We’re now knee-deep into one of the more critical earnings seasons in memory. With the Federal Reserve equivocating on whether or not to raise rates, every piece of economic data is being picked through with a fine-tooth comb.
But it’s not just the Fed that has investors uneasy. The price of oil appears to have stabilized, at least for now. But it’s still down by nearly half over the past year, and lower crude prices are a big problem for America’s energy renaissance — one of the biggest drivers of job growth over the past decade.
And then there is China. The bursting of the Chinese stock bubble earlier this year led to worries that China’s economic slowdown was morphing into a bona fide hard landing.
And that’s a big deal, not only for China, but for the companies whose livelihood depends on Chinese growth. Weakness in China, along with other emerging markets, has been a major theme in earnings releases throughout 2015.
So with no further ado, let’s jump into 10 earnings reports you’ll want to watch in the second half of October. All tell important stories that go far beyond the companies themselves.
Earnings Reports to Watch: Baker Hughes (BHI)
I’ll start with oil services company Baker Hughes (BHI), which reports its quarterly earnings on Wednesday Oct. 21. There actually won’t be a Baker Hughes to report for much longer, as the oilfield services provider is merging with rival Halliburton (HAL).
But for the time being, you can bet that analysts will be looking for guidance on the health of the energy sector when Baker Hughes releases.
It’s been a rough year for the entire sector: Falling domestic investment due to sagging crude oil prices has led investors to sell first and ask questions later. Baker Hughes has held up better than its peers due to the pending merger, but Halliburton and Schlumberger (SLB) are down 48% and 37%, respectively, from their July 2014 highs.
Any small bit of good news from Baker Hughes will likely mean a nice pop in the share price of all three companies.
Earnings Reports to Watch: Las Vegas Sands (LVS)
Las Vegas Sands (LVS) announces its quarterly earnings the same day as Baker Hughes — Oct. 21. Investors will be watching this release closely as well, but for entirely different reasons. Sands should give us a sneak peek into the health of the Chinese economy.
Despite its name, Las Vegas Sands gets very little of its revenues from Las Vegas; as of 2014, only 13% of revenue was generated in the United States. Sixty-five percent of its revenues come from Macau and another 22% comes from Singapore. And the vast majority of the Macau and Singapore revenues come from mainland Chinese gamers, which are on the decline.
For most of the past decade, this outsized exposure to China was a major positive. Chinese high rollers effectively kept the entire worldwide gambling industry in business. But this started to come under pressure when Beijing cracked down on corruption and conspicuous consumption over the past year. And more recently, weakness in the economy has taken some of the allure out of risk taking.
A good earnings report out of Las Vegas Sands would say a lot about the health of China’s middle and upper-class consumers, which is a very big deal for the legions of Western companies that focus their sales efforts on Chinese consumers.
Earnings Reports to Watch: Alphabet (GOOGL)
So if “dollar strength” is highlighted by management as a problem, you can bet that we’re going to hear much of the same from other Big Tech releases in the weeks ahead.
But Alphabet is actually a lot more important than that. It was one-fourth of the infamous “FANGs,” Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google. These were the four momentum stocks that kept the market averages afloat for much of 2015. Absent their leadership, it’s hard to see the market doing a whole lot for the rest of 2015. As go the FANGs, so goes the market.
So don’t be surprised if Alphabet’s earnings release has an outsized impact on the market this week.
Earnings Reports to Watch: Procter & Gamble (PG)
Procter & Gamble (PG) announces on Oct. 23. P&G, and while far from a tech company, PG faces the same issue that Alphabet does — a huge proportion of its revenues from overseas. Only about 40% of revenues come from North America, with Europe picking up another 26%.
Emerging markets — where the currency swings have been the most brutal — account for 38% of sales. And of this group, 10% comes from Latin America, the region that has seen some of the worst currency moves.
Slowing demand for raw materials from China has sapped demand for Latin American exports, which has reduced buying power for branded consumer goods.
Even in the developed world, demand for P&G’s core products has been tepid since the crisis. With beards in fashion, P&G is having a harder time selling premium razor blades.
Overall, life has been rough for P&G, but its problems are similar to those faced by most large multinationals. So investors will definitely be looking between the lines.
Earnings Reports to Watch: Anadarko Petroleum (APC)
Anadarko Petroleum (APC) reports on Tuesday, Oct. 27. This will be closely watched by energy investors, as Anadarko is primarily an exploration and production company.
Unlike the integrated supermajors like Exxon Mobil (XOM), which can depend on fatter refining margins when its exploration and production businesses aren’t doing well, Anadarko’s fortunes depend almost entirely on its exploration and production efforts.
