Not All Earnings News Is Bad

We are in such a negative/bearish environment and it seems like all the economic news, including individual company earnings news, is bad these days. But it's always worth noting the exceptions to the rule and thinking about why that is.

Yesterday IBM announced it's fourth quarter earnings and it's net income was up 12% over the fourth quarter of 2007. Revenues were down slightly as hardware was down 20% and higher margin software and services were up a similar amount. But most interesting was IBM's move to increase the expectations for earnings in 2009 and 2010. IBM said that the company "was ahead of pace to increase earnings to $10 to $11/share by 2010".

What's going on at IBM is an ongoing transition from a hardware oriented business to a software and services business which is driving margins up combined with a still healthy book of business from its clients all over the world combined with an ongoing ability to reduce costs and become more efficient.

And also yesterday, I saw a report from Jeffries and Company that said this about Google:  

Positive ad-coverage and acceleration in paid clicks growth in
   Oct/Nov/Dec. give us more confidence in Google's ability to meet our
   and consensus 4Q estimates despite the severe ad climate. We reiterate
   our Buy based on ad budget migration to Search, Google's relatively
   resilient model and its newfound cost discipline.

   comScore released ad-coverage data for December after market close
   yesterday, which we use to derive Y/Y paid clicks growth.

As we've discussed on this blog recently, Google has the ability to drive paid clicks (which is what generates revenue for Google) in a number of ways, including by increasing ads per page and total ad views, and they may well be doing exactly that.

Moving away from tech and internet, there's Abbott Labs which just announced "double digit sales and earnings growth in the fourth quarter". This is largely a new products story around stents and a new arthritis drug.

I found all of this good earnings news (the Google info is not actual, just projected) in about ten minutes this morning and I am sure there is a lot more out there.

We are in a bad economy for sure and many sectors like banks, financial services of all kinds, real estate, oil and gas, automotive, etc, etc are hurting big time.

But there are companies that are doing well in this environment, including many small companies like the ones we have in our portfolio. You have to be very careful investing in this environment and must understand what the companies you invest in do, you must make sure their balance sheets are strong and the can self finance, and you must look for businesses that are "recession proof" in one way or another. My point is simply that they are out there and you don't have to look that hard to find them.

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