Company calls with analysts involve more than just comparing notes with them with earnings. It’s not hard to see what the market thinks about these calls, just watch the price.
Many investors and analysts pay a lot of attention to a company’s quarterly results, although the opportunity for a company to share its outlook for the next year or two also is closely looked at. We can see earnings beating expectations, but still see the stock take a hit if the comments and projections going forward aren’t up to snuff.
Companies don’t necessarily wait until earnings calls to share their shorter-term outlooks, and a year out is actually short-term if one is looking to invest in a stock and hold it for a longer or much longer period than this. Even if we are investing long-term though, we still need to be appraised of how things are going over such a shorter timeframe, if we are considering timing our holding of their stock that is.
Whenever we see a company releasing information like this, whether that be through providing us their performance numbers or sharing their business forecasts, we always need to keep this information in perspective relative to what we’re looking to do with these investments.
This can range from anything from looking to capitalize on market over-reactions to these announcements, which they often do, and buy dips or sell into strength if you feel that the time to exit the trade is at hand, to looking to get a good picture of whether you should hang on or buy a stock right now, to contributions that may give us a view of the longer-term.
These Short-Term Outlooks Speak Even to Long-Term Investors
A lot of people are looking to be invested in a stock like GE longer-term, and if an investor has been holding this stock for a while, we know that they aren’t easily shaken out of plays, because GE stock dropped almost 80% of its value at its lowest over the last two and a half years.
To ride out this sort of move, which has been pretty steady, is actually pretty questionable, and while it’s a lot easier to sit back in 2019 and say you should have closed your position two years ago just based upon the charts alone, investors really don’t tend to pay that much attention to the trends involved here that would speak to their selling such a thing, although they should.
To do this, you can’t just wait for a company to tell you that things are looking bad over the long term, well beyond their normal forecasting range. The further out you go, the more uncertainty there is, and companies are going to provide themselves with the benefit of the doubt here whenever possible, as they aren’t exactly neutral.
If they aren’t right enough about the shorter-term though, analysts will devalue their comments accordingly, so this part is pretty important to get right, but no one would expect a company to be able to predict where they will be in 10 or 20 years with much accuracy.
We therefore aren’t given much useful information about where our stocks will be that far out, during the time where we at least hope to hold them, so we’re left with the choice of just ignoring a stock’s performance or using the information we have, including chart trends and nearer-term fundamentals.
Ignoring our stocks is a bad idea, even though that is the preferred course of a great many investors. Those who are seeking to make informed decisions about their positions will then have to look at what is happening with their stocks over the shorter run, but not in the same way that those who are looking to trade with more frequency would.
What we’re after here when our holding goals are longer-term is to make the same decisions that shorter-term traders would, only on a bigger scale. An example would be to take the fact that GE seems to be in the midst of a reversal, over the last few months, and even though the market has risen during this time, GE has climbed at a faster rate than the market, as well as breaking through a downward trendline on its daily chart.
That was also the case last October, but this particular move didn’t have much behind it, and those with a longer-term perspective don’t want to be jumping on every possible entry, just the ones that show enough staying power. This current one that has taken us from $6.45 a share to $10.30 is a pretty meaningful one though, given that this is a gain of 40% in 3 months.
It’s also important to view performance in reference to the market, and this is something that even professional analysts often don’t account for properly. Stocks are moved by two things, by its share of money moving in and out of the stock market generally, and its competitive performance versus other stocks, reflected in the degree of underperformance or overperformance relative to the market itself.
GE Has Been Moving Up Pretty Nicely Lately
In this case, GE has risen more than twice as fast as the market has over this period, which is clearly a good sign for the bulls. There are also the forecasts and results to take into account here, the fundamental side of things, which actually don’t look so bad in spite of GE telling us that they expect their 2019 results to be lower than the consensus among analysts predicted.
Beliefs out there as far as 2019 earnings ranged from 27 cents to 92 cents per share, which provides an idea of how this is far from an exact science. The consensus was for 67 cents a share this year, and GE has just told us that they only expect 55 cents a share. Both are educated guesses, although we would expect the company itself to be able to come up with a more educated guess.
We might think that this new information would cause GE stock to go down, from the mere fact that earnings or predictions or earnings by the company disappointing the average view of analysts would have a depressing effect upon prices., due to the selling that people like to do when this happens generally.
GE stock is trading higher after this though, and the important thing about this isn’t so much that this disappointment didn’t matter to people, it is the fact that what we did learn overall is causing more people to want to own this company.
This could just be some short-term interest though, but when we look back upon GE’s three month move up, it’s a pretty substantial one. There is also a lot of room here for it to go higher, perhaps not getting back to the days when it traded in the $30 range anytime soon, but it doesn’t have to do anything near this to appreciate in price significantly enough to have investors wanting to pay real attention.
The future seems to look pretty good for both the company and the stock right now, with GE undergoing a transformation of their business and telling us things should be better in 2020.
The only real way to know how the market will respond to such things is to just watch them respond. Given that the response to this most recent announcement has been quite positive, there does not appear to be any good reason right now to be thinking that GE is looking bearish, and may actually be a wise longer-term buy in the $10 area we are now.