Fri11282014

Business & Real Estate

Wall Street bounces back again

Stocks rebounded last week from their steepest decline in a month as the banking deal between Greece and Cyprus eased fears of a European financial meltdown. But after a couple of down days, investors are wondering if we have a sustainable bull market.

Federal Reserve Chairman Ben Bernanke last week provided reasons why the Fed would continue its monthly $85 billion stimulus program: the 7.7 percent national employment rate, fiscal constraints in Washington and the debt crisis in Europe.

Dividends for the S&P 500 hit at an all-time high and are likely to head higher this year if big banks lift their payouts in response to the Fed’s latest round of stress tests.

With corporate March quarterly reports due, however, the market’s near-term reaction to any earnings news could prove telling. Will investors lock up their gains with across-the-board selling or fear missing out on a rally?

A broader market pullback is possible, because the Dow Jones industrial averages have come a long way over the past four months. Any market pullback would not be surprising, as bear markets often begin when earnings and dividends reach record highs.

Town Crier “50” companies in the news this week:

• Oracle Corp. (ORCL; $31.30) reported poor second-quarter results but got back on track quickly. Second-quarter numbers failed to meet expectations this year, but they could follow the same pattern as last year.

Oracle officials were quick to place the blame on the sales force – the company’s revenue fell 1 percent to $8.7 billion, missing the estimate of $9.38 billion.

Oracle stock earned 65 cents per share. Excluding unusual items, that represents a 5 percent increase – but it was a penny below the consensus. Sales fell 1 percent, while the consensus called for 3.5 percent growth. Software revenue rose 4 percent, but hardware revenue fell 23 percent.

An analyst for UBS said he believed that the dip is limited in nature and represents a buying opportunity. The stock was down to $32 last week, but it should return to $37 quickly.

Oracle missed its estimate by one penny and subsequently got hit with a sell. But as the old saying goes, “Buy the dips, sell the rips.” It’s surprising how often that works with A-rated equities.

• Electronic Arts Inc. (EA; $17.64) has weathered a rough month, reporting poor quarter results and the resignation of CEO John Riccitiello. In a recent news release, the Redwood City-based company said it expected both sales and earnings to be at the low end or below the forecast.

Electronic Arts develops, markets and publishes software content for video-game consoles. One-third of its revenue comes from Microsoft’s Xbox platform, but Sony’s PlayStation has overtaken the Xbox as the most popular gaming console.

In other negative action, Activision Blizzard Inc. has poached market share from Electronic Arts. As changes in the gaming competition ensue, Electronic Arts has made errors, including the recent SimCity launch.

The most recent quarter saw an Electronic Arts stock loss of 15 cents per share, with the price tumbling to a low of $10.77 last year.

Motley Fool commented that it is clear that the traditional gaming industry is in turmoil, with a shift toward mobile and social gaming putting pressure on companies like Electronic Arts. As an investor in stocks, a more conservative investment could lead to a better night’s sleep.

Most analysts have deemed Electronic Arts’ stock a hold or have downgraded it to neutral. The low target price is $12.92, with a high of $23.

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