Morgan Stanley: Financial Winner
The broad indexes ended mixed after a late-session fade, with Apple (AAPL) shares declining 2% to close at $628.10, after a federal appeals court overturned an injunction banning Samsung from selling its Galaxy Nexus smartphone, after a Jury in August awarded Apple $1.05 billion in damages, ruling that Samsung had violated several iPhone patents.
Reuters reported that the U.S. Court of Appeals for the Federal Circuit, ruled the lower district court in in California had "abused its discretion in entering an injunction."
For its fiscal fourth-quarter ended Sept. 30, the consensus among analysts polled by Thomson Reuters is for Apple to report earnings of $8.91 a share, declining from $9.32 in the fiscal third quarter, but increasing from $7.05 during the fourth quarter of fiscal 2011.
Financial stocks showed strength after Bloomberg reported that the European Union was considering a delay for the implementation of Basel III capital requirements.
A downgrade of Spain's sovereign debt by Standard & Poor's seemed to be embraced by investors, who hope the country will soon make a formal request for financial assistance.
Citigroup analyst Deane Dray said that "investors should be braced for a choppy 3Q12 earnings season, punctuated with cautious commentary and tepid topline growth due to macro slowing," but that despite the pressure on stocks, the Federal Reserve's QE3 "counterpunch" was "buoying prices to multi-year highs." For the broad market, Dray said "the best news is likely to be centered around encouraging positives in Energy, Commercial Aero OE, and Resi," and that Citi was continuing "to recommend higher-quality, late-cycle names, with better earnings visibility," including General Electric (GE) , Honeywell (HON) and Danaher Corp. (DHR) .
Guggenheim analyst Marty Mosby painted a rosier picture in his third-quarter earnings preview for large-cap banks, saying on Thursday that "we are forecasting 4% sequential growth in operating earnings per share this quarter, twice the current market expectation. This would represent the 7th positive quarterly earnings surprise since 4Q10."
Mosby advised investors not to "get lost on the headwinds for revenue growth," and said that "as the Large Cap Banks are still in earnings recovery mode, efficiency improvements are just as important." The analyst expects efficiency improvements to be "responsible for ~100% of this quarter's expected sequential increase in operating EPS."
Heading into Friday morning's start to earnings season for the largest U.S. banks, with reports from JPMorgan Chase (JPM) and Wells Fargo (WFC) , Mosby said his favorite bank stock picks include Regions Financial (RF) and PNC Financial Services Group (PNC) , for which he expects "operating earnings momentum improvements" to push stocks higher. The analyst's price target for Regions is $9.25, and his target for PNC is $83.00.