Earnings Reactions Present Opportunities for Investors
Two industry leaders in the Dow Jones Industrial Average reported earnings within the last 24 hours, and while neither was impressive, the market is taking wildly differing views of their futures.
The Dow overall gained more than 50 points to close at a fresh record high.
Wal-Mart said same-store sales declined again last quarter and predicted a tough holiday season, but shares climbed slightly in today's trading session. Meanwhile, Cisco said sales may fall 10% this quarter and the stock promptly plunged 12%. Which one is the better buy today? The answer may surprise you.
Brick-and mortar-retail continues to struggle
How can Wal-Mart continue to post dismal numbers and see its stock go up? The answer is that investors expected pretty ho-hum numbers from Wal-Mart and were already prepared for a weak holiday season.
But in the long term this may be a bigger warning than investors are pricing in. I recently highlighted how Amazon.com, Target, and Costco are crushing Wal-Mart in the U.S. Lower same-store sales are the first sign of trouble for retailers, and with online competition getting stronger, there's no reason to believe the trend will slow down.
Wal-Mart may not be down on today's news, but there's reason to be concerned about the company in the long term.
Tech is up and down again
Cisco can't ever seem to meet expectations, and last quarter was no different. Revenue rose 2% to $12.1 billion, and net income was up 12% to $2.9 billion but a projected decline in revenue next quarter has weighed on the stock.
Management said that new orders were down 12% in the developing world, driven by fear that the National Security Agency could more easily spy on the company's devices. CEO John Chambers argued that a variety of tech companies would feel push-back from the NSA fallout, but Cisco is taking the brunt today.
This doesn't change Cisco's position as a dominant tech company that makes vital parts of the Internet's infrastructure. In the long term, these qualities will be drivers of the company's performance -- not fear of NSA spying.
Cisco also has more than $48 billion in cash and investments, which is incredible for a company with a $113 billion market cap. Combine that with a 2.9% dividend yield, and I think investors are getting a great value for a company with good long-term potential.
The market can be a crazy place
The short-term reaction to stocks sometimes overlooks the long-term picture. I think we're seeing a classic example today. Wal-Mart's earnings report only reinforced data pointing to a long-term decline for the company, especially in the U.S. On the other hand, it looks like Cisco will see short-term pressure while remaining a vital cog in the future of technology.
Today's headlines might say otherwise, but I'd bet on Cisco's long-term potential over Wal-Mart's any day.
Take the long-term view
Short-term, there can be a lot of noise in the market so it's important to keep an eye on the long-term potential of the companies you invest in. If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.
The article Earnings Reactions Present Opportunities for Investors originally appeared on Fool.com.Travis Hoium is short shares of Amazon.com. The Motley Fool recommends Amazon.com, Cisco Systems, and Costco Wholesale. The Motley Fool owns shares of Amazon.com and Costco Wholesale. 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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