Here's our second-quarter earnings report card for 33 stocks in the portfolio

Published Wed, Sep 6 20236:00 AM EDTUpdated Fri, Sep 8 20233:36 PM EDT

What slowdown? Worries about corporate profits were misplaced yet again this quarter, as a whopping 79% of the S & P 500 reported an upside earnings surprise and 64% had better-than-expected sales, according to FactSet. That's not to say stock picking wasn't important. If this second-quarter earnings season reinforced anything, it's that investors are rewarded for doing the homework, digging into the financials, and finding the best company or two to own in each sector. We saw it in the semiconductor space as companies with exposure to generative AI fared well, while the rest dealt with inventory gluts. In cybersecurity, exposure to Palo Alto (PANW) was a major plus. Despite a broader industry slowdown in spending, the company was able to beat expectations thanks to its fully integrated platform approach. In retail, we saw that if you unless you are selling staples people can't live without, like Procter & Gamble (PG), or offering the best value in town, like TJX Companies (TJX), you are in trouble as consumers remain more focused on services than goods. Another lesson from the quarter: Companies with scale that can offer great value to buyers or are confirmed to be mission-critical to enterprises have proven to be the most resilient. Though we are not out of the woods yet given the delayed effect of monetary policy — it remains unclear if the Federal Reserve has too far in raising interest rates or not far enough — the results this season have certainly increased confidence in the likelihood that a soft landing is possible. That's assuming there even is a recession in the next year; some still see a no landing. As always, we're wrapping up the season with a review of all the releases from our holdings. These quarterly report cards are not the end-all, be-all for analysis. But we believe stock prices ultimately follow the underlying business fundamentals of companies. So, as we wrap up the current quarter of 2023 and look ahead to the third, here's a rundown of how we rank first-quarter releases from 33 companies in the Club portfolio. ( Oracle reports Sept. 11 and Costco reports Sept. 26, and this article will be updated following each announcement.) Similar to prior quarters, we grouped company results into one of four categories. The companies in each category are listed in alphabetical order. The Great The Good The Not So Bad The Ugly The Great Alphabet reported very strong results as cost control initiatives are starting to bear fruit and the advertising market starts to rebound. In addition to a positive sales and earnings surprise, results for operating margin and free cash flows came in better than expected. Amazon delivered beats on the top and bottom lines along with a much better-than-expected companywide operating margin, as management gave investors exactly what they were looking for. Better yet, guidance for the third (current) quarter came in ahead of what the Street estimates. In addition to strong quarterly sales, Caterpillar's (CAT) backlog growth served to put concerns to bed about demand peaking. It was as good of a quarter as we could have hoped for and the reported results were compounded by positive forward commentary that gave us conviction that the momentum seen in the reported quarter was sustainable. Eli Lilly not only reported a stellar second quarter, management was able to raise its full-year sales and adjusted earnings outlook as well. Importantly, Mounjaro showed impressive momentum in the second quarter, with sales outpacing surging past Wall Street's estimates. Emerson Electric reported revenue, earnings, organic growth and cash flows all coming in better than expected. Better yet, the strong results were compounded by an increase to management's full-year financial forecast. Health insurer Humana (HUM) benefited from a lower-than-expected benefits expense ratio. As a result, management was able to up upwardly revise its 2023 individual Medicare Advantage membership growth expectation to a level well above the industry average, pointing to further share gains ahead. Meta Platforms (META) results included robust revenue guidance for the third quarter serving as proof that the social media giant has made incredible strides monetizing its products even while reining in costs. The bar of expectation was about as high as it could possibly be going into Nvidia's (NVDA) release and still, the company managed to report results that blew past expectations while management provided a forward outlook that once again served as a reminder that shares, in hindsight, are rarely as expensive as forward estimates lead investors to believe. While we wait for Oracle's most recent earnings report on Sept. 11, we can look at the fantastic set of results reported in June. At the time, Oracle also ratcheted up its guidance. The results, along with the view that Oracle has quietly become one of the top players in cloud infrastructure, led us to initiate the name in mid-August. Palo Alto Networks had a lot of folks concerned heading into it's earnings release due to management's decision to provide results on a Friday afternoon and bearish comments from the competition a few weeks prior. However, those concerns were misplaced. Though revenues were a tad short, earnings results were better than expected on a both a HAAP and adjusted basis. Equally important, the team provided billings, earnings and cash flow projections that were in line or better than estimates. Salesforce (CRM) reported a great quarter as it flexed its ability to boost profits while also growing at scale. The cloud software company topped expectations in its second quarter and provided an upbeat view for the rest of the year TJX Companies again demonstrated the off-price retailer's ability to offer value to consumers no matter the economic climate. Though management's forward outlook was a bit more mixed, it's clear that TJX is benefiting from the right product mix and an intense consumer focus on value. China may be struggling to bounce back from the pandemic but you wouldn't know it looking at Wynn Resorts (WYNN). Every major business unit beat estimates, and the strength seen in the second quarter appears to be continuing into the third, with gross gaming revenue (GGR) continuing to grow in Macau and North American consumer activity holding firm. The Good Some nitpicked and focused on the miss in products sales, but Apple's (AAPL) quarter was still solid as services reached an all-time record and helped boost the