A Follow Up On My Predictions
Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Before earnings season (on October 2) I wrote an article and made several predictions regarding the upcoming earnings season. I thought Alcoa (NYSE: AA) would earn 2 cents a share, I predicted that both Ford (NYSE: F) and General Motors (NYSE: GM) would beat expectations, and that Activision Blizzard (NASDAQ: ATVI) WoW subscriber count would go above 10 million by the end of 2012. Let's see if I was right or not. All of the earnings exclude one-time special items.
I predicted that Alcoa would earn 2 cents a share (in the higher range of the estimates out there). On October 9 Alcoa reported earnings of 3 cents a share (which topped expectations) and had revenue of $5.8 billion, beating expectations which called for $5.56 billion in revenue. Alcoa's stock continues to struggle as aluminum prices have fallen 17% year over year and were down 5% from the last quarter. The CEO continues to reaffirm that aluminum demand will double from 2010 to 2020, but says the slowdown in China will continue to be a drag on Alcoa for the time being. I would say my estimate was rather close, so I'll give myself half a point for that one. I wouldn't be a buyer of Alcoa right now due to the large drop in metal prices and the European Union coming out and saying that in 2013 the EU economy is going to stagnate (better than a recession I guess) but many were hoping for some growth out of Europe.
Ford and General Motors
I predicted that both Ford and General Motors would beat expectations due to a very strong US auto market. The US auto market is recovering fast, and by 2015-2016 you will see total US auto sales back at the 16-17 million a year range, which signals a healthy auto market. On October 30 Ford reported earnings of 40 cents a share, blowing away estimates of 32 cents a share. A day after that General Motors reported earnings of 93 cents a share; which like Ford, blew away estimates of 60 cents a share. I got both right, so that's 2 more points right there. While Europe continues to lose both these auto makers huge amounts of money, the US auto market is very robust. General Motors posted its highest October sales since 2007, and that is with Hurricane Sandy disrupting a lot of auto sales. Right now US auto sales are coming in at an annualized rate of 14.6 million (which is better than the 14.4 estimate from Edmunds), and that is expected to grow to 15 million in 2013 according to Edmunds. I am more bullish on Ford than GM, but I think both companies and the US auto industry as a whole will continue to do well in the next few years.
My prediction with Activision was that by the end of 2012 they would have over 10 million subscribers in World of Warcraft. Before their latest earnings report they had 9.1 million subscribers and were about to release the Mists of Pandaria. On November 7 they reported earnings of 15 cents a share, beating expectations of 8 cents a share. Also they reported they had once again gotten their subscriber count above 10 million. That's another point for me. So far 2.7 million copies have been sold of their new expansion, and that doesn't include digital copies that I think will vastly exceed the physical copies sold. Why? Because everyone who plays WoW has their account hooked up to their credit card already so why would they go out to do something they could do at home, and keep in mind these are people who play WoW (no disrespect to them, I also used to play WoW myself). I think Activision has a lot of strong game offerings right now and is undervalued. This company has no debt and has $2.909 billion cash on hand! I would definitely rate this stock as a buy right now. Plus the upcoming Call of Duty looks much better than Modern Warfare 3, which was a large flop. The zombie offering is what will propel sales higher, because what made Black Ops 1 so successful was the zombie mode.
This time around I was very happy with my predictions, and would say more or less (depending on whether or not you give me full points for Alcoa) I got all my predictions right. I'm certainly not always right, but it’s nice when your predictions pay off. I think the US auto industry will continue to do well and will do better than the 15 million cars and light trucks expected to be sold in 2013. I also think that Activision continues to be undervalued and would make a great buy. On Alcoa, I would stay away because their metal prices continue to drop like a stone in water. Even if they beat expectations, most investors are worried about Alcoa's forecasts. The global economy is slowing down right now, and only time will tell when metal prices start to rebound. I will make more predictions based articles in the future.
Drive It Home
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callumturcan has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard and Ford. Motley Fool newsletter services recommend Activision Blizzard, Ford, and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.