Cognizant Plummets on Lower Guidance
Posted by Eddy Elfenbein on August 6th, 2014 at 10:36 am

Shares of Cognizant Technology Solutions ($CTSH) are getting hammered this morning after the company very mildly lowered its sales forecast (but reaffirmed earnings). The stock has been down as much as 17% this morning.

Cognizant actually beat its earnings forecast. For Q2, they earned 66 cents per share which was four cents better than Wall Street’s consensus. Quarterly revenues rose 16.5% to $2.52 billion, which was $10 million below forecast.

For Q3, Cognizant sees earnings of at least 63 cents per share. Wall Street had been expecting 65 cents per share, but the big miss is on revenues. For Q3, CTSH projects revenues to range between $2.55 billion and $2.58 billion. Wall Street had been expecting $2.66 billion.

Cognizant’s CEO Francisco D’Souza said, “Due to weakness at certain clients and longer than anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year and revising our 2014 revenue guidance to growth of at least 14% over the prior year, while maintaining our full year non-GAAP EPS guidance of $2.54.”

So the full-year earnings guidance stays the same, but the sales guidance is weaker. CTSH now sees revenues rising by 14%. That translates to sales of at least $10.08 billion. The previous guidance was for revenues of at least $10.3 billion, meaning growth of at least 16.5%.

The sell-off seems far greater than what the underlying news suggests. That can happen when a stock carries an unusually rich valuation (“priced for perfection”), but I don’t think that’s the case with CTSH.

We Suck at Math
Posted by Eddy Elfenbein on August 6th, 2014 at 10:10 am

Morgan Housel has a great column on how people are terrible at perceiving risks:

We generally just suck at math.

Americans were widely worried about growing government spending in 2009. After the federal government passed a $3.5 trillion annual budget to mass protests, a group of economists asked 1,000 Americans a simple question: “How many millions are in a trillion?” Only 21% answered correctly. The rest either didn’t know or answered wrong. Most Americans were worried about spending $3.5 trillion, but most had no idea how much a trillion actually was.

People deal with statistical illiteracy by reacting with their gut. Sometimes that’s good — I don’t need to calculate risks to know that driving blindfolded is stupid. But it can be dangerous, too. It makes us overreact to things that seem dangerous only because they’re unknown, and underreact to things that are dangerous but look benign.

Financial adviser Carl Richards says “risk is what’s left over when you think you’ve thought of everything.” Wherever you’re not looking, or not thinking, that’s where it is.

Q2 2014 Earnings Calendar
Posted by Eddy Elfenbein on August 6th, 2014 at 10:09 am

Here’s a look at the 16 Buy List stocks that end their reporting quarter in June.

Morning News: August 6, 2014
Posted by Eddy Elfenbein on August 6th, 2014 at 6:43 am

Euro Hurt by German Industrial Data, Ukraine Worries

Gold Gains in London as Investors Weigh Ukraine Against U.S.

Beijing Cuts Car Use to Clean Up Pollution Before APEC Meeting

Italy Slips Back Into Recession in Second Quarter

Too-Big-to-Fail Banks’ Living Wills Are Inadequate, Regulators Say

Standard Chartered Profit Slips 20% on Financial Markets

Swiss Re Falls Most Since April as Profit Misses Estimate

Fox Rationale for Time Warner Unraveled With Share Drop

Walgreens Buying Boots Wouldn’t Qualify As A Tax Inversion Anyway

CVS Suffers After Quitting Cigarettes, But Pharmacy Saves The Day

Gannett Spins Off Publishing Arm, Buys Cars.com

Target’s Data Breach Is Going To Cost The Company $148 Million

Disney Earnings Boosted by Marvel

Cullen Roche: What Could Trigger the Next Recession?

Howard Lindzon: Can Bloomberg Be Killed?

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Industrials and Tech Diverge
Posted by Eddy Elfenbein on August 5th, 2014 at 2:07 pm

I thought this was interesting. Over the past few months, the Tech sector has started to lead the market while the Industrials have lagged.