companywide gross margin to a level above what analysts were expecting. Broadcom (AVGO) reported strong results that couldn't match up to investor expectations with the stock at an all-time high. Sales and earnings beat, and guidance was in line, but cash flows came a bit short versus expectations. Constellation Brands' (STZ) sales and earnings results outpaced expectations. However, management's guidance, while better than analyst estimates, was a reiteration of the earlier forecast and left some investors disappointed. The quarter itself also wasn't flawless as beer depletions were a bit short versus expectations. DuPont (DD) reported a good quarter prior to us initiating a position in the name. Along with sales, operating EBITDA (earnings before interest, taxes, depreciation, and amortization) and earnings all beating Wall Street's expectations and management's own guidance, the team called a bottom in DuPont's semi-business, making for an attractive growth story for 2024. Ford (F) sales outpaced estimates in every major reporting segment. As a result, management was able to boost its full-year financial forecast . The only reason we are ranking this report Good and not Great is because electric vehicle losses, a major watch item for investors, were greater than expected. GE Healthcare Technologies (GEHC) results increased our belief that the company is well positioned to benefit from ongoing investments in medical imaging technologies by healthcare providers. The one line item keeping this from being an all-out great quarter was a miss on cash flows. Honeywell's results were mixed as earnings topped expectations despite sales coming up short. Additionally, though short at the midpoint, we did get upward revisions to several important full-year targets and the team remains on track to achieving its longer-term organic growth, and profit and cash flow margin targets. Though Linde (LIN) missed the mark on sales, it was still a good quarter as operating income and earnings both managed to outpace expectations as the company reported its 18th consecutive earnings beat-and-raise quarter. Microsoft reported a very good set of results, but while nearly every line item came in above what the Street was looking for, revenue guidance for the current quarter came up short. Though expenses were a bit high, and return on tangible common equity was a bit low, Morgan Stanley (MS) nonetheless reported good earnings resulting in an efficiency ratio that was better than expected and a healthy capital ratio supportive of further cash returns to shareholders going forward. Sales and total realized prices came up a bit short but we still think that Pioneer Natural Resources (PXD) reported an overall good quarter as earnings outpaced expectations while management increased its production forecast while reducing its capital budget outlook due in part to enhanced operational efficiencies. Procter & Gamble (PG) delivered a top-and-bottom-line beat that included robust organic growth and very strong gross margin performance. The company also delivered organic growth in all product categories and across all geographies in which it operates. Management's financial outlook was largely in line with expectations. Stanley Black & Decker (SWK) showed it's becoming a more streamlined business through cost cuts, inventory reductions and an improved supply chain. With another positive quarter under its belt, management is one step closer to getting the business to its goal of growing organically at a rate two to three times its market, with 35%-plus adjusted gross margins by 2025. Wells Fargo (WFC) reported strong underlying fundamentals and a capital position that can support further cash returns to shareholders — a big plus for investors like us. The positive headline results came on the back of a lower-than-expected efficiency ratio, and slightly higher-than-expected net interest margin (NIM). As a result, both net interest income (NII) and non-interest income outpaced expectations. The Not So Bad Though Bausch Health (BHC) did deliver an earnings beat and better-than-expected guidance, we can't rate the name any higher without more clarity around the timing to monetize the BLCO stake and the final ruling for Xifaxan patent litigation. Coterra Energy (CTRA) had a miss on free cash flow due to higher-than-expected capital expenditures. Our so-so rating was solidified when factoring in that management failed to lower their capital expenditure guidance for the full year – like what we saw from Pioneer Natural Resources. Though Danaher (DHR) did beat expectations on both the top and bottom lines, management guided third-quarter results below estimates and was forced to cut their outlook for the full year. The cut wasn't much of a surprise, given the results that German competitor Sartorius provided before Danaher's report. We suspect the inventory headwind will be largely behind us as we enter 2024. Disney's (DIS) results for the quarter were mixed. Though subscriber count at streaming unit Disney+, average revenue per (ARPU) increased as the losses were concentrated in the Hotstar service in India. We were also pleased to hear that management is on track to exceed its initial $5.5 billion restructuring and cost savings plan target. The only thing keeping Estee Lauder (EL) out of Ugly camp, despite reporting top and bottom-line results that were better than rock-bottom expectations, is the fact that management's guidance implies that we are at trough earnings. It wasn't a bad quarter for Starbucks (SBUX). But with expectations low headed into the print, we wanted to see more. We're encouraged by the coffee maker's strong comparable sales internationally and its rebound in China, despite the confusing economic signals in that key market. But the slight comparable-sales miss in North America prompted questions about the company's ability to hit its long-term targets of 10% to 12% revenue growth and 15% to 20% earnings growth. The Ugly Foot Locker (FL) earnings matched low estimates but were down over 96% from a year ago. As a result, management once again lowered guidance and opted to suspend dividend payments. There was really nothing good to say about this report. We downgraded shares to a 4 rating, meaning that no action will be taken on the stock until more information becomes available. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Jen-Hsun Huang, president and chief executive officer of Nvidia Corp., speaks during the company's event at Mobile World Congress Americas in Los Angeles, California, Oct. 21, 2019.

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