Corporations' outlooks are getting worse; A big fall in home sales; Looking into earnings reports from Alphabet and Intel

1) Another day with more grim headlines and negativity about the economy...

Many corporations are cutting back and suspending guidance amid an uncertain outlook. An article on the front page of today's Wall Street Journal specifically mentioned the CEOs of American Airlines (AAL), PepsiCo (PEP), and Procter & Gamble (PG) – among other big firms – warning about how the changing tariff situation makes it "virtually impossible to plan."

Here's the article: Corporate Giants Shred Outlooks Over Tariff Uncertainty... And here are more details in this excerpt:

American, Southwest Airlines and Alaska Air Group told investors and analysts that leisure travel had already softened and pulled their full-year outlooks because the economic climate makes it too tough to forecast. Procter & Gamble, the maker of Pampers diapers and Tide detergent, said it was considering raising prices on some items. And auto-industry groups representing General Motors, Volkswagen and Toyota sent a letter to President [Donald] Trump imploring him to reconsider the 25% tariff on car parts that goes into effect May 3, because it will make buying and repairing cars and trucks more expensive...

As the article also notes, executives like Goldman Sachs (GS) CEO David Solomon and Virgin founder Richard Branson have sounded the alarm about potential damage to the economy from the tariffs.

2) Meanwhile, another new WSJ article highlighted another area in which consumers are pulling back: buying houses.

As the article (Home Sales in March Fell 5.9%, Biggest Drop Since 2022) notes:

U.S. existing-home sales fell 5.9% in March from the prior month to a seasonally adjusted annual rate of 4.02 million, the National Association of Realtors said Thursday. That marked the biggest month-over-month decline since November 2022. It was also the slowest sales pace for any March since 2009, which was near the peak of the financial crisis...

But with home prices near record highs and mortgage rates holding above 6.5%, buyers are being choosy. That is setting the stage for potentially a third straight year of anemic sales activity, after sales fell in 2023 and 2024 to levels not seen since the mid-1990s.

I continue to monitor economic trends, and I remain cautiously optimistic that the Trump administration will back down from some of its most drastic tariff threats. But I don't feel like I have an edge in these areas.

However, where I do have an edge is analyzing individual companies and stocks, so let's take a look at earnings reports for two of them...

3) I've consistently been bullish on Google and YouTube parent Alphabet (GOOGL) ever since I named it as a core holding in my old firm Empire Financial Research's first newsletter on April 17, 2019.

Since then, through yesterday's close, it's up 157% versus 89% for the S&P 500 Index.

Alphabet released first-quarter earnings yesterday, so let's take a look... (You can see the full earnings release here and the slide presentation here.)

The company reported $90.2 billion in revenue – up 12% (14% in constant currency) year over year ("YOY") and about $1 billion above estimates. Google Cloud revenue was $12.3 billion, up a robust 28% YOY – but that's a slowdown from previous quarters.

Alphabet did an excellent job controlling expenses, which only rose 8% YOY. So the company's operating margin grew from 32% to 34% YOY, and operating income jumped 20%.

Diluted shares declined 2% thanks to $61.6 billion worth of share repurchases in the past 12 months.

As a result, earnings per share came in at $2.81, up an exceptional 49% YOY and crushing estimates of $2.01.

It's incredible that a company of this size – with trailing 12-month revenue of $360 billion – can keep growing this quickly and this profitably.

Overall, it was a great quarter across multiple metrics. And the stock is responding today – it jumped as much as 4% in morning trading.

But it's still down quite a bit from the all-time high it hit in early February, as you can see in this three-year chart:

As this WSJ article, Google's Earnings Power Holds Up in Global Turbulence, notes:

Google doesn't issue financial projections with its quarterly reports, which leaves it unclear just how its business was affected by President Trump's April 2 announcement of high tariffs, and the turbulence that has followed amid the ever-changing status of those tariffs. On the company's earnings call Thursday, Google's Chief Business Officer Philipp Schindler said it is "too early to comment" on trends for the current quarter.

