Thursday, July 21, 2011

Stock Market: Gifts From the Analysts

Intel did it again. Yesterday the bellwether of the technology industry crushed the predictions of the analysts.  In the 2nd quarter of the year the chip goliath`s revenue rose 22%, year over year, to $13.1 billion, the earnings per share (eps) climbed to 59 cents.
Analysts on average had expected $12.83 billion revenue and just 51 cents eps. Shortly before the numbers, JP Morgan and other banks had their Intel-estimates cut because they were skeptical about the business of the chip maker.

And Intel wasn`t alone. American Express, Apple, Google, Morgan Stanley, IBM, Ebay and many more reported much better profits & revenue than the analysts predicted. That shows that on average of the analysts were too pessimistic.

Many analysts lowered their expectations shortly at the beginning of this earning season. The information service Bespoke reported that  "sentiment on the part of analysts has been in the dumps with a seemingly relentless stream of decreased optimism"

It seems the majority of the bean counters acted opportunistic and followed a negative "Zeitgeist". A lot of analysts obeyed to the negative media reports about the deficits in Europe, U.S. along with other negative news and trimmed their predictions a way too much. Apparently the majority of analysts are cowardly and underestimate the influence of rising productivity and efficiency gains which enable companies to grow even in a sluggish economy.

But investors can be grateful for all this fear mongering.  The negative sentiment creates cheap prices for stocks and therefore lots of opportunities to invest in the stock market. The pessimism of the analyst is a gift for investors as the results of the companies now show.

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