Anadarko is an efficient producer, and you can bet that this company will be around long after many of the fracking wildcatters are out of business.
Anadarko has taken its lumps during the oil-price rout. Its shares are down by more than a third since September of last year. But it’s worth noting that Anadarko has been rallying hard throughout October.
We’ll see what the earnings release reveals, and what it might mean for the rest of the energy sector.
Earnings Reports to Watch: Coach (COH)
Handbag and accessory maker Coach (COH) announces on Tuesday, Oct. 27. Coach is in a difficult position. It’s a fashion brand that has become unfashionable.
It found itself in the uncomfortable position of being a “tweener,” undercut by upstarts like Michael Kors (KORS), but not quite able to compete at the high-end with the European brands. Consumer tastes are fickle, and it’s not easy to rehabilitate a brand.
It’s taken a definite toll on the stock price. In 2012, Coach was a $79 stock. Today, it fetches less than $30. It’s also lost its status as a high-flying growth stock and now finds itself among the high-yielding value crowd with a dividend yield of over 4%.
But the bigger story here is China. The Chinese market has been the biggest bright spot for Coach for most of the past decade. So investors in the luxury goods sector will be eyeing this earnings release hard for indications of Chinese consumer health.
Earnings Reports to Watch: Comcast (CMCSA)
Comcast (CMCSA) reports on Tuesday, Oct. 27. You mind not think a cable TV and internet service provider would be a very interesting earnings report, but the big picture affects the entire entertainment industry, including heavy hitters like Disney (DIS).
I’m talking about cord-cutting. A few years ago, it seemed that virtually everyone in America had cable TV. It was a basic “necessity.” Only total cheapskates or Spartan ideologues did without.
Well, that’s changing, and with it so are the economics of the media industry.
Disney recently made headlines with its comments that declining cable viewership were hurting the profitability of ESPN. Thus far, Comcast has managed to offset declining paid-TV customers with added high-speed Internet customers and higher prices. But you can bet that analysts will be picking through the earnings release for any guidance on cord-cutting.
Because as goes Comcast here, so goes the entire entertainment media industry.
Earnings Reports to Watch: Cummins (CMI)
Cummins (CMI) also reports on Tuesday, Oct. 27. Cummins is not a sexy stock. It’s an old-line industrial company that specializes in efficient diesel and natural gas engines.
Cummins benefits from high energy prices because higher fuel costs incentivize truckers and other transport companies to switch to cheaper alternatives like natural gas.
Of course, the flip side of this is that lower energy prices are bad for Cummins.
If you own a truck or bus fleet, you have absolutely no incentive to upgrade your vehicles if your fuel costs are falling. So it should come as no surprise that Cummins’ stock price has taken an absolute beating over the past year. In June of last year, the stock price was pushing $160 per share. Today, it fetches less than $110.
Cummins woes are common to many other energy-efficient industries, such as solar energy. So it’s safe to say that Wall Street will be watching this earnings release with a lot of interest.
Earnings Reports to Watch: Ford (F)
Auto stocks are one of the cheapest sectors in the market right now, which is odd given that auto sales have been strong this year. It seems that investors believe, in the absence of strong economic growth, the surge in auto sales will be short-lived.
Weakness in China is a concern as well, as China has been the biggest driver of growth for the industry.
We should a better idea of industry health when Ford (F) reports on Tuesday, Oct. 27.
At current prices, Ford trades for just eight times expected 2016 earnings and yields a fat 4% in dividends. And I suspect that the recovery in auto sales has further to run, irrespective of what happens in the economy.
The average age of a car on American roads is over 11 years. That means that there a lot of lemons on the road and a lot of cars that need to be replaced in the years ahead.
Earnings Reports to Watch: Cheniere Energy (LNG)
Cheniere Energy (LNG) has become a trendy stock among hedge fund masters of the universe. Seth Klarman, who is arguably the best investor of his generation, has nearly 18% of his portfolio in the stock.
And recently, Carl Icahn made a splash by taking a large position himself. Icahn owns 12% of the total shares outstanding. The rationale for owning Cheniere is pretty straightforward: Cheniere will be one of the prime beneficiaries of the move by the U.S. to become a major exporter of liquefied natural gas.
Like everything energy related, Cheniere is down big over the past year. In September of last year, this was an $85 stock. Today, it trades for about $48.
Cheniere reports on Wednesday, Oct. 28, and you can bet that investors will be watching. Cheniere should give us visibility into the health of the natural gas market and the potential of LNG exports.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. As of this writing Charles Sizemore did not hold a position in any of the aforementioned securities.