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Earnings anticipation
THE MOTLEY FOOL
Ask the Fool
Published: December 12, 2019
Q: When I read about the "anticipated" earnings of a company, who is doing that anticipating? -- K.B., Lancaster, Ohio
A: Such language typically refers to the consensus of Wall Street analysts, who routinely offer estimates of company earnings before they're reported each quarter.
Interestingly, though, these analysts are often incorporating guidance from the company itself, such as when management offers thoughts on performance during a conference call reviewing a current earnings report. (In the past, such information was often dispensed privately, to select audiences. That's no longer allowed, as it created an uneven playing field for investors.)
So don't pay too much attention to analyst estimates. They may be helpful as you try to determine whether a stock is under- or overvalued, but remember that they're still just educated guesses. Since a company's stock can drop if it fails to meet expectations, some companies will lowball their projections, increasing the odds that they'll beat expectations.
For long-term investors, how a company will perform over the coming years or decades is far more important than what analysts expect will happen in the next three to 12 months.
Q: What's a "market maker"? -- A.C., online
A: When you buy (or sell) shares of stock through your brokerage, the shares usually aren't transferred directly between you and the seller (or buyer) of those shares. Instead, stocks are typically bought and sold through "market makers," usually brokerage houses, who keep the market fluid. They profit via "the spread" -- the (typically small) difference between the purchase and sale prices in a transaction. They often keep some shares in inventory, too, in case someone wants to buy shares that no one else is offering at the time.
Fool's School
Need a Good Brokerage?
New investors will want to find a good brokerage, and even seasoned investors may be able to find one that serves them better. Below are factors to consider as you compare brokerage contenders (some will matter more to you than others):
-- Convenience: Are you OK with an online-only brokerage? If not, check to see that there's a local branch office.
-- Fees charged: Trading commissions have been falling over the past few decades, and now some solid brokerages are offering no-commission trading. The more often you trade, the more important the cost of commissions will be. (Remember that successful long-term investors tend not to trade very frequently.)
Also look into other fees, such as for wire transfers, over-the-phone trading or account inactivity. Are there annual fees as well?
-- Minimum initial deposit: Some brokerages require you to fund a new account with $1,000 or more, while others have no minimum.
-- Mutual fund offerings: Many brokerages let you invest in a variety of mutual funds and offer hundreds or even thousands to choose from. (If a fund you're interested in isn't offered by your brokerage, there's a good chance that you can invest in it directly through the mutual fund company.)
-- Non-stock offerings: If you want to invest in bonds, CDs, options, futures or other alternatives, check whether the brokerage you're considering offers them.
-- Research: Many brokerages offer free access to research reports on companies. You might look into what kind of research is offered -- though you'll find lots of free research available online, too.
-- Banking services: If you're in the market for banking services, some brokerages now offer check-writing, money market accounts, credit cards, ATM cards, direct deposits and more.
You can learn more about brokerages by searching for the terms "brokerage" and "Motley Fool" using Google. Next week we'll tackle kinds of orders.
My Dumbest Investment
Error of Omission
My dumbest investment is one I didn't make -- I didn't invest in Apple when it was trading for $42 per share. Live and learn. -- T.D., online
The Fool responds: That's the kind of regret that many investors have. Even Warren Buffett has expressed regret about not buying shares of companies such as Amazon.com or Google long ago. (Note, though, that his amazing investing success reflects how well you can do missing many opportunities, as long as you pounce on some good ones. Much of Buffett's success also stems from his knowing the limits of his knowledge and not investing in companies and businesses he doesn't understand well.)
Shares of Apple split 7-for-1 in 2014, and recently traded for around $266 per share. But remember that while you and others who didn't buy at $42 missed out at that price, you could have bought shares later -- at around $50, or $100, or $200 -- and still profited.
Buying in early isn't even enough: Many early investors lose faith or get skittish and sell their shares too soon. There are certainly some investors who bought Apple at $42 only to sell if the shares temporarily dropped a bit, or as soon as they doubled their money.
For best investing results, park your money in the best companies you can find, and aim to hang on for many years, through ups and downs, as long as you retain long-term confidence in their prospects.
Foolish Trivia
Name That Company
I trace my roots back to the 1933 founding of the Precision Optical Instruments Laboratory in Tokyo. I introduced the world's first 10-key electronic calculator in 1964 and a copying machine in 1965. Today, I'm a leader in digital imaging, serving consumers and businesses alike; I ranked third among companies granted the most U.S. patents in 2018. I rake in about 3.7 trillion yen annually (recently equivalent to $33.9 billion), and I employ more than 180,000 people worldwide. My products include consumer cameras, security cameras, medical imaging equipment, office printers, printing presses, measuring devices, calculators and scanners. Who am I?
Last Week's Trivia Answer
I trace my roots back to 1958, when my founder paid $6,000 to open my first location in Virginia. (Gas cost 28 cents per gallon back then.) Today, based in Knoxville, Tennessee, I'm North America's largest operator of travel centers, with more than 750 locations in 44 states (and six Canadian provinces) and over 28,000 employees. I sell more than 7 billion gallons of fuel per year, and I serve more than 1.6 million guests daily. I offer truck care centers, too. I'm the 14th-largest private company in America, and Warren Buffett bought a big chunk of me in 2017. Who am I? (Answer: Pilot Flying J)
The Motley Fool Take
Book This
Booking Holdings (Nasdaq: BKNG) has put together a strong combination of online businesses under a single corporate roof. Starting with its Priceline "name your own price" travel site, Booking has made acquisitions such as international hotel specialist Booking.com, online travel aggregator Kayak and restaurant reservation service OpenTable.
Growth at Booking has slowed recently, worrying some observers. But much of the drop in revenue growth is simply due to the effects of the strong U.S. dollar on Booking's extensive (and growing) international business. China has been a big target for Booking; the company has made substantial investments in businesses such as online travel platform Ctrip.com International (now Trip.com), food delivery app provider Meituan-Dianping and ride-hailing specialist Didi Chuxing.
In its latest quarterly earnings report, the company posted $5 billion in revenue, up 4% over year-ago levels (about 7% on a constant-currency basis), with net income up 10%, to $2 billion. CEO Glenn Fogel noted, "Booking Holdings executed well in our busiest quarter of the year as we booked 223 million room nights, which is up 11% year-over-year."
Booking's extensive international presence makes it -- and its shareholders -- likely to reap rewards as more people around the world discover and are able to afford the joys of travel. (The Motley Fool owns shares of and has recommended Booking Holdings.)
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