This week, I’m diving into the earnings reports for several companies in the PCA Portfolio.

As I note directly below, two of the stocks in the portfolio, Materion (NSDQ: MTRN) and Devon (NYSE: DVN) failed to deliver the goods.

At the center of the disappointments are higher costs of doing business negatively affecting earnings.

Still, much of the price volatility we are seeing in some of the portfolio holdings is a result of the daily barrage of news regarding the Federal Reserve and its monetary tightening maneuvers. Unfortunately, we are also seeing the Fed’s actions starting to have a negative effect on earnings.

On the bright side, the Fed has hinted about slowing its interest rate increases via lower rate increases, perhaps to the tune of 25 to 50 basis points in December and beyond. This could help the market from a psychological standpoint and perhaps keep the economy from crashing.

First the bad news.

Materion Corp.

Shares of beryllium mining and related services Materion and the recently added oil and natural gas exploration and production company Devon Energy both took a drubbing after missing their earnings expectations.

Both companies are in the portfolio because of their business niches and how they are likely to profit from the economy of the future.

Specifically, Materion is the world’s number one beryllium producer. Not quite a rare earth mineral, beryllium is a key component of many technology related products ranging from satellites to semiconductors and related technology infrastructure, such as surface coatings required for the manufacturing of semiconductor chips.

Interestingly, the company reported “record” revenues and very decent growth metrics despite the miss. Moreover, it did report that it had faced some “headwinds” in some of its business lines due to weaker than expected beryllium sales to technology manufacturers while citing higher costs and labor shortages at its mining operations.

In addition, the company expects that its next quarter will improve and provide a strong rebound to the fiscal year’s profits and revenues.

Shares bounced back by week’s end but remained well below their pre-earnings report levels. We’ll give MTRN a little time to adjust here before making a final decision.

I own shares in MTRN.

Devon Rebounds On Strong Energy Sector Performance

Devon Energy beat its earnings expectations handily and the stock still got sold off aggressively after it reported that it will be reducing its capital expenditures in its fourth quarter as a result of higher operating costs.

I’m not sure why a reduction in capital expenditure in the current climate where energy companies are being threatened by the federal government was seen as a negative by traders. In fact, Devon’s future looks pretty bright considering it’s expanding its oil reserves through a recent purchase in the Barnett shale, which lies between Dallas and Houston.

As far as I can tell, Devon remains in a strong position given the general state of the global energy market.

Unlike Materion, however, DVN shares bounced back fairly strongly in an upbeat energy sector. As a result, this dip should be used as an opportunity to add a few shares.

Devon shares remained above their 200-day moving average while On Balance Volume (OBV) ticked up on 11/4/22, a sign that dip buyers were active. As a result, I am less concerned about DVN than I am about MTRN.

As with MTRN above, I’m not selling my shares in the short term.

Now for the good news.

Sterling Infrastructure Delivers Stunning Quarterly Results

Shares of sunbelt construction contractor Sterling Infrastructure (NSDQ: STRL) broke out to new highs after its most recent quarterly result announcement and picked up steam as the week went on.

This is not surprising given the level of construction ongoing in the sunbelt as well as the company’s well managed operations. Recently I reported on two recent contracts worth $16 million. Soon after that report, the company announced $34 million worth of contracts in the state of Idaho where it will be addressing an expansion of I-86 as well as other targeted infrastructure projects.

Idaho, much like the southern U.S., has been an area of population growth due to the migration from high tax, high regulation states.

Here are the highlights of the record quarter, with year-over-year growth rates:

• $556 million in revenues – 20% year over year growth;
• 40% growth in net income;
• 50% growth in EBITDA;
• 12% increase in project backlog worth $1.90 billion; and
• $147 million in cash on the balance sheet.

Meanwhile, the company increased its forward guidance, citing growth in its E-infrastructure (server warehouses and communications/IT related ventures) as well as transportation.

Price Chart

Shares rebounded to their early 2022 highs where I expect a consolidation pattern to emerge as the gains have been spectacular of late. Still, the Accumulation Distribution Indicator (ADI) moved decidedly higher as short sellers got crushed. In addition, OBV shows that buyers are moving in.

It’s not a bad time to take some profits here. But I’m holding on to may shares because that nearly $2 billion contract backlog will be making its way to future earnings reports.

Incyte Delivers Price Chart Bullish Reversal

Shares of biotech company Incyte (NSDQ: INCY) delivered a nifty surprise after its recent earnings report, which missed expectations as the stock moved back above its 200-day moving average, returning to a bullish price trend.

Expectations were for earnings per share (EPS) of 72 cents, which came in at 60 cents adjusted for items. Revenues of $823 million were also shy of the expected $847 million. More than likely, the pop in the shares came from the recent successes the company’s had with its vitiligo medication Opzelura, which is starting to gain traction with insurance companies that are willing to pay for the drug.

The drug also is a treatment for atopic dermatitis, with the potential to become a multi-billion-dollar blockbuster because it has no real competition. Incyte also produces cancer and bone marrow transplant rejection treatment Jakafi, which continues to deliver steady growth (20% sales growth in the most recent quarter).

On the down side, Incyte’s expenses continue to rise. Some of this rise is related to overall inflation, while another portion is related to research and development and product launches.

Aggressive Buying Is Evident

The move back above the 200-day moving average was accompanied by a nice jump in OBV, signifying real buyers. Meanwhile ADI suggests short sellers are avoiding the stock.

I am expecting a consolidation around the $80 price area, which would be a good opportunity to add to the position slowly.

I own shares in INCY.