Technology investors have been buying shares of Apple and IBM with both fists during the last three months.
The stocks are up 13% and 14% during that time, almost double the gain of the Nasdaq Composite Index, as U.S. stock markets have come roaring back from steep losses earlier this year.
For the quarter ended in March, the Wall Street analysts who cover Apple stock expect the company to report earnings of $2 a share, according to Thomson Financial.
That's down significantly from $2.27 a share just 90 days ago, before the company released its last financial report.
Among the 30 most valuable tech firms, the only other company to see such a steep drop in profit estimates is Amazon (AMZN).
Analysts expect it to report earnings of 58 cents a share for the just-ended quarter, down from 88 cents in mid-January.
Unlike IBM and Apple, though, Amazon shares have trailed the broader market for tech stocks and are up 5% from 90 days ago.
BIG APPETITE FOR BIG TECH
It suggests investors have been diving into the big-cap tech names with little discrimination since market sentiment turned in mid-February.
As reported before in this column, earnings-estimate revisions can be a more-timely indicator of Wall Street sentiment on a company than changes in the standard stock ratings of buy, sell and hold.
That's because analysts are slow to change their ratings even in the face of deteriorating fundamentals.
Even while they've been quietly cutting their estimates, no Apple or IBM analysts, and just one Amazon analyst, have cut their recommendation on the companies' shares since their last earnings reports.
That's telling given that all three companies have also seen their full-year profit estimates cut, though not as significantly as expectations for the first quarter.
It's true the shares of all three companies have features apart from near-term profitability that attract investors.
IBM and Apple, for example, pay a dividend that appeals to income investors, while Amazon's year-over-year top-line growth above 20% is among the highest in the tech sector.
Apple, which reports April 25, also consistently beats earnings expectations.
Yet it also faces tougher year-over-year comparisons this year, with revenue seen falling 10% for the first quarter and 3% for the fiscal year ending in September.
Likewise for IBM, with sales seen dropping almost 7% in the first quarter and 4.6% for all of 2016.
Given their falling estimates, those weaker sales are expected to hurt their bottom lines more than Wall Street expected back in January.
So investors buying Apple, IBM and Amazon as part of the current bull run in tech stocks should do so knowing that their recent share-price gains are not supported by the trajectory of earnings expectations.
Source: USA TODAY