Earnings Season Is Too Long
I am mentally exhausted from what they call “earnings season”. The big banks started reporting on January 13th, and many companies have still not reported. The “season” is at least 7 weeks long. If you are not careful, it can take up half of your time.
I have tried to play along at home by watching CNBC from about 6am to 10am every day. I fear it has taken 10 years off my life expectancy, and I have learned very little.
The constant frustration comes from the incessant focus on short-term results. I listened to, or read, about 50-100 calls and almost never came across an interesting question. The companies were just as guilty as the analysts because they seldom talked about longer-term issues.
Obviously, none of this is new information. However, the last 7 weeks have been a great reminder of how easy it is to lose focus.
What I learned was you really have to anticipate craziness during earnings season and be ready to act. Even value stocks, where expectations are low, can drop 20% or more on just the hint of bad news.
I have also been reminded of another important lesson.
It is very easy to get caught up in the discussion of what is happening in world of the large cap stocks, and not spend enough time looking at smaller cap stocks.
I just cannot care if Google has violated another anti-trust law, or Salesforce has another activist mad at them. I need to focus on the likes of Rimini Street, Magnolia Oil and Gas, Ziff Davis, and Azenta.
Adding Verizon, Tyson, and Phillips 66 to the model portfolio was perhaps a little too much focus on larger market cap names. I have to find a way to spend more time coming to conclusions on smaller stocks.
None of the data since November has me more bullish on the economic outlook. I remain firmly in the “hard landing” camp, while the consensus seems to be moving the other way. My concerns are:
Not enough economists are discussing “pent up demand”. This cycle is unlike any in economic history. There is way too much traditional analysis going on. A lifetime looking at cyclical stocks has made me realize no two cycles are alike.
There is not enough focus on the crisis in commercial real estate. Over 30% of commercial real estate is financed with floating rate debt. 40% of the office space in Chicago is 40% unoccupied. I plan to metaphorically strangle the next idiot that tells me they will turn the empty buildings into multi-family housing if they get enough taxpayer subsidies. Sam Zell was on last week saying commercial real estate was a disaster pre-COVID. They should be arresting bank “analysts” for not discussing this issue more. Credit conditions will get worse. I should give the Piper Sandler strategist Kantrowitz a parade for focusing on the credit quality issue.
Small business was crushed by COVID policies and will take a long time to recover. Economists have little reliable data on small business, so they just ignore it.
Too me it is pure suicide to buy home builders and industrials at this point. My foil, Jimmy Cramer was discussing an engineering firm called AECOM a week ago. He said “AECOM is the new Intel”. Cramer thinks you should be buying industrials, and selling technology. I am happy to do the opposite.
I am happy to own Brunsick and RXO as a hedge. I admit I am tempted by Whirlpool and Goodyear at a price, but for today I am still hiding in gold, lawn fertilizer, refiners, chickens, and healthcare.
I have been wrong about the overall market this year. I have missed a 7-10% bounce in the S&P. I still prefer the 4.7% yielding two year bond to stocks.
Yet my new friend at FESCX has a nice portfolio selling at 11x earnings, 1.3x book, and 55% of sales without using too many evil financial stocks.
To me the big stocks are still overvalued by 20-30%. My market proxy, Colgate, still sells at 17x EV/EBITDA, even after reporting a poor quarter.
I can still hear the echo of the little known B of A strategist Savita Subramanian, the one person that said the magic words on CNBC is the last 8 miserable weeks:
“buy and hold small cap value”. - and then they quickly went to commercials
I am frustrated I cannot find a better way to play lower natural gas prices. I may just have to buy the big cap Pioneer, PXD.
I need to make a decision on IFF after their bad earnings. I know the story very well, I just need to decide if it “fits” in the portfolio
I love the concept of Rimini Street - RMNI, but the legal issues faced by the company are just too daunting.
I am attracted to the mess at Paramount Global - PARA. Silly old Warren has bought a stake, the asset value is probably there, what else do I need to know?
I have been doing more work on Ziff Davis - ZD - but I still am not sure I understand the business.