Will tech earnings shift sentiment?
If results are surprising, a bullish outlook on these stocks will pay off.
By Ken Shreve
It's up to three high-profile tech names to save the day and lift the tech sector out of its recent malaise. Optimism is key, but judging from recent price and volume trends in each stock, it might be a tall order.
Earnings reports from tech companies have left a lot to be desired last week. IBM (IBM) missed its revenue number by about $1 billion, and results from Google (GOOG) also came in well below expectations.
Facebook reports Tuesday after the close. To say the social networking company has fallen out of favor on Wall Street would be an understatement. Headed into Monday, the stock was 58% off its all-time high of $45. Despite the drop, it's still a high-multiple stock, selling at 66 times trailing earnings and 31 times forward earnings. Its forward price-to-earnings ratio isn't completely out of whack, however, as full year earnings in 2013 are expected to rise 29% from 2012 earnings to 62 cents a share.
Stocks with high-price-to-earnings ratios like Facebook are usually held to a high standard during earnings season. But some will argue that a lot of bad news has been priced in already. The fact remains that Facebook is unproven as a publicly-traded company. The market has serious questions about whether or not it will be able to deliver on its mobile growth strategy.
Institutional investors sold the stock in July after Facebook announced disappointing second-quarter results. Fund managers will most likely want to see a couple more quarters from the company before they decide to embrace the stock again.
Third-quarter profit at Facebook is expected to be flat from a year ago at 11 cents a share. Sales are projected to rise by 29% to $1.23 billion. This is a solid top-line growth, but it would mark the fifth straight quarter of decelerating sales growth.
While uncertainty is alive and well where Facebook is concerned, it's also rampant at Apple as Wall Street frets about future growth. Is Apple the same company without Steve Jobs? Is the iPhone market starting to get saturated? How much will the iPad Mini cannibalize sales of the regular-sized iPad? What will Apple's next new product be and will it be a growth driver going forward? A lot of questions with no answers at this point.
Apple will report fiscal fourth-quarter results Thursday after the close. The consensus estimate calls for profit of $8.85 a share, up 26% from a year ago with sales up 28% to $36.2 billion. Piper Jaffray analyst Gene Munster expects total iPhone sales of 25 million, up 46% from a year ago.
Apple has a press event scheduled for Tuesday where it's expected to introduce a smaller version of its iPad tablet with a 7.85-inch screen.
Shares of Apple remain under pressure since late September. It might look like it is on sale here, but it's a risky buy -- especially now when big investors are selling. Earlier this month, Apple fell below its 50-day simple moving average. Its 200-day SMA at $581 could be breached if earnings disappoint.
Finally, selling pressure has been building in Amazon.com ahead of its earnings report Thursday after the close. Amazon is another stock that's starting to look a bit tired. It tried to rally back above its 50-day SMA last week but was turned away.
The consensus estimate calls for a loss of 8 cents a share, but sales are forecast to rise 28% to $13.9 billion. Amazon has sacrificed earnings growth in recent quarters to expand its distribution network and technology infrastructure.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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