Proceed with caution. General Electric (GE) has beaten down Wall Street expectations so much that even a poor quarter looks phenomenal. That was the quick discussion between myself and our resident GE expert, Anders Keitz. Shares of the one-time industrial powerhouse were soaring 5% in premarket trading as the first-quarter earnings report wasn’t Armageddon-type stuff.
Earnings beat by 4 cents, free cash flow guidance was reiterated, and the profit outlook was unchanged. Aviation and healthcare were bright spots amid a sea of ugliness in the oil and gas and power businesses. Cost savings from restructuring efforts are taking hold.
That said, GE’s quarter was far from clean (Jack Welch wouldn’t be proud here) and those thinking a bottom is in should proceed carefully. CEO John Flannery must deliver on clear guidance regarding the timing of asset sales. It can’t be that GE has one better-than-expected quarter and that inspires Flannery’s team to stay the course with the current business model. The earnings are a decent first step for GE in repairing investors’ confidence, but it’s unclear whether Wall Street as seen the bottom.
Apple to $1 Trillion May Have to Wait
Judging by the speculation and the news flowing out of the chip space, Action Alerts PLUS holding Apple (AAPL) may have to wait a bit before breaking through the $1 trillion market cap level. The commentary out of chip supplier Taiwan Semiconductor (TSM) , a company that counts Apple, Qualcomm (QCOM) and Nvidia (NVDA) as customers, that current quarter sales will be about $1 billion less than analysts’ estimates pressured most of the tech space.
Also still weighing on sentiment is the International Monetary Fund’s report this week that smartphone shipments declined for the first time. Earnings from Action Alerts PLUS holding Alphabet (GOOGL) on Monday will go a long way toward stabilizing the chip space or fueling a full-on rout.
Jolt Investing Tip of the Day
Never forget the people component when picking a company to invest in. At the end of the day, the financials reported every three months are a byproduct of the decisions people make day in and day out throughout an organization. Having the right people could be the deciding factor between winning, losing or treading water. It’s why a Sears (SHLD) is dying, and Action Alerts PLUS holding Amazon (AMZN) is thriving.
If a company has one bad quarter after 15 great ones, maybe it’s due to economic issues more so than internal problems. Give the company a pass, perhaps. But if a company has over a year of poor results, chances are the right people aren’t in the right places. And that’s a problem as it’s incredibly difficult to find, and keep, top talent. This is part of the reason that turnarounds are often so difficult and tend to take longer than C-suite executives communicate to their investors.