Past Success Not an Indicator of Future Earnings
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Progress Report: Starbucks (NASDAQ: SBUX), mentioned 12/22/11 with a closing price around $45 per share, YUM! Brands (NYSE: YUM), mentioned 2/6/12 with a closing price around $63 per share, Netflix (NASDAQ: NFLX), mentioned as a cautionary tale 2/6/12 with a closing price around $129 per share. Research in Motion (NASDAQ: BBRY), mentioned as a smoldering dumpster fire 1/23/12 with a closing price around $15 per share. These prior mentions are all wins, in my book. Disclosure, I have zero dollars invested in any of them. No longs, no shorts, no sandals, nothing. Bupkis. For a quick score, please scan to the right of your screen where it shows the current price for these stocks. Two good, two bad, four winners.
An important thing to remember is that we don’t have to be invested in everything(although at first glance of my personal portfolio, you may question that). There are plenty of attractive stocks in the sea, you don’t have to try and catch them all. That would be greedy. And that’s what mutual funds and ETFs are for, anyway. Now I know there is a growing groundswell that thinks of me as a complete and utter idiot. I don’t have a Series 7. But it doesn’t take a market scientist to have a few successes here and there with investing. And no, you don’t have to execute every single trade from a Skinner Box (or as some people like to refer to it, operant condition chamber).
For those of you that had the extreme discomfort of owning Green Mountain Coffee Roasters (NASDAQ: GMCR), into yesterday’s earnings, I sincerely apologize for joining in with the bashing on Twitter. Believe me, I completely empathize with your pain (although not to that extent, yikes). To be honest, had you studied and completed your assignments on time, you would have exited the position a while back. Green Mountain had been undergoing some medieval torture reminiscent of a scene from “Braveheart”, for the past several weeks, from more than a few analysts. And the earnings call left a lot of hot cider on several faces.
The market graffiti gets drawn on more than a few walls, and the writing is incredibly crowded and sometimes offensive, especially when occupiers don’t clean out their tents. But you don’t have to crack open the complete historical chart analysis from the RIMs, the Netflix’, and Green Mountains. Just simple, day-to-day observations are perfectly normal and acceptable forms of homework to add to your extensive research.
In the case of Netflix, raising subscriber rates created a series of backlashes and tirades from an incredibly loyal customer base. Drizzle that with all the Disney, Coinstar, Comcast, DISH, et al, into the streaming pool and you pretty much need your broker to have CPR certification and that annoying coat of zinc oxide on their nose. Your homework is your life preserver.
With our friends to the North, RIMM simply stuck to its past successes when everyone else in the smartphone space was constantly upgrading, working with developers, and changing their phones more than their socks. Look around you. Case in point, my son has an HTC Evo, and he’s constantly complaining about the battery life, even though I purchased an “extended-life” battery which makes the thing far too heavy to carry along with the rest of his teenage burdens. Suffice it to say, the entire household is anxiously awaiting the iPhone5 release.
These things matter, and when you compare the earnings calls from the laggards to the leaders, while you gaze into your flatscreen watching China consume buckets of KFC and Doritos loco tacos as you guzzle your quad-venti, upside-down caramel macchiato from Starbucks, this stuff sticks with you.
There will be opportunities, Starbucks is due for a little nap time, and you can grab some when it’s resting. YUM! will behave in much the same manner, slowing down to relax a little. There is no need to start an investment process at 52-week highs. Even if that is the case, you will find that best-of-breed stocks typically reward their loyal shareholders with a tasty dividend every quarter, unlike Netflix, RIMM and Green Mountain (Starbucks yield, 1.2%; YUM! yield, 1.6%). And not only is the yield a great indicator of a healthy company, it can also offer some insight into potential storm clouds on the horizon, should that payout ever be in jeopardy of a trimming, a haircut, or an all-out scalping. Time is a great healer of wounds, but it’s also something Netflix, RIMM and Green Mountain are perilously close to running out of.
kmet312 has no positions in the stocks mentioned above. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services recommend Green Mountain Coffee Roasters, Netflix, Starbucks, and Yum! Brands. 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.