Shhhh! The Market Speaks
By James J. Cramer
2/18/99 12:15 AM ET
How could Hewlett-Packard (HWP:NYSE) and Dell (DELL:Nasdaq) "do the numbers" and still get slaughtered? Didn't The Journal mention that Hewlett topped the earnings per share bar by a huge amount? Didn't Dell "print" the right earnings per share and get punished by stupid sellers?
All day today I read people on the boards and in my email say these points. Some people wanted me to write that Dell was really good -- I guess because they think I can counter the disappointment that management stated on the conference call. Let's put aside the possibility that a guy who discloses a long call position can have any credibility going forward if he writes that Dell was great. (And I value my credibility.) The reason why I didn't do it is because it would not be true.
We have all gotten so savvy at understanding the whisper number and the Street estimate game that we forget what the Street really cares about: revenues! Earnings can be affected by tax rates, one-time gains, expense recognitions and charges. Revenues can be affected by sales. Sales can be affected by supply and demand.
When in doubt, and unsure of the earnings, you look at the revenues. I will admit that I let out a cheer when Hewlett reported its "blow-out" earnings per share. But the always-cautious Jeff Berkowitz, my partner, immediately said "shhhhhh" as if it were inning 8 of a no-hitter and I was jinxing things. "Let's wait until we see the revenues. Let's wait until we see HOW they did it."
Sure enough, the moment the revs came out we both wanted to puke. If this were a no-hitter, the pitcher just hung the curve! Our only hope in the stock was that the regular dead-tree press would fall for the headfake and highlight that the eps was good. They did and we were able to sell some stock higher, keeping the rest because we did not want to sell below $69. (Wrong, judging by where it went out.)
Dell is tougher. People love Dell. How can you blame them? Dell has been a wealth-generation machine. But the machine needs oiling/rest/rehab. Does that mean I will never own Dell again? Of course not. Yesterday during the Yahoo! (YHOO:Nasdaq) conference call after the market was closed, a firm traded a huge block of Dell at $75.5. I bought some, as I mentioned immediately in the chat, but I booted it three points up because I know how mutual fund managers despise revenue shortfalls.
The tragic thing is that so many readers and emailers wanted to tell me how wrong I was about Dell. They seem to misunderstand the basic tenet of the game: I don't decide whether owning Dell is wrong, and neither do you or anybody else reading. The market decides it. And although the market can be wrong, it has spoken.
It didn't like the number.
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