The stock market enjoyed another pleasant day on Tuesday, as impressive earnings from the the largest publicly traded company on Wall Street sent a wave of optimism running through the market. Hints that the European Central Bank could begin a bond-buying program also sent stocks higher.
International Business Machines (IBM)
IBM stock plunged another 3.5% today, adding to the steep, 7% losses shares suffered on Monday. Investors are seriously worried that the tech giant’s third quarter is an inflection point in IBM’s corporate history, and it’s tough to blame them:
“Its software, hardware, and service segments each underperformed in the period, and IBM doesn’t expect its business to turn around anytime soon. CEO Ginni Rometty said that IBM’s projected earnings per share in 2015 weren’t going to crack $20 — the first time IBM has formally acknowledged 2015 EPS wouldn’t exceed that level in five years.”
Rometty went on to add that the current shifts going on in the industry were “unprecedented.” That’s usually okay in the tech sector, but IBM looks like it’s blatantly on the wrong side of the unprecedented change going on. I’m a big advocate of “buying under gunfire and selling under fireworks,” so to speak, but if IBM isn’t actually seizing the opportunities in the industry, it might be best to leave the stock alone.
Two of Warren Buffett’s largest holdings made the list today, as Coca-Cola joined IBM as one of today’s worst-performing blue-chip names. KO stock shed 6% in trading Tuesday after the Atlanta-based beverage giant reported flat soda sales. But that wasn’t all. InvestorPlace‘s Dan Burrows elaborates:
“To top it all off, KO cut its sales and profit targets. The company sliced its long-term revenue target to mid single-digit growth and said it doesn’t expect to meet its earnings view for high-single-digit growth this year. Furthermore, KO expects another year of pain in 2015.”
Looks like The Oracle of Omaha’s crystal ball might be a little mistier than usual when it comes to the future of KO stock.
Chipotle Mexican Grill (CMG)
Unlike Coca-Cola, burrito behemoth Chipotle Mexican Grill still has years of growth ahead of it. And unlike KO, CMG is actually benefiting from the nutritious, health-oriented, organic trend in the food and beverage industry. But that didn’t stop CMG stock from stumbling today, falling 6.6% despite an absolutely blowout quarter.
Sales jumped by 31% in the third quarter, while earnings per share roared 57% higher, clocking in at $4.15. Unfortunately, too much of a good thing can be a bad thing, and, as InvestorPlace‘s Gerelyn Terzo explains, CMG’s same-store sales growth rate of 20% in the past quarter sets a helluva precedent:
“What sent CMG stock lower wasn’t the earnings but the outlook. Chipotle is predicting comparable-restaurant sales increases in the low- to mid-single digit range for 2015, which pretty much takes the extra out of the company’s extraordinary performance of late.”
Because investors value the future over the past, CMG stock took a beating today as Wall Street debated whether growth can ever sustain its recent growth rate.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.