It was another solid quarter for our stocks. Most of the earnings reports — 25 out of 32 portfolio names — were ranked as good or great by the Investing Club. There were plenty of drivers of that success, but the strong consumer was one key catalyst. Another was the massive ramp up in cloud computing and artificial intelligence. Indeed, a whopping 89% of technology companies beat sales estimates for the first quarter, followed by healthcare (88%) and consumer staples (84%), according to FactSet data. Real estate led all sectors for bottom-line beats, with 74%, followed by technology (71%), and healthcare (69%). As always, we’re wrapping up the season with a review of results for all Club holdings. We always say, these quarterly report cards are not the end-all, be-all for analysis. After all, we’re nearly done with the second quarter of 2024 and lots may have changed on the ground. However, we believe stock prices ultimately follow the underlying business fundamentals of companies and having an idea of which companies did well and which didn’t can help when thinking about which stocks to pick at first in a pullback or let go of in a broad-based rally. Similar to prior quarters, we grouped company results into one of four categories. The companies in each category are listed in alphabetical order. Please note that Dover is not listed below as we did not own the name before the company’s earnings release; including Dover, our portfolio is 33 stocks. Signs of improving conditions prompted us to take a position in the manufacturer of industrial products shortly thereafter. The Great The Good The Not So Bad The Ugly The Great Alphabet: It was a knockout quarter for the search giant as sales, operating margin and profits all topped Wall Street expectations. The company also reloaded its stock buyback program and initiated a quarterly dividend for the first time ever. Apple : Services revenue hit another high on the back of another record number of active devices across all geographies and product categories. Better-than-feared results in China, a $110 billion stock buyback (a record for any company), and solid guidance added to the great outing . Broadcom : Demand for artificial intelligence solutions continues to drive top-line growth for the chipmaker. While the more cyclical legacy parts of its business aren’t doing as well, they may be bottoming out, with growth set to rebound in the back half of the year. VMware performance was also very strong on the software side. Broadcom raised both its revenue and adjusted EBITDA outlook, due to an increase in total AI revenue expectations for the full year. Coterra Energy : It was all about clean execution (again). Coterra’s ability to shift assets between oil and natural gas production was on full display and remains a key reason as to why this is our preferred play in the energy complex. In addition, we were pleased to see management raise its full-year oil production outlook without moving its capital expenditures guidance. Costco : The company continues to post impressive comparable sales growth for a company of its size — a sign of market share gains in a volatile retail environment. It was business as usual for the retailer, with a beat on the top and bottom lines. Danaher : This was a fantastic (and much needed) showing for the life sciences company. Sales and earnings beat expectations, driven by strength in all key operating segments. Moreover, bioprocessing orders were up on a sequential basis, which indicates that the pressure plaguing the stock is easing. DuPont : Along with beats on both lines , management raised its sales and operating EBITDA outlook for the year, a sign that its inventory destock is largely over and operational results will improve through the year. Eaton : Sales, earnings, segment profit margin, and organic growth all came in ahead of expectations, leaving us with increased confidence that this industrial stock is positioned to benefit from huge secular growth trends that need its power management solutions, including electrification and infrastructure spending. Eli Lilly : Sales surprisingly missed expectations because it did not have enough supply to keep up with the demand for its GLP-1 drugs Mounjaro and Zepound. However, the market looked past the quarterly results because management’s $2 billion guide up indicated GLP-1 manufacturing expansion was on the way. Microsoft : The company delivered beats across every single line we focus on. Sure, total revenue for the next quarter was a little mixed. And that always matters. However, momentum from AI services will keep Azure growth stabilized at these high levels, outperforming the market’s expectations. Nvidia : Another beat and raise quarter for the AI leader, despite increasingly higher expectations. Orders for its new Blackwell chip look strong enough to sustain the momentum of the generative AI infrastructure buildout. Wynn Resorts : The casino operator reported stronger-than-expected quarterly results, driven by the Super Bowl in Las Vegas and the recovery in China’s Macao region. It was a clean sweep as sales and profits outpaced expectations across all key operating segments. The Good Abbott Labs : Three of the company’s four main operating segments missed the mark on sales, but the company still managed to outpace expectations overall on the top and bottom lines. And in a show of confidence, management surprised investors by raising its full-year guidance — a move we haven’t seen from the medical device maker in a first quarter release since 2016. Amazon : Amazon Web Services, the company’s cloud computing division, helped drive strong profit growth in the quarter. However, a light second quarter revenue outlook and guidance for capex to increase as we progress through the year, to support AI initiatives, keep us at a good rating. Best Buy : Though sales came up short, the electronics retailer reported a better-than-feared quarter. Guidance was largely in line with expectations and we came away with increased confidence that our view of Best Buy benefiting from an imminent refresh cycle for personal electronics is intact. Constellation Brands : While