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Thursday, April 22, 2010

First earnings scorecard for Q1 - tech is off to rip roaring start

Earnings season for the first quarter of 2010 is now well under way. As I have been doing for the last few quarters, I'll try to get a sense of how tech stocks are doing and how they compare to the rest of the market.

This first chart shows the stats for all the stocks that have reported thus far.

Total counts for all stocks reporting 
Categories Total Count
Earnings Beats 335
Y-o-Y Earnings Increases 321
Y-o-Y Revenue Increases 322
Upside Guidance 54
Total Providing Guidance 195
Total Number of Stocks Reporting 480

Let's start with some percentages. First of all, looking at the whole population, we are getting a pretty high percentage of earnings beats, roughly 70%. Earnings and Revenue increases on a year-over-year basis are just under that 70% level. When it comes to providing forward guidance, the percentage is not as strong. Less that 28% of those companies that have offered guidance have provided upside guidance.

Now that we've set the baseline by looking at the total stock market we can focus on tech stocks in particular.

Tech Stocks Only
Categories Total Count
Tech Stock Earnings Beats 63
Tech Stock Y-o-Y Earnings Increases 68
Tech Stock Y-o-Y Revenue Increases 71
Upside Guidance 19
Total Providing Guidance 47
Total Number of Tech Stocks Reporting 76

Walk through these percentages and it's hard to think tech isn't doing well. Beats are over 82%, almost 90% of tech stocks have registered earnings increases year-over-year. Revenue increases come to 93%. This implies that improvements in results are not the result of cost cutting but actual top-line growth. Over 40% of tech stocks are providing upside guidance.

Now we can contrast tech stocks with non-tech stocks as shown in the following table.

Total counts, Non-Tech
Categories Total Count
Earnings Beats 272
Y-o-Y Earnings Increases 253
Y-o-Y Revenue Increases 251
Upside Guidance 35
Total Providing Guidance 148
Total Number of Stocks Reporting 404

Eliminating tech stocks, the market statistics don't look quite as good. Roughly 67% of stocks have beat earnings expectations, roughly 63% of stocks have registered earnings increases or revenue increases on a year-over-year basis. Less that 24% of non-tech stocks that have offered guidance have provided positive outlooks.

Conclusion --

As earnings have been released some tech stocks have soared and some have plunged. Those that have fallen have often been the victims of analyst expectations or "whisper numbers". The fact is, the tech sector is showing true improvement. Compared to the rest of the stock market, tech stocks are looking pretty strong.

Given how most of the tech sector is doing well, this is one area where the ETF approach still works. Some bloggers and analysts contend we are entering a phase where stock picking skills will be paramount. These earnings season results suggest that the sector approach still works in tech.

For an excellent selection of tech ETFs, this link at has plenty to choose from: List of tech ETFs. Wait for the mid-earnings season pull-back and load up on a few of these ETFs. You'll be glad you did.

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