The major indexes managed to mostly stop the bleeding after yesterday’s rout, but they didn’t gain much ground, either, amid mixed earnings reports from a range of blue-chip stocks.
Microsoft (MSFT, +4.8%) shares were jolted higher Wednesday following the software maker’s stellar quarterly report last night. Microsoft grew sales by 18% in its fiscal Q3, beat top- and bottom-line expectations alike, and provided current-quarter outlooks for all three of its operating divisions that were better than Wall Street forecasts.
“With software investors keyed in on every word, MSFT (yet again) demonstrated the resilience of its platform and ongoing benefits stemming from the strategic shift towards cloud,” says Wells Fargo analyst Michael Turrin, who rates the stock at Overweight (equivalent of Buy).
Wedbush’s Daniel Ives (Outperform, equivalent of Buy) was even more effusive:
“There are some moments in the financial markets that are pivotal and historical when put in context (e.g., Dimon’s JPM conference calls and hand holding in the financial crisis 2008-09 timeframe),” he says. “Last night was one of them, when, in a white-knuckle market with the whole Street watching Microsoft’s earnings with a close eye, Nadella & Co. gave a robust cloud guidance ‘for the ages’ that will calm Street nerves this morning and was a bullish data point for MSFT and importantly the whole tech sector moving forward.”
Also jumping Wednesday was Visa (V, +6.4%), which credited a rebound in business and personal travel for its first-quarter revenues-and-earnings beat. It also predicted “high-teens” percentage growth in sales for all of 2022.
Google parent Alphabet (GOOGL, -3.7%) was a drag, however. While Google Cloud revenues were slightly better than expected, a wide miss on YouTube advertising revenue caused overall profits and sales to fall short of Wall Street estimates.
Boeing (BA, -7.5%) also had a litany of bad news to report: The aircraft maker lost $2.75 per share in Q1 – wider than its year-ago $1.53 in red ink – said it would temporarily suspend production of its 777X passenger jet, and logged $660 million in first-quarter charges related to its deal with the Trump administration to provide new planes for the Air Force One fleet.
The Nasdaq Composite briefly dipped to a new intraday low for 2022 before recovering, though it still finished with a marginal loss to 12,488. The S&P 500 was up a modest 0.2% to 4,183, and the Dow Jones Industrial Average gained 0.2% to 33,301.
Other news in the stock market today:
- The small-cap Russell 2000 was off 0.3% to 1,884.
- U.S. crude oil futures were up marginally to $102.02 per barrel after a greater-than-expected drop in gasoline and distillate inventories helped oil recover from an intraday decline below the $100 mark.
- Gold futures fell 0.8% to end at a two-month low of $1,888.70 an ounce.
- Bitcoin jumped 2.5% to $38,859.58. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Robinhood Markets (HOOD) ended the day down 4.9% after the trading platform said it would let go of roughly 9% of its workforce, or more than 300 employees. This comes as a period of “rapid headcount growth has led to some duplicate roles and job functions,” said Vlad Tenev, co-founder and CEO of Robinhood, in a blog post late Tuesday. “Layoffs can’t be a good sign, but bringing cost down to Earth is a positive,” says Mizuho Americas analyst Dan Dolev (Buy).
- F5 (FFIV) plunged 12.8% after the network applications specialist reported earnings. In its fiscal second quarter, FFIV reported earnings of $2.13 per share on revenue of $634.2 million, more than analysts were expecting. However, the company lowered its full-year revenue growth outlook to a range of 1.5% to 4% versus previous guidance for growth of 4.5% to 8%. Still, Needham analyst Alex Henderson maintained a Buy rating on FFIV. “F5 is undervalued,” Henderson writes in a note to clients. Plus, “FFIV offers a strong blend of accelerating revenue growth, expanding gross margin and operating margin, a strong balance sheet with nearly $10/share in cash, a $500 million annual buyback and free cash flow generation.”
Could Stocks Swoon More in Summer?
The natural question on many investors’ minds: Have we finally hit the bottom for 2022? The answer … well, we won’t know the answer until it’s in our rear-view mirror, but history suggests this summer could be worse.
“Could stocks’ bottom for the year [be] in March or April? Sure, but history would say midterm year lows tend to be later in the year,” says LPL Financial Chief Market Strategist Ryan Detrick. “Midterm years see the S&P 500 bottom on Aug. 14 on average, and the median bottom is in early September.”
But that’s no reason for panic – or necessarily even a guarantee that stocks will finish the year in the red.
“Many investors forget that double-digit declines during a year are actually normal,” Detrick adds. “After only one 5% pullback all of last year, markets have provided an unfriendly reminder in 2022. In fact, since 1980, the average correction each year is 14.0%, putting this year’s 13.0% correction in perspective.
“Taking this a step further, 21 times since 1980 the S&P 500 has been down double digits at one point from its peak, with an impressive 12 of those years managing to come back and finish the year positive.”
For now, investors might best be served by making lemonade out of the market’s lemons. A number of tech stocks with appealing long-term business theses suddenly find themselves in the discount bin. Of course, even when tech goes on sale, it’s sometimes still not a true bargain – it’s cheaper, but not necessarily cheap.
If you demand a bona fide value, consider these 15 value-priced stock picks. Each of these names appears undervalued based on several metrics, despite convincing bull cases that could pull them back up by the end of 2022: