? Start Late, Finish Rich |
| Visit from my mentee ?
January 11, 2005
Fourth quarter earnings worries
I went to a breakfast meeting this morning hosted by Margie Patel, who is famed in the mutual fund world for running the top-performing $8.1 billion Pioneer High Yield Fund. Now she's starting a new stock fund, called the Pioneer Equity Opportunity Fund.
She said a lot of interesting things during the meeting, but what really caught my attention was her forecast for disappointing fourth quarter earnings. I have been expecting fourth quarter earnings to shine, but some evidence is building that she just may be right.
The gist of her thesis is that last quarter companies faced sharply rising costs -- of energy, plastic components, and commodities -- and that most of them weren't able to pass along those increases to customers in the form of price hikes. Those higher costs may crimp earnings more than expected. Alcoa's disappointment is a case in point.
Patel thinks the underlying economy is strong enough that companies will eventually be able to pass along price increases and she's bullish on stocks for the next few years (one reason she is starting a stock fund). Nonetheless, she expects management to maintain a cautious tone during this earnings season, afraid to be taken to task if their outlooks proved too rosy.
Intel's earnings news after the close was more in line with what I expect -- upbeat forecasts from companies benefiting from improving economic fundamentals. Still, Patel's comments reminded me that the tone of earnings season isn't clear and, once set, it will dictate the market's performance for at least the next few weeks.
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