The Rise and Fall of the U.S. Economy
Posted by Eddy Elfenbein on August 5th, 2014 at 12:10 pm

I was playing around with some GDP data and came up with this chart. This shows U.S. Real GDP divided by a trendline growing at 3.2%.

In short, when the line is rising, that means that the U.S. economy grew faster than 3.2%. When it’s falling, it grew slower than 3.2%.

It’s hard to see a precise trend in this data, but it appears to vaguely form an arc. The economy grew very strongly from 1949 to 1966. Over the next 40 years, growth trended at 3.2% (with some notable dips). Since then, growth has been far below the trend.

The FRED Cult
Posted by Eddy Elfenbein on August 5th, 2014 at 11:08 am

Regular readers know that I’m a big fan of FRED, the St. Louis Federal Reserve’s Economic Data. This database contains huge numbers of economic data series that are easily searchable.

A user can effortlessly transform FRED data into a usable chart, the kind of which you’ve seen many times on this site (for example, see the ISM chart from yesterday). I’m not alone in my admiration of FRED. The Washington Post writes:

Nobel Laureate economist Paul Krugman is a huge FRED fan. Harvard economist Greg Mankiw uses it. Former Fed chairman Ben Bernanke cited it in a textbook. The site Business Insider called it “the most amazing economics Web site in the world.”

“It definitely has a cult following,” said Eddy Elfenbein, a financial analyst in Washington and editor of CrossingWallStreet.com. For him, FRED has emerged as the central hub for finding and sorting through the reams of financial data. He can spend hours looking up trivia such as the historical price of copper in Britain. “It’s addictive,” Elfenbein said.

There are well over 200,000 different series at FRED. A personal favorite is brick production in England and Wales, 1785 to 1815.

Morning News: August 5, 2014
Posted by Eddy Elfenbein on August 5th, 2014 at 6:45 am

What Crisis? EU Rules on Banks Lauded as Right After All

Crédit Agricole Takes $950 Million Charge on Portuguese Bank

WH Group Makes Solid Hong Kong Debut

Time Warner Taking Hard Stance on a Bid By Fox

Telefonica Launches USD 9 Billion Bid for Vivendi’s Brazilian Unit GVT

Focusing on G.M. Unit, U.S. Starts Civil Inquiry of Subprime Car Lending

McClatchy Announces Agreement To Sell Its 25.6% Stake In Cars.com To Gannett

Toyota Reports Surprise Record Profit on U.S. SUV Demand

BMW Sees 2nd-Quarter Earnings Jump as Sales Grow, Better Model Mix Boosts Profitability

Apple Buybacks Pay Most Ever as CEOs Spend $211 Billion

Valeant’s Deal With Ackman May Be Too Clever to Be Legal

LinkedIn Pays $6 Million Over Employee Wage Violations

Ecclestone Offers $100 Million to Settle Munich Case

Jeff Carter: Do You Bet on Teams, Or Ideas?

Joshua Brown: If Everyone Wants Their Money Back at the Same Time…

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The Junk Scare
Posted by Eddy Elfenbein on August 4th, 2014 at 2:10 pm

Check out the recent performance of the High-Yield bond ETF ($HYG). If you look at the right scale, it’s really not that big of a move, but it’s plenty big compared with the junk bond market’s recent history.

So why are people fleeing junk? I suspect it’s part of a larger pattern where investors are clamoring for safer assets. That’s understandable given the news out of places like Syria, Argentina and Ukraine. What’s also interesting is that Industrial stocks have badly lagged the market over the past two months while Technology has been a leader.

July ISM = 57.1
Posted by Eddy Elfenbein on August 4th, 2014 at 11:02 am

One more news item from Friday. The ISM Index for July came in at 57.1. That’s the highest figure in more than three years.

The ISM came very close to expanding for six months in a row but there was a 0.1 drop from May to June.