dealing with similar problems … which is especially problematic for electronics makers, as well as luxury goods (a situation that is creating bearish opportunity for us here at SlingShot Trader).

One word of caution: Don’t be fooled by the windfall that AAPL is likely receiving something from sales within the Pokémon Go app. No doubt, the revenue from this viral sensation will be huge; however, no one knows whether it can be repeated or how long it will last. We suspect that a similar distraction from June’s trading revenues artificially boosted stocks like JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS).

Finally, regardless of the actual data, AAPL is bumping up against a key pivot level in the middle of its April gap. We expect that level to continue acting as a strong resistance level unless there is a more permanent change to AAPL’s underlying fundamental trends.

Next Week’s Big Earnings Reports: Facebook Inc (FB)

Next Week's Big Earnings Reports: Facebook Inc (FB)
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Facebook Inc (NASDAQ:FB) is scheduled to report its second-quarter earnings on July 27 after the market close.

FB is a stock we always monitor closely at SlingShot Trader, and the company is an interesting success in many ways. Unlike other social media companies like Twitter Inc (NYSE:TWTR) and LinkedIn Corp (NYSE:LNKD), its profit growth has been both stable and robust. Facebook’s success reminds us of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), and we think this earnings report will matter for similar reasons.

Like GOOG, the vast majority of FB’s revenue and profits come from advertisers, which is similar to other internet companies. However, FB has been much better at harvesting revenue from mobile users, which is important because it’s a new(ish) model that may indicate future success for social media laggards like TWTR.

FB’s growth in mobile users is an important gauge of consumer spending habits in emerging markets. Many of the world’s developing economies skipped the PC stage and leaped right to mobile devices. Revenue and margins for these users are lower than in developed markets; however, the growth potential outside of saturated areas like the United States is critical.

If advertisers are paying for access to emerging-market consumers, then we can infer that those economies are still likely to chug along in a positive or neutral direction through 2016. Like the historical “canary in the coal mine,” if FB is struggling to monetize and grow that audience, it means bad things for other sectors with exposure to international and developing markets.

FB was just recently able to break beyond its long-term highs at $121 per share. If the earnings report meets or exceeds expectations while the stock’s price is still above that level, we would expect momentum to take the stock even higher.

However, a dip back below will turn this pivot point into resistance … and it will be tough to convince investors to buy if the chart looks too much like it did the last three times it reached this level and failed to break higher.

Next Week’s Big Earnings Reports: The Coca-Cola Co (KO)

Next Week's Big Earnings Reports: The Coca-Cola Co (KO)
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The Coca-Cola Co (NYSE:KO) is scheduled to report its second-quarter earnings on July 27 before the market open.

As Warren Buffett says, “If you’re looking for a wonderful business, it’s hard to beat Coca-Cola,” which is probably true in many respects. KO is a reliable income stock that tends to be defensive during market volatility. Growth is slow, but margins have improved recently, and we don’t expect any big surprises from this earnings report — or, at least, not about Coca-Cola itself.

As everyone knows that KO is a multinational that turns raw commodities into commodity consumer products. KO’s competitive advantages are mostly derived from its brand and distribution strategies than anything particularly unique about what Steve Jobs famously referred to as “sugar water” when he recruited the CEO of Pepsi to leave and run AAPL.

What this means is that KO is extremely sensitive to fluctuations in the value of the U.S. dollar and the price of commodities, like sugar, in local terms.

As you can see in the next chart, KO (top) has an inverse relationship to the dollar (bottom). Two factors can explain why the dollar and KO have this relationship: First, KO earns profits outside the United States that are worth less when translated into a stronger dollar, which drives the stock’s price lower. Second, a rising dollar can sometimes make local commodities (especially in emerging markets) more expensive, and therefore, KO’s products are less profitable.

As our SlingShot Trader subscribers can tell you, we find KO to be a useful barometer, and this particular earnings report should act as a very important indicator for whether a rising dollar is hurting U.S. multinationals. Management’s forward-looking statements will give us information that can be used to forecast other multinationals in food, beverages and retail.

Next Week’s Big Earnings Reports: Caterpillar Inc. (CAT)

Next Week's Big Earnings Reports: Caterpillar Inc. (CAT)
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Caterpillar Inc. (NYSE:CAT) is scheduled to report its second-quarter earnings on July 26 before the market open.

When the mining and oil exploration industries experienced the stock equivalent of a face-plant in 2014 and 2015, CAT was dragged right along with them, since the company builds and sells heavy equipment used in those industries — the basis for several of our SlingShot Trader bearish plays. The rise in oil prices during the first half of 2016 has done a lot to help CAT’s stock price, which is up about 40% since January’s lows.

CAT’s margins and fundamental trends had already been suffering before the collapse in oil. Base metal prices started falling quickly in 2011 as the economic picture in China began looking worse and the “fiscal cliff” hit U.S. markets. The question right now is not whether oil prices will come back, but whether metals will continue to rally.

Why is this an important factor? Metals are much less subject to the whims of cartels, supply disruptions and weekly inventory reports than oil. Copper, aluminum, iron and other metals are more directly affected by expectations for long-term economic growth. If traders think Europe, Asia and North America aren’t likely to grow, we will hear about it in CAT’s earnings report and see it in the numbers.

It seems likely that much of the recent momentum is due to the “TINA” issue: If There Is No Other Alternative, then U.S. stocks look good. However, those higher prices may not accurately reflect the underlying fundamentals. The jury is out on this issue right now, but if CAT’s management releases an outlook for the rest of 2016 that looks bad, it could be a valuable early warning that the rest of the market may still experience an August correction like it has so many times over the last 10 years.

As you can see in the chart above, CAT was just sitting at resistance the week before earnings, which could establish a downside bias regardless of what the numbers are in its report.

Next Week’s Big Earnings Reports: Ford Motor Company (F)

Next Week's Big Earnings Reports: Ford Motor Company (F)
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Ford Motor Company (NYSE:F) is scheduled to report its second-quarter earnings on July 28 before the market opens.

Ford’s stock price may be confusing to investors who have been watching stellar sales growth in the auto industry this year.

The company had a record year in 2015, and the first quarter of 2016 was a record quarter. Even profits in Europe haven’t been this high since 2008. If things are so good, why is the stock down by nearly 10% since the beginning of 2015?

We think that Ford is the perfect stock to measure investor fear of a dramatic market downturn. No matter how well they are doing today, it will take a while for investors to forget the fact that the company wasn’t prepared for the credit crisis eight years ago.

The stock fell to $1 per share by the end of the bear market in 2009. While it hasn’t made a big difference in Ford’s fundamental performance, the company is experiencing a mini-version of the credit crisis in Latin America right now, which has investors on edge.

Operating margins in South America have declined from -12.5% to -30% over the last year, largely driven by the collapse of the Brazilian economy. The decline looks very familiar to those who watched the same thing happen to Ford in North America and Europe from 2007 to 2009. The lack of a contingency plan to deal with falling sales, credit defaults and declining market share is stressing investors.

Ford has been doing very well following the Brexit vote aftermath. That being said, investors will be looking past the expected positive results (overall) and into the details of how the company is managing itself in distressed economies. On their own, Brazil, Russia, Africa and Eastern Europe won’t kill Ford’s sales. However, if management expects those troubles to spread, investors will likely sell the stock back to short- or long-term support.

InvestorPlace advisors John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/5-big-earnings-reports-next-week-fb-cat-aapl-f-ko/.

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