The fundamental good news today is that new unemployment claims, both with and without seasonal adjustment, are trending down--though they are at high levels, and the very low workweek suggests another 'jobless recovery' could well await us.
The bad news from a stock standpoint is that UPS had an in-line (and poor) quarterly earnings report and guided down for Q3- yet the stock is surging with the market. First, from Calculated Risk re the conference call:
UPS executives went on to say (paraphrasing) that 1) trends in July have shown no improvement to date, 2) don’t have any confidence that trends or volumes will improve materially in Q3, 3) economy sitting here at this bottom. (Emph. added)
Second, from Reuters:
The company anticipates third-quarter earnings per share of 45 cents to 55 cents, versus the analyst view of 59 cents.
"Declines in both our domestic and international businesses appear to be stabilizing, but volumes will remain significantly below last year's levels," Chief Financial Officer Kurt Kuehn said in a statement.
Why is this stock up? What "long" institutional investor truly is happy about such a "down" guidance?
On the other hand, one of EBR's favorites, McDonald's, reported an in-line quarter, showed growth everywhere worldwide, lowered no estimates, and is down 4% today. MCD now sells for under 15 times 2009 estimated earnings, yields a bit over 3.5%, and sells for about 14 times next year's estimated earnings. UPS now sells for about 23 X this year's prior earnings estimate--which P/E will rise given the guidance down for the current quarter. Who could even guess about 2010 earnings for UPS. UPS yields a bit under MCD's yield.
Click HERE for the McDonald's earnings release.
My conclusion: McDonald's is a better buy than it was yesterday. The stock market as a whole, however, is a worse buy. Cyclicals like Eaton and UPS keep going up even as they guide earnings lower and see no imminent business upturn, whereas "good guys" far away from credit bubbles such as MCD, Wal-Mart and Northern Trust can't get out of their own way.
This is a very speculative stock market. It would be a better sign of economic vigor if the speculation were occurring years into an economic up-cycle.
Copyright (C) Long Lake LLC 2009
Copyright (C) Long Lake LLC