And as the article continues:

Most of Google's business isn't directly affected by tariffs on foreign goods, but the company draws a lot of advertising and cloud revenue from companies that are affected. This fed a lot of worries ahead of Google's report; UBS analysts predicted in a report earlier this month that "budget commitments particularly for advertising will remain frozen."

Schindler would only say that he expects a "slight headwind" to Google's advertising business from changes to the so-called de minimis rule, which once allowed goods priced below a certain threshold to avoid tariffs.

Finally, let's look at Alphabet's valuation...

At a recent price this morning of around $165 per share, the stock trades at 17.7 times this year's earnings estimates of $9.31 per share (which will undoubtedly be going up after the company's big earnings beat). That's slightly below the 18.1 times forward multiple of the S&P 500 today.

Even prior to the solid earnings, Alphabet recently boasted the lowest price-to-earnings multiple among the "Magnificent Seven" mega-cap stocks.

Take a look at this chart (courtesy of the recent Week in Charts blog post from Creative Planning's Charlie Bilello), which shows how these metrics stood late last week (using trailing earnings):

While I recognize that Alphabet's business would be affected by a trade war and recession, I think this possibility is mostly built into the stock price.

It makes no sense that one of the greatest businesses of all time trades at a lower multiple than the average large U.S. business.

My view today – as it has been for more than six years – is that Alphabet is a great stock for conservative, long-term-oriented investors.

4) Up next is Intel (INTC)...

Regular readers will recall that I wrote about the long-struggling chip giant Intel on September 6, September 9, and December 9 last year.

And then, most recently this year, I discussed the company on March 17, when it closed at $25.69 per share on optimism about the new CEO, Lip-Bu Tan. But as I concluded in that e-mail:

I would continue to remain on the sidelines based on Intel's balance sheet and cash-flow statement.

It has been a good call so far...

Through yesterday's close, Intel is down 16% since March 17. And the stock tumbled as much as 10% this morning to less than $20 per share after the company reported another weak quarter (you can see the full earnings release here and the slide presentation here).

This WSJ article has more details: Intel Cuts Outlook, Says Layoffs Are in Store. Excerpt:

The company posted a quarterly loss on Thursday and gave a weak revenue outlook. It said it would lower its operating expense target this year by $500 million and would reduce it by a further $1 billion next year. Tan said in a letter to employees that layoffs would start this quarter and continue over several months, although he didn't quantify how many employees would be affected.

The company also is reducing its gross capital spending target by $2 billion this year to $18 billion, reflecting a slowdown in a gigantic manufacturing expansion undertaken by Tan's predecessor, Pat Gelsinger.

Regarding tariffs, the article continues:

Finance chief David Zinsner said tariffs were affecting the company in two ways. Customers rushed to buy electronics in anticipation of the tariffs, contributing to higher-than-expected revenue in the first quarter. Looking ahead, though, he said costs would increase and the market would contract as consumers and businesses face an uncertain economy.

And as the article also notes, Intel's revenue last quarter beat guidance, but its forecast lagged:

Intel's revenue was flat in its first quarter at $12.7 billion, above analyst expectations according to FactSet. It reported an $821 million loss, wider than the $381 million loss posted in last year's first quarter. It was the fifth consecutive quarterly loss, the longest streak since at least 1990...

Intel also gave a forecast of roughly $11.8 billion in revenue for its current quarter, lower than Wall Street forecasts of around $12.8 billion.

As I commented in yesterday's e-mail regarding aircraft maker Boeing (BA), "I can't remember the last time I invested in a turnaround situation in which a company was burning cash and had a bad balance sheet."

Intel last quarter generated only $813 million of operating cash flow and had capital expenditures of about $5.2 billion, meaning it had negative free cash flow of about $4.4 billion. As a result, net debt rose during the quarter from $27.8 billion to $29.1 billion.

Until there's real evidence of a turnaround, I would continue to stay away from this stock – which sits close to a 10-year low:

If Tan is able to engineer a turnaround, there will be plenty of time to get into the stock... even if that means missing the first move upward.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.