Earnings Weakness Worries Wall Street
Earnings season begins anew, and doubts about the strength of the economy still filter through expectations. Analysts worried that Intel (NAS: INTC) is being propped up by price increases, rather than sales volume, and they expressed jitters about the release of Windows 8 for Microsoft (NAS: MSFT) . That led the Dow Jones Industrial Average to drop 110 points yesterday, or almost 1%.
Yet some companies fell even further, dropping by double-digit percentages. While the rout could be warranted, sometimes it's just a lemming-like response to a temporary situation. So let's see whether they had good reason to tumble, as panic-fueled declines can sometimes lead to excellent buying opportunities.
Netflix (NAS: NFLX)
SUPERVALU (NYS: SVU)
Glu Mobile (NAS: GLUU)
Close the curtain
Easy come, easy go. A large chunk of the gains Netflix enjoyed over the past week-plus were returned for the same reason they rose: analyst sentiment. After watching investors rejoice over bullish expectations for the movie house to fend off Amazon.com's (NAS: AMZN) challenge to its streaming movie business, Bank of America (NYS: BAC) downgraded the rental agent, believing Netflix is under pressure to live up to the subscriber goals it set for itself at the start of the year. The stock, which had been up 35% on prior analyst recommendations, tumbled 11% on the dimmer outlook.
The movie provider said it wanted 7 million subscribers this year, a stepping-stone on its way to regaining many of the customers it lost when it hiked prices last year. The BoA analyst says that might be difficult to achieve and that if it comes in under 6 million, the rally will turn into a rout. Additional pressures will come from rising content prices brought on by all the newcomers to the space. Apple (NAS: AAPL) is said to be angling for position, and rival Coinstar (NAS: CSTR) is jockeying to get its Redbox brand to break into the game.
Between the gains and the givebacks, Netflix is still down 50% from its 52-week high. Tell me below if you think the movie house will get its name back up on the marquee.
There was no specific company news that sent shares of supermarket chain SUPERVALU tumbling more than 11% yesterday, but having purchased the Albertson's chain a few years back and stocked its shelves with an unmanageable debt, it's now desperately trying to find a buyer. Private-equity giants KKR and TPG Capital are said to be interested, as well as buyout specialist Ronald Burkle. But it's not the whole cumbersome chain they want, but rather strategic bits and pieces.
In addition to Albertson's, SUPERVALU also operates Acme, Cub, Shoppers, and Sav-A-Lot, among others. Because SUPERVALU tried to cover a lot of ground with its acquisitions, the discount chain Sav-A-Lot is a completely different kind of company from Albertson's, and Jewel-Ozco is different again. Then there are the small, local shops it has, such as the five Lucky grocery stores, the 42 Shop'n Saves, and the pharmacies that populate all of its chains -- more than 800 in total.
A deal ought to be made for this supermarket's assets, whether in whole or in part, and though there should be a premium paid, considering the discount SUPERVALU is trading at compared to rivals like Kroger (NYS: KR) , investors can expect a lot more days like yesterday followed by sharp bounces higher.
Analyst angst at Northland Securities sent shares of mobile-game maker Glu Mobile sharply lower yesterday. They were apparently being cautious about third-quarter results that are due Nov. 1. With this and the lousy earnings that came from Zynga (NAS: ZNGA) last week, the weakness in the mobile-gaming market was apparent for all to see.
Yet after the market's close, Glu said its third-quarter adjusted losses would come in closer to the lower end it predicted in August, despite having only one of nine expected titles launched. At the tail end of summer, Glu said it anticipated that losses would range between $3.1 million and $4 million.
The company is hopeful that it will be able to exceed fourth-quarter guidance, as it will be launching more titles, including some of its more highly anticipated ones, and it just signed on with the U.K.'s Probability to make Glu-branded slot games in Probability's U.K. and Italian markets. I'd expect a bounce back up again, though over the long haul I think this horse is off to the glue factory. However, let me know below if you're still stuck on Glu Mobile's potential.
Ready for a resurrection
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The article Earnings Weakness Worries Wall Street originally appeared on Fool.com.Rich Duprey has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Bank of America, Intel, Microsoft, Netflix, and Supervalu. Motley Fool newsletter services recommend Amazon.com, Apple, Intel, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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