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Morning Commentary

Earnings Octane

By Charles Payne, CEO & Principal Analyst
11/6/2017 9:10 AM
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Last week was all about earnings that mostly smashed expectations. Although the Street was still completely unforgiving to names that missed and/or provided punk guidance, a lot of beats were greeted with selling. However, the big boys stood tall, especially in the tech arena.

The most impressive earnings report came from Apple (AAPL) with a colossal beat Thursday after the close.  Last Friday, investors were fine with chasing names that provided strong guidance. The company is firing on all cylinders.  As for the earnings season thus far, results have been impressive. According to FactSet, 81% of S&P 500 names have reported results:

Material names have enjoyed the largest average blended earnings beat at (+13.2%); chemical raw materials (+20%), and metals and mining (+14%), followed by information technology. In addition, there was a bunch of great economic data. Factory orders were paced by a 20.8% surge in civilian aircraft orders; a 33.2% jump in ships and boats came in at a headline of 1.4%, beating the Street estimate of 1.2%.

There was also merger mania across several industries, including Big Tech.

Midway through last Friday’s session, Qualcomm (QCOM) surged on a report from the WSJ that Broadcom LTD (AVGO) was preparing a bid for about $70.00 a share. I think that’s a real low-ball number, and I expect Qualcomm to hold out for at least another $10.00 added.

Valuation Concerns

The market is on a tear, so its only natural people are guessing it’s time to pull back.  They assume valuations are excessive, but they aren’t.

Right now, the forward price-earnings (PE) ratio on the S&P 500 is 18.00, which is well above the five year average of 15.4 but it’s nowhere near levels associated with major market crashes.

Still, anxiety abounds with a checklist of worries, including:

The market might be ‘due’ for a pullback, but this isn’t blind hysteria. It’s a wonderful moment in time that the market’s anticipation could set the stage for years of economic growth and prosperity.

Today’s Session

This morning, Broadcom (AVGO) made an unsolicited bid to buy Qualcomm (QCOM) for $70 per share of which $60 per share would be in cash and $10 per share in AVGO stock.  It is expected that QCOM will reject the offer as the company believes that the overall price is too low coupled with anti-trust issues.  If this were completed, however, this would be the largest deal ever.

Over the weekend, Saudi Crown Prince Mohammed bin Salman, (age 32) in his quest to end corruption and consolidate power, had 11 princes, including billionaire Prince Al Waleed, four ministers, and dozens of ex-ministers and investors arrested.  The Prince is on a mission to bring a more moderate Saudi Araba back while stamping out extremism and rebranding the country.

The markets are looking to open mixed. 


Good concise reporting. Well done

James J. Hayes on 11/6/2017 9:56:45 AM
I love me some Charles Payne, smart, factual, and no double talk. I've been watching him on fox business for awhile, not just a pretty face!

ROBERT STEPHEN SANKO on 11/6/2017 1:41:04 PM

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