the wine segment remains a drag, it was more than offset by the strength in the company’s beer portfolio, where sales growth was driven almost entirely by volume, rather than prices. Constellation also provided upbeat guidance for fiscal 2025 that exceeded expectations. Foot Locker : In addition to the better-than-expected earnings and margins, we saw month-to-month gains in comparable-store sales, even as promotional activity moderated. The results made it clear that Foot Locker is on better footing than many thought after its calamitous report in early March. Ford : The carmaker delivered better than expected profits, driven by strength in the Ford Pro unit, which every quarter looks more and more undervalued and misunderstood by Wall Street. Ford trades at one of the lowest price-to-earnings multiples in the S & P 500. We’ll therefore continue to press management to initiate a buyback. Meta Platforms : Sales, earnings and cash flow results all topped expectations . However, light revenue guidance for the second quarter and an increased capex spending outlook to support artificial intelligence initiatives dinged the stock on the release. We nonetheless encouraged members to stay the course. Since then, Meta stock has bounced back. Morgan Stanley : The financial’s miss on net interest income (NII) was notably more than offset by strength in its fee-based revenue streams across the company. Additionally, the common equity tier 1 ratio supports further shareholder returns without inhibiting the bank’s ability to continue investments in growth. Palo Alto Networks : Despite strong results, concerns over the billings growth rate remains an overhang on the stock. We agree with CEO Nikesh Aurora’s assessment that the remaining performance obligation, which saw growth accelerate sequentially, is the more telling metric in terms of demand. Procter & Gamble : Sales were weaker than expected, but it was more than offset by a 300-basis-point improvement in gross margin , resulting in a beat on earnings. And because of that strong profitability, management was able to raise its full-year earnings forecast. Stanley Black & Decker : Another solid quarter of execution on matters within management’s control. The company is making good on its plan of optimizing expensive inventory , reducing complexities and improving its supply chain. However, the demand environment remains muted and a simple reiteration of guidance (versus a raise) kept it from being a great quarter. TJX Companies : The market cheered the 3% increase in same store sales and looked past guidance that was slightly below expectations due to management’s history of forecasting conservatively and then beating those numbers. Wells Fargo : The bank’s efficiency ratio, net interest margin and tangible book value all came up a bit short. However, sales and earnings both outpaced expectations, as did return on tangible common equity, a key consideration when valuing banks. The Not So Bad Disney : Shares took a hit when the entertainment giant reported a sales miss . We still things to like, including management expecting the company’s combined DTC business to reach profitability by the end of fiscal 2024 (in September). The company also raised its outlook for full-year earnings growth to 25% year-over-year from 20%. Estee Lauder : Shares of the cosmetics company fell on concerns about management’s outlook for the rest of the fiscal year. We did see signs that an inflection is playing out as CEO Fabrizio Freda said would be the case. Inventory continues to normalize in Asian travel retail — think duty-free stores located in airports — and, as result, the company has finally returned to net sales growth in that highly problematic part of the business. GE Healthcare : We were disappointed when the company reported an earnings miss . After hearing management speak, however, we decided the underlying fundamentals aren’t nearly as bad as the stock’s price action would have one believe. The shortfall was mostly due to transitory issues that will work itself out in time. Honeywell : Despite an earnings beat, there was a decent amount of weakness under the hood, particularly for the industrial conglomerate’s short-cycle businesses. Moreover, full-year guidance was mixed and guidance for the current quarter came up short. Linde : Results were mixed, with sales coming up short but earnings outpacing expectations thanks to continued excellence in execution . However, the quarter broke the string of beat and raise prints so we’re not surprised to see the stock get dinged. Nonetheless, we don’t think it was an outright ugly quarter as nothing in the report shakes our belief that this is one of the highest quality companies around, with all the tools needed to reliably grow earnings in the quarters and years ahead. The Ugly Salesforce : Mixed headline results, soft guidance and comments that the base of deal activity remains measured resulted in a bad quarter for Salesforce. Though we have opted to maintain our position on the view that Salesforce is still the best house in a bad neighborhood that has fallen out of favor with investors, we have some concerns about generative AI solutions from other companies leading to increased competition. We need to see signs that Salesforce has a deep enough moat to fend of this new breed of technology before we get more bullish. Starbucks : The coffee giant delivered a much weaker-than-expected quarter. The transitory challenges the company called out after the fourth quarter persisted into this past quarter. The continued sluggish results make us wonder if Starbucks alienated too much of its customer base by raising prices too high. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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Hock Tan, CEO of Broadcom
Lucas Jackson | Reuters
It was another solid quarter for our stocks. Most of the earnings reports — 25 out of 32 portfolio names — were ranked as good or great by the Investing Club. There were plenty of drivers of that success, but the strong consumer was one key catalyst. Another was the massive ramp up in cloud computing and artificial intelligence.