VIDEO: How Two Companies Spooked the Market Over 2025 Earnings
And here’s our plan for these two stocks that are getting hit today.
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In today’s Daily Rundown video, Chris Versace explains why the market is trading off on Tuesday, tying it to 2H 2024 and 2025 earnings expectations.
"What's unfolding here is that the September quarter earnings season, as discussed, is starting to heat up," he says.
He also explains why we recently started a new position in ProShares Short S&P 500 SH shares. And finally, Chris delves into what happened at ASML ASML and United Health UNH and breaks down our plan for Applied Materials AMAT and Elevance Health ELV shares.
Transcript
CHRIS VERSACE: Hey, folks. Chris Versace here, Tuesday, October 15. And you've probably noticed we are seeing some pressure in the market today, but also in the portfolio. And what's unfolding here is the September quarter earnings season, as we discussed, is starting to heat up. We did speak with you yesterday that even though we have a relatively light set of days for the portfolio, just earnings from Bank of America today, Morgan Stanley tomorrow, and Elevance on Thursday, we would be focused on the other companies that are reporting, really leaning into comments from competitors, customers, suppliers to our holdings, and what they're saying about their September quarter, their outlook for the balance of the year or perhaps even further ahead than that.
So you also know that we've been really focused on earnings growth, right? You know that we pay very close attention to that, especially relative to the S&P 500. We talk about that whenever we publish our videos and our tables for the portfolio, just like we did yesterday where we shared the latest capture snapshot, if you will, of consensus EPS for the portfolio. And we also, as you know, adjusted a number of our panic points as well.
Our big concern has been the slowing consensus expectation for EPS growth for the S&P 500 in the second half of the year. It's now down to about 6% from 11% in July. But also, we've kind of raised a flag about the very, very robust EPS growth expectations for the S&P 500 in 2025. If you did the math yesterday when we updated the table, you would see that it calls for 14.8% EPS growth in 2025 compared to this year. That is a very, very big number.
Typically, this time of year, we tend to see something order of magnitude around 10%. So this is almost 50% stronger than that. And yes, the economy continues to perform well. And yes, we know the Fed is embarking upon a rate cutting cycle. But still, it is a pretty lofty number.
And what we are seeing today suggests that yes, that number is indeed too lofty. What I'm talking about here is ASML lithography company dialing back its expectations for 2025, and UnitedHealth doing the same. Now, we're not involved in either one of those names, but because we are focused on what competitors, customers and suppliers are saying, we understand that what these two companies have done are kind of weighing on our positions of Applied Materials and Elevance Health. So what did they say?
Well, ASML said its 2025 outlook now is around 30 to 35 billion euros. That's down from around 30 to 40 billion euros that it talked about previously. And remember, this downward revision comes even though they've kind of nudged up their 2024 revenue forecast modestly.
The big issue, as we explained in a note to you, is that, a, ASML's bookings for the September quarter were down sharply compared to the June quarter. And that's raising some questions. But the other issue here is that the earnings was posted sooner than it was supposed to. That's right, they were supposed to report tomorrow and have an earnings call tomorrow. So now the press release is out. Management team's not commenting, really, which means that we're going to have to wait till tomorrow to get the real color on what's going on.
In the Alert, I shared with you my thinking that it could very well be related to Intel. TSM, Samsung, and Intel combined form about 80% of ASML's revenues. And we know all about the problems that Intel has been having in the restructuring and some of the moves that they may be making that could result in capital spending falling. We talked about this recently regarding Applied Materials, sharing with you that AMATs two big customers are also Samsung and also Taiwan Semiconductor. But Intel, for Applied Materials, is less than a 10% customer.
So the plan for Applied Materials, pretty much as we spelled out in the Alert, is that we're going to see what ASML has to say on their earnings call and we'll match that up against tech key support levels for Applied Materials. If they hold and we are correct that it's more Intel related, that could be an opportunity to pick up some more shares. We would also want to see what Taiwan Semiconductor has to say on Thursday when they report their September quarter results. Remember, our thinking here is that TSM's revenue over the last several months has been very, very strong.
We talked about this in yesterday's video, but for those who missed it, obviously accelerating strength in AI and data center, the rebound in smartphone and the PC markets as well is likely tightening TSM's capacity. They may need to add extra capacity. If we get that signal, whether it's for the second half of the year or for 2025, that would be a very big positive for our shares of Applied Materials.
So we're going to watch them very closely. But remember, that was just one of the two pieces that we're talking about today. The other is coming around from UnitedHealth. And the company reported this morning, and it's kind of reverberating through the related space, yes, tagging our shares of Elevance Health. Now, I would say that Elevance has been far better at managing its cost structure, better also at growing its Medicaid/Medicare footprint. But the issue here is that UnitedHealth trimmed its 2025 EPS, saying it could be around $30 or so.
The consensus is around $31.17. Not the biggest miss, about 4%. And again, the comment out of UnitedHealth was could be around. I think that gives enough wiggle room there that it says that it could be a little bit higher, it could frankly be a little bit lower. But the market is reacting. Why?
Well, 2025 expectations, like we talked about before, were kind of key to the market given the market multiple. Let's also remember too, the market mood that we had as of yesterday was extreme greed. So a stretched market multiple, extreme greed, it's going to raise the bar, a high hurdle, if you will, for what companies have to deliver. And we've talked about this over the last few weeks, that to the extent companies fall short either on the quarter, on their guidance or both, there could be some pullbacks.
That's why we've readied our shopping list. And we'll continue to look for those opportunities if we see that. It's also one of the reasons why we recently started a new position in the ProShares short S&P 500 ETF ticker symbol SH, because the market has been stretched extreme, investor sentiment has been stretched as well, not leaving a lot of wiggle room in the market for disappointment. So our plan here with Applied Materials, as I mentioned, is we'll see what develops over the next two days.
With Elevance Health though, yeah, the shares are down. We're aware they're a three rated stock. And they will report on Thursday. So we'll see what they have to say. But I have to remind you that I continue to think that what will happen as a result of the 2024 election, both for president and for Congress, is really going to dictate what's next for Medicaid/Medicare and other health-related items.
So I think that's a far bigger catalyst to watch than UnitedHealth kind of trimming, if you will, its 2025 EPS by around 4%. So let's see what develops and we'll make our next moves from there, which means, folks, please continue to check your emails, your Alerts. We want to make sure you're getting our latest thoughts, but we also want you to be ready if we make any moves with the portfolio. Why? Because we want you right there with us. Thanks for watching today's video. Remember, office hours in the forum, 4:00 PM to 5:00 PM. I hope to see you there.
At the time of publication, TheStreet Pro Portfolio was long SH, AMAT and ELV.
