Wrong Footed Picks Costly Overnight Hits

On some of the biggest capitalization stocks, cost of a wrong earnings call is a snappy 10%. You would think the Street gets estimates closer to reality but it ain’t necessarily so. Chipotle, a 9% position in Pershing Square Capital Management, fifth largest holding, broke around 10%, overnight. 

Starting with Tesla, capitalized at $300 billion, the earnings consensus missed badly, but why? It seemed obvious that new car sales weren’t sailing off the floor. Daily trading in TSLA normally runs around 50 million shares before lunchtime, and near 100 million shares daily. Woof!

Meanwhile, institutional rated Chipotle, the Mexican grill operator, showed declining store sales and flopped 13% after its elongated growth record failed. Another case of a “nothing is forever” stock. 

And, yet, stocks like Microsoft do elevate some 10% on a good day, while IBM does the fade out, 10%,  on weak numbers. A simplistic GDP stock like Dow Chemical which has been cut in half, year-to-date, dropped nearly 20% overnight.  I can understand American Airlines dropping 10% on a loss quarter, but Dow and IBM? 

Gimme a break! All such downside trouble suggests the market, itself, may be 10% overpriced. Analysts following such stocks are no help. All they do is mark down long term price projections, but nothing drastic. 

There is a reciprocal raised price projections on stocks reporting good numbers, but only minimally. Las Vegas Sands, a good example, posted a great quarter, but I note J.P. Morgan stays neutral, price target at $56 with the stock over $50. As I drafted this piece, at 12 noon, the drop for Tesla was 30 points on 90 million shares traded off some 10%.  Microsoft was having a good day, up 5 points or 10%. 

Maybe day traders solely should be playing Tesla. When I was a player in Polaroid, Xerox and then Fairchild Camera,  I was on a first name basis with executives there. Information retrieval was readily available for the asking fifty years ago. 

Nobody ever called Polaroid’s maximum leader anything but Dr. Land.  He would talk the talk on instant photography. Land held Polaroid’s annual meetings al fresco in a Boston park. Steve Jobs at Apple learned from Dr. Land and to show off Apple’s new product developments in wireless phones. 

I miss those days when following exciting corporate developments in technology was a rational, fact-finding endeavor and not a day-trading circus. I’d promise my clients that Polaroid and Xerox could ratchet higher by 3%, quarterly. Those days, growth stock investors embraced time spans of 5 years or more. But, I learned how to sell out such growthies when the competitive forces like Canon and Nikon happened. 

When I got back from lunch, Chipotle had traded 55 million shares. It was making a new annual low at 45 ½, trading 55 million shares, producing many bailouts. The market itself, just off fractionally at 30 basis points. All was not black. Microsoft was holding its gain of 6 points, over 10%. 

When I first came into this business in 1959 the average day on the Big Board was 4 million shares at an average price of 50 dollars per share. Polaroid had made a handful of operators super rich in the fifties, followed by Xerox and then Syntex, in early sixties.  Most of us kept to ourselves, private rather than advertise our gains.  

Buying stocks on margin then was frowned upon, just for crazy traders. Chairmen of the Federal Reserve Board were  revered figures, deeply feared by operators like yours truly.  I had sniffed inflationary expectations and our country turning uncompetitive, but taking margin requirements into double digits?  Does anyone but me remember 12% margin and 9% for deal money for banks? 

I saw Chipotle close down over 7 points on 77 million shares. This, a Mexican food purveyor, not Xerox or Polaroid showing a bad quarter. It was a quiet day for the S&P 500, up 4 points.. Stocks selling near 1,000 bucks like Netflix, Costco, Eli Lilly, Meta and BlackRock had a comparatively good day. Including Goldman Sachs.