Trades and observations from a British contrarian stock investor

This blog is not intended to give financial advice. Before investing, do your own research and consult your financial adviser if appropriate. The accuracy of any information included is not guaranteed and may be subject to conjecture or interpretation by Contrarian Investor. Therefore visitors should validate all facts using alternative sources where possible.

Friday, January 29, 2010

Amazon and Microsoft boost sentiment a little in tech sector

The DOW Jones industrial average declined yet another 115 points to finish where it was in November at 10,120. The UK FTSE 100 finished down 71 at 5,145. Sentiment was not helped by poor results in the session from mobile phone chip maker Qualcomm (QCOM) which fell 15% as it cut its 2010 outlook and a muted response to Apple’s (AAPL) new tablet computer the Ipad, which after weeks of hype clearly didn’t live up to overheated expectations.

However, after the close last night Amazon and Microsoft both posted better than expected results. Online retailer Amazon.com (AMZN) shares rose 2.7% to $128.69, after an initial 8% decline as results came through. The company said its fourth-quarter earnings rose 70% to $384 million (85 cents a share) against expectations of $0.70 a a share, helped by strong holiday sales of electronics. Sales rose 42% to $9.52 billion against analyst forecasts of $9.04 billion.

The company also said its board has approved a plan to buy back up to $2 billion in shares which may signal that either the company is envisaging that future earnings growth may be harder to come by or they cannot find a better way to spend their cash reserves e.g. buying companies.

Shares of Microsoft (MSFT) fell 2% to close at $29.16 in after hours trade. Second quarter net income rose to $6.66 billion, or 74 cents a share, from $4.17 billion, or 47 cents a share, in the year-earlier period. Revenue rose 14% to $19.02 billion. The results included $1.7 billion in revenue deferred from prior quarters, related to pre-sales and a marketing program for Windows 7. Analysts expected earnings of 59 cents a share on $17.9 billion in revenue. 

At current levels of both the FTSE and DOW are starting to look attractive after being overbought in January. Technical traders of the S&P 500 are looking at 1050 as a support (it is currently 1085). After 6 months where it was easy to make money on the stock markets of the world, it is going to get a little tougher in the remainder of 2010. Choosing undervalued stocks is key rather than betting on broad sector plays such as emerging markets or commodities. For Contrarian Investor this is a much more interesting market to play with the volatility.

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