No. 3 - Earnings Olympics
As we enter the final stretch of earnings season, Corporate America is blowing past the Wall Street estimates that were based on its own forecasts.
A month ago, analysts expected earnings growth to slow to under 4% for the first quarter. Well, the results are in and growth is close to 9%, according to Thomson Financial. What’s the best way to play this corporate lowballing?
A lot of time conservative companies give conservative guidance, Guy Adami says. Just look at Fluor (FLR). The construction company reported great numbers but tempered it with a wishy-washy guidance and the stock nosedived $3 in after hours trading yesterday.
Tyco (TYC) is another example. The company’s earnings beat The Street but not by much and it won’t give guidance going forward. Wall Street hates ambiguity like that, Guy says, but companies that are conservative but still great companies will always be safe to own.
Jeff Macke adds Electronic Arts (ERTS) to that list. It beat estimates by 4 cents but guided down flat. At this point in the video game cycle it would be almost impossible for ERTS to do that poorly on the top line, he says.
The stock is up in after hours trading because the company essentially set the bar low in order to exceed expectations. In this case, it pays to err on the side of being conservative because being overly optimistic and then missing the number is a disaster, Jeff says.
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Trader disclosure: On May 8, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (JWN); Bolling Owns (DIS), Gold, Silver; Bolling Is Short Nasdaq Futures, Bolling Closed Out His Tesoro Put Trade; CNBC Is A Service Of NBC Universal And Dow Jones