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Keep an Eye on Revenue Growth and Guidance

As expected, earnings season has produced a mixed bag thus far for first quarter results. While the number of beats may be promising, investors and traders may need to focus on the revenue picture

As expected, earnings season has produced a mixed bag thus far for first quarter results. While the number of beats may be promising, investors and traders may need to focus on the revenue picture and corporate guidance to better anticipate what the rest of the year will bring. In our latest interview with Toni Turner of TrendStar Trading Group, we talk about Apple's stock split, and her thoughts on the earnings period so far.

EQ: The big news right now is the announcement of Apple’s 7-to-1 stock split. As a trader, how does that impact how you view Apple (AAPL) when it starts trading at around $80 a share versus the mid-$500s?

Turner: Many investors believe that when a company initiates a stock split that more people can buy more shares, and that fuels demand for the stock and lifts the stock price. I think it will be a positive for Apple, at least initially. Many investors and traders who wanted to participate in Apple in recent years could not afford to do so,  because the shares were simply to pricey.

Now, historically when a stock splits, the adjusted price isn’t always pushed higher. But in the case of Apple,  I suspect the lower price will boost it at least initially. We have to remember that Apple’s earnings rose in this quarter by 7 percent while revenue climbed 5 percent. Google (GOOG) , which is its competitor, has revenue of 12 to 19 percent during this same time period. Apple’s revenue growth has been stuck between 1 to 6 percent in the last year.

EQ: The market seems to be trending higher after bouncing off around 1815. Is it preparing for a retest of the 1900 threshold soon?

Turner: A retest is certainly possible. It depends on how the earnings look for the big companies that come out next week. A likely scenario is  that during the next two to three weeks, the S&P 500 will trade between 1815 and 1890. I don’t know whether we can break above 1890 and into new highs, however. It appears the market is being held back by the situation in Ukraine. At the moment, it doesn’t look as though that will end well. and I don’t know if that will end well.

EQ: Earnings for Q1 reporting started off slow, but so far we’ve had a busy week. Has the picture gotten any better?

Turner: Earnings have been solid, but they haven’t been spectacular. About 200 companies out of the S&P 500 have reported, and  so far, 69 percent of them have beat expectations. Many expectations were lowered, but it is still better than the long-term average of 63 percent.  

With that said, only 55 percent of the companies that have reported have posted revenues above expectations, which is below the long-term average of 61 percent. So we are seeing erosion in revenue growth.

EQ: Looking at some individual names and potential bellwethers, are there any companies that you’re watching right now?

Turner: There are so many companies reporting this week that it’s mind boggling. After the bell Thursday we had Amazon (AMZN) , Microsoft (MSFT) , and Visa (V) . Amazon exceded earnings expectations, but guided down for the current quarter. Visa took a hit, missing estimates.

For the remainder of earnings season, we’re going to keep an eye on revenues and guidance. They should be very telling indicators that will tell us whether this economy is going to continue on the road to recovery. .

EQ: Are there any other sectors or industry groups that you’re watching right now?

Turner: Right now, I’m watching the iShares US Healthcare Providers (IHF) . We know Healthcare has sold off as an entire sector—mainly on the backs of biotechs.  The IHF recently touched a relative low of $92.24. I am going to keep an eye on it to see if it stays above $93 over the next couple of weeks. If it can do so, it may be able to head back up to $99.

I’m also watching the SPDR S&P Metals & Mining ETF (XME) . I like the way this pattern is consolidating on a daily chart, and we are monitoring it to see if it can break above $42.50 and above $43. The metals and mining companies may see opportunities from the situation in Eastern Europe.

I’ve long said we are under-utilizing nuclear energy. This shouldn’t be controversial; nuclear has something for everyone.