Wednesday, April 15, 2009

Why Stock Earnings This Quarter Don't Matter so Much

It's that time of the year again, where 1st quarter earnings for many large companies are due out. Intel, Goldman Sachs, Well Fargo, have all released their earnings, and Google as well as other large companies prepare to this week and next. So, what exactly are we looking for with these earnings reports?

We already know this is probably going to be the worse Quarter in years for many companies. With economic data showing the economy seems to be at least on a slight rebound, it is likely that most of these companies will report better numbers come July for their 2nd quarter. So, should and will these numbers effect the stock all that much? Well, any quarterly report is bound to get a stock price reaction in the short term, but if you are in these stocks for two years or more, don't sweet this quarters earnings. Take for example Intel. Their stock is down 5% after reporting numbers that were seemingly in line with forecasts by analysts. Since they didn't give clear guidance for next quarter the stock is hurting. As an investor though, you have to take the optimistic view. Intel is pretty much the only major computer chip maker worth mentioning, besides AMD which is falling further behind each quarter. When the economy rebounds, they will be in a position better then ever to take a commanding lead in this market as they grow not only in scale, but also in scope. There is no reason they stock will not approach the 52 week high of $25 sometime in the near future, not to mention their current, dividend which seems secure is paying more then any bank CD you will find.

In conclusion I think this quarters earnings reports, if for a company with little or no debt, a clean balance sheet, and a bright future, should not be read too much into. This quarters earnings may in fact make for some great buying opportunities if you are looking for solid long term investments.

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