When a company reports their earnings outside of the generally recognized earnings season, the market reaction to any surprise can sometimes be exaggerated. When reports are coming in thick and fast, the market’s reaction to all these earnings is spread around multiple companies, but when there is only one company’s earnings to look at, everybody wants to trade one stock in one direction. Most of the time, that creates an opportunity for long-term investors to fade the resulting move: to buy something that is oversold or to take some profit on something that soars higher after a beat. The two most recent examples, however, don’t fit this bill. In both cases, the obvious reaction is the right one, and the moves we have seen initially look set to continue for some time.

On Wednesday morning, FedEx (FDX) dropped what can only be described as a stinker of an earnings report. They missed expectations on both revenue and EPS and, worse still in the eyes of traders, cut their full-year revenue forecast. (It should be noted that FedEx’s financial year ends on May 31 next year.) The results were troublesome in several ways.

A miss at any time is bad news, but when it is accompanied by lowered guidance, it suggests not just that that the company is underperforming right now, but also that they don’t see any way of fixing that in the near future. Even in that situation though, a double digit drop such as we saw in FDX on Wednesday morning might be seen as an opportunity to buy. Companies base their guidance on the previous quarter as much as anything, and most tend to guide conservatively, so reduced guidance after a miss is not such a big deal in many ways.

The problem with FedEx, however, is that it isn’t really something they can fix. Their miss confirmed a similarly gloomy report from UPS that was released at the end of October. After that news, I wrote that UPS was an example of the kind of overreaction that I talked about above and would most likely bounce back strongly. It has, and the stock is up more than twenty percent over the last two months. However, that trade was based on the assumption that the holiday season would still be strong for delivery companies. That is not proving to be the case so far, and FedEx doesn’t forecast any improvement.

Shipping and logistics has become an intensely, possibly even overcrowded industry as Amazon has expanded its internal delivery network, and FedEx believes that overall shipping volume will be roughly equivalent to last year’s. That is not exactly inspiring. In the light of that, taking a profit on UPS if you bought after their earnings two months ago, and exiting any long position in FDX on a technical bounce back this morning looks like the smart thing to do.

This morning, chip maker Micron (MU) issued a report that was almost the polar opposite of FedEx’s in every way. FedEx made money whereas Micron lost, but FedEx’s profits disappointed, while Micron beat expectations in the sense that their loss was less than expected. Most importantly, though, while FedEx saw gloom and doom ahead for logistics companies in general, Micron forecast good times for themselves and chip makers in general. While MU is climbing off of its highest levels since early 2022 and is not far off of all-time highs, those gains will probably be extended for a while, and MU looks like a buy.

The contrarian trading style that I tend to favor works well in many situations, but sometimes, the obvious reaction to news is the right one. These two off-season earnings reports both produced the kind of exaggerated reactions that can set up a contrarian trade, but in both cases, going with the flow looks like the best strategy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Original: Earnings Feed: FedEx (FDX) and Micron (MU) Earnings: Taking the Obvious Trades