Earnings Season Curse on High-Priced Stocks? (IBM, AAPL, ISRG, VMW, NFLX, AMZN, BIDU, GOOG, PCLN, GS, EMC, INTC)

There is an interesting theme that has been worth looking deeper into so far this earnings season.  High-priced stocks that have seen significant runs higher have a bias against the stocks after the earnings report so far.  Maybe this is just profit taking and a sell-the-news mentality after guidance seems to be mostly in-line with expectations.  We have seen this occur in both International Business Machines Corp. (NYSE: IBM) and Apple Inc. (NASDAQ: AAPL), as well as Intuitive Surgical, Inc. (NASDAQ: ISRG) and in VMware Inc. (NYSE: VMW).  With earnings coming up from Netflix Inc. (NASDAQ: NFLX), Amazon.com Inc. (NASDAQ: AMZN), and Baidu, Inc. (NASDAQ: BIDU), we wanted to see what the prospects and risks for these companies are going into earnings.  Google Inc. (NASDAQ: GOOG) has so  far managed to dodge bullets here in this ‘earnings curse on high-priced stocks’ this earnings season.

Longer-term, that also leaves Priceline.com Incorporated (NASDAQ: PCLN) to ponder ahead of its earnings in a couple of weeks.  We have compiled the event and the related move as well as provided some expectations and added color on those companies on deck to report earnings this week.

International Business Machines Corp. (NYSE: IBM) and Apple Inc. (NASDAQ: AAPL) both had significant runs higher into earnings as both had traded at all-time highs.  We don’t need to bother with regurgitated news and earnings recaps again, but Apple’s drop was margin concerns and some mixed product sales and IBM’s was simply on guidance being mostly in-line.  The sell-off in IBM was not a surprise and the only surprise so far in Apple is that shares keep trying to recover and get back above the pre-earnings levels.

Getting away from technology, what about Intuitive Surgical, Inc. (NASDAQ: ISRG)?  The company beat earnings but da Vinci surgical systems sales appear short.  Shares are down over 7% so far on Wednesday at $258.25.  What is interesting is that the run here has been very muted compared to other big stocks during the September to October market surge.  Shares were under $270 at the lows of summer and shares rose to above $300 before pulling back in September.  With the drop being a surprise here, perhaps that is only more evidence that this earnings season may have a hex on high-priced stocks.

Google Inc. (NASDAQ: GOOG) was the one standout because it blew away numbers at a time when it was not expected to do so.  The shares had gone from $440 in the summer lows to $540, but the big pop was just because the field wasn’t expecting blowouts like what came from the company.  Google shares are now above $610.00.

Is VMware, Inc. (NYSE: VMW) a high-priced stock with shares around $74?  It might as well be.  The problem with VMware is that its market cap is roughly $30 billion, and then EMC Corp. (NYSE: EMC) holds the bag here with roughly an 80% stake.  Add in Intel Corporation (NASDAQ: INTC) holdings, then add Fidelity and a few other institutional investment managers and you have another 10% of the float spoken for.  In short, investors wanting a piece of VMware have very little stock to chase.  VMware had already pulled back from the high-$80s in late-September and shares had run from lows of under $62.00 in July.  Despite beating estimates and giving guidance that seems to imply margin expansion ahead, shares fell from $78.35 before earnings this week to $73.12 yesterday before today’s 1.4% gain to $74.15.

Netflix Inc. (NASDAQ: NFLX) is due with earnings after the close today and estimates are $0.72 EPS and $550.95 million in revenues.  The company keeps adding a million new subscribers per quarter, and we’ll pay attention to what the costs per new customer are attributed to.  With shares at $150 today, it needs to be recalled that shares fell from roughly $120 to $100 less than three months ago and shares peaked close to $170 in September.  The problem exists in the valuations as analysts now have an average price target of closer to $120.  Either Netflix raises guidance and forces analysts to play catch-up, or this one needs even more of a breather.  The short interest is over 12 million shares in this one, so fast and vicious moves out of the blue after news can always be a risk.  Will a stock split be announced finally?

Amazon.com Inc. (NASDAQ: AMZN) reports after the close on Thursday and the move here has been incredible.  For a company that suffered last quarter from severe margin issues and one which keeps fighting Apple and other eReaders with its Kindle, the move seems exaggerated.  Estimates are $0.48 EPS and $7.35 billion in revenues.  In the last three months, Amazon shares rose from under $100 to over $160 before today’s price of $157.80.  Analysts have an average price target of close to $158 now.

And Baidu, Inc. (NASDAQ: BIDU)… The Chinese Internet search leader has its earnings on Thursday after the close.  Thomson Reuters has estimates of $0.41 EPS and $333.26 million in revenues.  Google’s China relations and exit have allowed Baidu to rake in the interest and the stock now sits above $100 per share versus just under $0 back in January for close to a 150% run this year.  The short interest is now over 10.9 million shares on last look, which is the highest since before summer but is actually much lower than in February-March when this was all over the news.  Analysts have an average price target of roughly $93 on the stock.

Priceline.com Incorporated (NASDAQ: PCLN) has its earnings due in early November, so we won’t bother offering much of a preview nor will we offer anything up other than its super-high share price and its run-up.  At issue is the $350+ price along with a trading range over the last year of $154.12 to $358.24.  Analysts have an average price target of $341 on the stock and this ran severely after the last earnings wave.  Shares were only close to $220 in July, yet here we are at $350 today.

Classifying high-priced stocks is often difficult because they can be in too many sectors.  Goldman Sachs Group, Inc. (NYSE: GS) was up after earnings, but it is a financial stock and that sector is seeing significant swings up and down depending upon where each company is located in the ongoing mortgage fraud and foreclosure moratorium mess.

So, is there a curse for sure?  There are not enough companies out yet to know for sure.  It has still been very difficult to ignore this trend so far.  As more companies report the answer will be more clear.  What else has been impossible to ignore is how much some of these key stocks have risen and risen before earnings.  It almost feels unfair to make the call that all of the companies soon to report have to beat earnings and raise guidance.  After looking into and reviewing each, that does feel to be the case without owning a crystal ball.

JON C. OGG