Wells Fargo Lower on Earnings Beat. Wait. What?

By Kyle Metivier - April 16, 2012 | Tickers: AAPL, HD, WFC | 0 Comments

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Progress Report:  Wells Fargo (NYSE: WFC), mentioned 1/4/12, trading at $28.56 per share, closed trading at $32.84 per share, 4/13/12. Home Depot (NYSE: HD), mentioned 1/18/12 around $45 per share, closed just under $51, 4/13/12.

There are several times when I think I should press pause and actually listen to myself on occasion. Have you ever had those moments when you realize if you had just paid attention to that inner voice? “Man, I really shouldn’t have had that 11^th kamikaze”, “If only I hadn’t shorted Apple (NASDAQ: AAPL), at $300”, “I could use a pair of skinny jeans”. Well, not necessarily all the time.

Now although the Lenten period is over, and I successfully made it without writing about Apple, before that, I did offer some reasonably insightful prose about the super fruit with respect to an earnings call “miss” (“Did You Miss that Miss?”). The stock closed that joyous day at $420 a share. Now I am by no means a stock rock star, although I do have some crazy hair (probably why CNBC hasn’t called to have me on), and I proclaimed the stock wouldn’t see levels below $400, and now we have the stock closing in on sub-$600 levels (FYI, I have a strike price at $584, if it gets there, I’m taking more bites). The reason I mention that prized piece of prose is because it spoke of opportunities that arise every so often when earnings misses send masses for the exits. The stock gets violently oversold, we buy it for a song (albeit a cool song, for $400-plus at the time, maybe some Led Zeppelin). By the way, Apple reports earnings April 24^th, give me a shout-out, if you happen to be on the call.

So earnings calls are coming at us at fast and furious paces, and I have the appropriate numbers on speed dial so I can poke fun at any faux pas that are passed along. I missed the actual call for Wells Fargo, but there are some interesting pieces to take from it, so let’s have some “share time”. Now like a lot of folks, you’re probably wondering why the stock coughed up almost -3.5% in share price the day they reported an earnings-per-share beat by 2-cents. I don’t want you to worry about that. You may question as to why, after being up over 20% this very fine Year of the Dragon that it took a bit of a beating from some belligerent market bullies. There are no stupid questions (only stupid people that ask a lot of questions). And you might think to yourself, maybe I should ring the register here, as it’s surely in dire need of nap time. You don’t get paid to think. Stay calm, “little” guys and gals. Reload. That’s right, screaming fans, much in the same fashion as an earnings miss, here we have a delightful earnings beat, and we have people leaving before intermission. Perhaps they see a shiny object elsewhere. That’s fine, I fall prey to that more often than I care to recall. But one thing I like to take away from the Wells Fargo report: mortgage lending was up, year-over-year from $84B (that’s “billion”), to $129B. I’m not going to get out my garnet and gold pompoms, but going by my stylish 1980’s calculator watch, that’s better than 50%.

A while ago I didn’t go so far as to declare a housing “bottom”, nothing of the sort. As I stated, we won’t know until we’re truly out of the weeds and see a molecule of stability. I was listening to one of the expert analysts on CNBC this week and he actually spat from his bleeding gums, housing won’t have anything to do with economic recovery. I immediately pressed the mute button and thought of something creative to say, but words escaped me. An indicator I like to use is the home improvement folks, with Home Depot getting “Most Favored Nation” status. Home Depot has been dishing new 52-week highs like Rajon Rondo assists (sorry, big Celtics fan), along with CEO Francis Blake letting us all in on the fact that Q1 (first quarter), was the best since the housing bubble left us in a big soapy mess (2008). Home Depot reports next month (circle May 15^th on your calendars), and I look forward to hearing not only results, but guidance.

Opportunities keep popping up like a Whack-a-Mole game and we need to be ready to strike. Keep your eyes peeled for situations and setups like these and many others that will surely come our way. Provided you have your research under your belt, it might be profitable to listen to yourself every now and then. I’m still trying to pick which voice to listen to, myself.

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