Social Media and the Stock Market

Most articles about Social Media and The Stock Market have talked about the upcoming Facebook IPO or wrote about the Groupon IPO. Some have been trying to give their own take on who will be the next Facebook and who will secure the next great IPO. Our story will take another twist as we will try to explore the use of social media as a tool to analyze the stock market.

There are over 200,000,000 tweets a day. Where do they go? Is there a way to organize all social media chatter and use it to help investors find investment ideas?  What can we learn from all this social media chatter about a specific companies? By now, everyone knows that the news about the killing of Osama Bin Ladin was tweeted on Twitter way before it was officially carried over any news wire. There seems to be an amazing opportunity to capture this social media chatter, filter it for pertinent information, and format the data to glean new insights into companies and investments.

On twitter alone there are 250 million active users. Combining Facebook, Dig, Tumblr and other social media venues there are between 600-700 million very active users micro blogging posting over all these social media sites continuously. This new trend can be viewed as a new form of broadcasting. As a matter of fact, just last week, Comedian Steve Carell joined Twitter, amassing more than 75,000 followers in just a few hours.
Blog postings, forum messages, online surveys and tweets are so easy and quick to collate and analyze in comparison to roadside polls and telephone canvassing. Couple this to the fact that this mode of communication spreads to many listeners and that this delivery is becoming more influential than conventional channels, you then realize social media is definitely something that needs to be taken seriously.

Now think of it this way, one can amass all this social media data, filter all tweets, and categorize it correctly to be able to zero in on the underlying information gathered from social media. That would allow you to retrieve a gold mine of information about many companies. Let’s say you add a little depth to keyword search, not just doing a simple keyword search like Google, but actually crunching this data to analyze, track a signal and obtain the feeling behind the tweet. Suddenly this gigantic sea of noise can be transformed in to orderly information. You can verify if people feel good about a new product or a service a company initiated or not.

Let’s take the new Ipad for example. Following all the tweets and all the social media chatter about the Ipad one should be able to analyze if people are happy or not with the product. Maybe an unknown glitch was uncovered in the system and people start tweeting about it. Let’s say a certain drug has a negative side affect that has not been publicly addressed and someone starts blogging about it. Before long there are people following this story and commenting all over the web. That information would be invaluable to both the drug company and its investors.

This is really only a more sophisticated way of measuring sentiment similar to the Consumer Sentiment Survey, a monthly survey currently taken by the University of Michigan. The survey assesses consumer attitudes on the business climate, personal finance, and spending and forecasts changes in the national economy. It also gauges probable future spending behavior and level of optimism/pessimism. In a nutshell it gleans the sentiment of people to interpret future behavior. All these tweets can be a used in a similar manner to establish if something negative or positive is developing.
There are a few companies that are doing just that, using technology that can pick up track and analyze all the social media data. They are able to translate it for an investor and tell him if people are posting positive or negative tweets, or other broadcasts on companies allowing the investor to use this information and decide how he wants to play the stock. Below is a list of some of the companies that do this type of social media analysis and offer this data.

http://www.wallstreetbirds.com/

http://stocktwits.com/

http://www.stocial.com/

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Earnings: Pharmaceuticals in the news

Last Fridays jobless report showed employment in the USA topped forecasts and global manufacturing strengthened. U.S. stocks rose for the fifth straight week. The Labor Department figures showed payrolls increased by 243,000 in January, the most since April 2011. The report exceeded all forecasts as economists in a Bloomberg News survey called for an increase of 140,000 jobs. The unemployment rate dropped to 8.3 percent, the lowest since February 2009.

Since Jan. 27^th, one of the more popular index’s, the S&P 500 rose 2.2% to 1,344.90 completing the longest weekly rally since January 2011.  The Dow added 201.77 points, or 1.6% to 12,862.23 this week. For the year The S&P 500 is up 6.9%, making it the best annual start since 1987.

Since the European debt crisis which drove the index down 19 percent between April 29^th, and Oct. 3^rd, 2011, the S&P 500 has recovered. It is 1.4% away from surpassing its peak nine months ago and reaching its high since the June 2008 financial crisis and the ensuing stock market crash. This stock market rally was boosted by better than estimated economic data and corporate profits.

Two sectors with the largest gain are the Financial and Technology sectors. Financial companies in the S&P 500 climbed 4.2% as a group, the largest gain among 10 industries.  Technology companies increased 3.1%, the second- biggest increase in the benchmark measure.

After reviewing last week’s earnings reports we will follow up on those companies that announced their earnings to see how their actual reports compared to their expected results.  At first glance there seems to be little surprises as earnings came in more or less as expected. This information is not a recommendation, we are only trying to inform you of the street’s expectations for these companies. All the data provided here is from Yahoo Finance.

 Eli Lilly and Company (LLY) Earnings beat expectations of $0.81 and came in at $0.87 on revenue of $6.05B compared to analyst expectations of $5.90B. The company reconfirmed recently announced 2012 guidance.

Pfizer, Inc. (PFE) Earnings beat expectations of $0.47 and came in at $0.50 on revenue of $16.7b compared to analyst expectations of $16.57B.

The company’s chief executive officer Mr. Ian Read said that the company was moving ahead with plans to shed its animal health and nutrition businesses later this year. Catherine Arnold, an analyst at Credit Suisse, said that the strong fourth-quarter performance by Pfizer’s nutrition and animal health businesses should help the company’s plans to sell or spin them off.

http://www.ft.com/intl/cms/s/0/7106695a-4c0e-11e1-b1b5-00144feabdc0.html#axzz1lcZNftED

Allergan, Inc. (AGN) Announced earnings as expected. The company expects total product sales in 2012 of between $5.65 billion and $5.85 billion. It expects earnings, excluding one-time items, of between $4.13 and $4.19 a share.  This compares to annual revenue expectations of $5.43B. and earnings of $3.64.

Merck & Company, Inc. (MRK) Earnings beat expectations of $0.95 and came in slightly higher at $0.97 on revenue of $12.29 B. this was slightly lower than the expected $12. 48B.

JP Morgan analyst Chris Schott said the earnings beat was largely due to a lower tax rate and noted that company sales did not eclipse forecasts as they have over the past year.

Even so, Schott predicted in a research report that Merck earnings will grow by an average of 7% a year through 2017 and be in the industry’s top tier. This is despite the expected decline from Singulair,  a leading asthma drug whose U.S. patent lapses in August, as the company introduces new medicines.

Merck earnings- http://www.reuters.com/article/2012/02/02/us-merck-idUSTRE81110X20120202?type=companyNews

Astrazeneca PLC (AZN) Announced earnings as expected. Revenue of $8.66B beat slightly expectations of $8.59B.

AstraZeneca announced that it plans to cut 7,300 jobs. The Company also announced it planned to buy back $4.5 billion in shares in 2012.

Gilead Sciences, Inc. (GILD) Announced earnings of $0.97 below expectations of $1.05 on revenue of $2.18B.

Despite weak quarterly results the stock was up on news about their anti-hepatitis C treatment. This is attributed to Gilead’s recent purchase of Pharmaset Inc., whose cache of hepatitis treatment drugs Gilead coveted.  GILD suffered a hit right after the deal closed, due to its large price tag of nearly $11 billion.  Three months later, after conducting a four week, all-oral combination treatment using experimental pill GS-7977 and ribavirin all genotype-1 hep-C, patients appeared to be virus-free. While this is not yet proof of a cure, such results are clearly promising.

To view another article on earnings click here.