"Run-Up to Earnings Makes Intel, Yahoo! Vulnerable"
By James J. Cramer
RealMoney Columnist
01/14/2004 09:41 AM EST
"Even in a bull market like this one, some situations are immutable. We don't like good stocks, even good stocks with lots of earnings momentum, to run up in advance of their quarters. We don't want it because the run-up speaks so loudly, and tells people, "Look, this stock already has taken into account all of the good that you heard, but none of the bad ... and we will find the bad."
Take Intel (INTC:Nasdaq - commentary - research), a stock I own. So many people expect gross margins -- the real key here -- to be north of 64% that I am thinking anything less than 65% will cause the stock to gravitate back to the $30 strike. I loved the stock when it was back at $30 ahead of the quarter; I loathed it when it advanced to $34. The stakes are, well, a little bit too high going into the quarter.
Or how about Yahoo! (YHOO:Nasdaq - commentary - research)? My, how this stock has climbed in the last few months; deservedly so because it is doing so many things right and because it is a moneymaking machine.
But is it a money-showing machine? Will it show how much money it can make? Or will it plow those profits back in a way that makes it look like it isn't as profitable as it really is? And will there be the usual wave of insider selling as soon as the window is opened? This is of particular concern because there have been acquisitions made with stock that certainly will produce sellers.
Of course, these points are about nuance. The headlines and the subsequent trading in the stock pretty much will determine what people think, even if they shouldn't. I can see Yahoo! reporting and then some bear painting the tape down with wildfire sales of stock through Instinet and Archipelago and anybody else out there just blasting things down. And then I can imagine the television people explaining that the company reported "worse than expected numbers" because the stock is going down.
I hope that with my television show in an earlier time slot, I can make a difference. I hope I can see through the spin and give you what I see as the real truth behind a quarter. But it's tough to think on the fly and not be colored by the trading even if the trading is motivated by people who want a stock lower.
Could it work out otherwise? Could these companies blow away numbers and rise up from their respective shackles of $34 and $48? Sure. However, it was a heck of a lot easier to expect rallies when the stocks were back where they finished last year than where they are now. "
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