Tuesday, July 17, 2012

Microsoft CEO Steve Ballmer
Big banks that have reported second quarter results so far have been big crowd pleasers. Last Friday it was JPMorgan Chase and Wells Fargo rising sharply after their reports, and Citigroup made bulls smile on Monday with better than expected earnings. Goldman Sachs did it on Tuesday.

Still ahead, Bank of America on Wednesday, and Morgan Stanley on Thursday.

Some of the biggest names in the technology sector are reporting this week.  Intel comes out after the close on Tuesday, IBM reports on Wednesday and Microsoft on Thursday. Out of those three, Microsoft shares are looking the strongest.

Both IBM and Intel have slipped below their 200-day moving averages, a rather bearish technical
development. Microsoft has held its 200-day and is making a run back to its 50-day at $29.80.

New product launches, like the Surface tablet, Windows 8 Office and a line of smartphones with Nokia could help ‘Mister Softee’ reinvigorate its growth.

The biggest of the large cap tech stocks actually reports quarterly earnings next Tuesday, July 24.  Apple also paints the most impressive technical picture.

The stock got down to $530 on May 18 but has chugged 14.5% higher since then, blasting through its 50-day and 10-day moving averages at the end of June.

With a gain of 6.1% from Monday’s close of $606.91, Apple would surpass its all-time high of $644 hit on April 10.  Analysts look for Apple earnings per share to rise 33% and revenue to tick higher by 31% in the second quarter of 2012 versus the same period in 2011.

Apple stock trades for 12.9 times expected 2012 earnings.  Benjamin Graham might have been a nibbler at these levels, had he not died in 1976. Graham, the father of value investing and teacher of Warren Buffett, advised in the Intelligent Investor to buy stocks trading at a P/E ratio no more than their long-term growth rate, and ideally not much more than half of the growth rate.  Expressed as a price to earnings growth (PEG) ratio, that means less than or equal to 0.5.  Apple has that licked with a 0.59 PEG ratio based on a trailing P/E of 14.8 and a 22.7% consensus 5-year annualized pace of growth.

Check out the Market Blaster video for more on the nascent earnings season, as well as what Federal Reserve Chairman Ben Bernanke will have to face on Tuesday and Wednesday as he gives his semiannual monetary policy address to House and Senate committees on Capitol Hill.