Next week will bring a mix of both company and macro-specific news for investors. It will be the week when President Trump has to decide, before March 1, whether he wants to extend the tariff deadline on Chinese goods, depending on the progress on crucial trade negotiations between the two global powers.
Investors will also be focusing on the the two days of economic testimony from Federal Reserve Chairman Jerome Powell to get some idea about his latest thinking on the direction of interest rates. He appears before the Senate Banking Committee on Tuesday, then a House committee Wednesday for the semiannual testimony.
On the corporate side, most of the major earnings reports are out of the way, but there remain a few closely watched companies which have to prove that they are on the right track as far as future growth.
1. Macy’s
The U.S. retail store giant, Macy’s Inc. (NYSE:M) is scheduled to report its fourth quarter results on Tuesday, Feb. 26 before the market opens. On average, analysts are expecting $2.52 a share profit, down from $2.82 a year ago. Sales are expected to fall 2.5% to $8.45 billion.
Its fourth quarter earnings report will be an important one for investors hoping to determine whether this national department store chain is on track to show a sustainable turnaround after many years of disappointing performance. In particular, growth in same-store sales will be the critical number that must show improvement, especially since U.S. consumer sentiment remained strong last year. In our view, the company’s future guidance will hold the key to Macy’s stock performance after its report.
Shares of the retailer, which closed Friday at $24.06, have lost more than 42% of their value since reaching the 52-high of $41.99 in early August, suggesting investors don’t have much faith in the company’s future. To attract more customers to its stores and combat e-tail giants such as Amazon (NASDAQ:AMZN), Macy’s has increased its online offering, added in-store, off-price sections called Backstage to its brick-and-mortar venues, and expanded its Bluemercury beauty chain.
Tuesday will provide yet another chance for Macy's to show that its turnaround is durable.
2. Home Depot
The hardware and household improvement chain, Home Depot (NYSE:HD), will also be reporting fourth quarter earnings on Tuesday before the open. Analysts, on average, expect a 28% jump in earnings to $2.16 a share on sales of $26.57 billion.
The world's largest home improvement chain has pursued a variety of successful strategies during the past few years to fuel growth and benefit from strong consumer spending. In the third quarter, Home Depot beat estimates for the 18th straight quarter, dating back to the beginning of 2014.
Going forward, it might not be such smooth sailing. Cost pressures are rising and housing markets are softening in many regions of the U.S.
After a remarkable run over the past five years, during which Home Depot shares—which closed on Friday at 192.39—gained more than 162%, the stock has weakened since September. Though shares are down 3% in the past six months, they're still up 134% from where they started in 2014. In our view, another blowout quarter and strong forecast for 2019 might break the current bearish spell.
3. Berkshire Hathaway
The world’s most successful value investor, Warren Buffett, released his annual letter to investors over the weekend. It also contained the quarterly earnings report of his diversified insurance and investment firm, Berkshire Hathaway Inc. (NYSE:BRKa) (NYSE:BRKb).
The investment arm of Buffett's company suffered a whopping $25 billion net loss in the past quarter, mainly driven by $27.6 billion in unrealized losses from Berkshire's investment portfolio.
The Oracle of Omaha has warned investors to pay more attention to underlying operating figures, since accounting rules now incorporate unrealized gains and losses from stocks into net income.
The number is too big to ignore. As well, it might affect the company’s shares which are struggling to continue their upward trajectory as Buffett confronts the problem of finding his next big acquisition. At $201.91 per share as of Friday's close, Berkshire's stock has barely budged in the past one year.
“Prices are sky-high for businesses possessing decent long-term prospects,” Buffett wrote in his annual letter to investors. Still he says his firm may buy more publicly traded shares in 2019: “We continue, nevertheless, to hope for an elephant-sized acquisition.”
Despite Buffett’s soothing words to investors, it's hard to ignore the effect to Berkshire’s investment portfolio of such troubled assets as consumer staple Kraft Heinz (NASDAQ:KHC), where writedowns in Q4 touched $15.4 billion. As its biggest shareholder, Buffett’s stake took a $2.7 billion markdown.