Market Insights

The last week of earnings has seen traditional blue-chip companies break out as they borrow tricks from Silicon Valley.

Walt Disney (DIS) and Wal-Mart Stores (WMT) surged to record highs after successfully shifting to e-commerce business models. Both are members of the Dow Jones Industrial Average and not considered technology stocks.

DIS had a double-dose of good news. First, demand for The Lion King and amusement parks drove earnings and revenue ahead of estimates. Then a few sessions later, it announced more than 10 million people had subscribed to its new Disney+ streaming service in less than two days.

The growth surpassed estimates and put the 96-year-old media giant on track to reach its target of 60-90 million users by 2024. It’s viewed as a threat to digital pioneer Netflix (NFLX), which remains mired near its lows of the year.

Wal-Mart’s Digital Rebirth

WMT, which traces its history to a Five and Dime in 1950, is also reinventing itself in the digital age. This time it’s using online grocery shopping to win new customers and drive traffic to its stores. That means its existing brick-and-mortar footprint is getting more profitable as several quarters of IT investment bear fruit.

“Our integrated offering with stores and eCommerce delivers value and convenience for our customers,” CEO Doug McMillon said. He cited “strong comp sales and expense leverage.”

WMT’s profit margins were so strong that it beat earnings estimates despite weak overall revenue. The results — and subsequent breakout to new highs — were the polar opposite of Amazon.com (AMZN).

Speaking of AMZN, the online juggernaut also took a hit after getting spurned by Nike (NKE). So you have three traditional members of the Dow Jones Industrial Average — DIS, WMT and NKE — making major headway in digital commerce. At the same time, old tech pioneers like NFLX and AMZN are struggling.

Cisco’s Weak Outlook

Cisco Systems (CSCO), which also helped put Silicon Valley on the map, also tumbled on weak guidance. It was the networking giant’s second straight drop on quarterly results.

Activision Blizzard (ATVI), another one-time darling of tech investors, had a similar quarter. Earnings and revenue beat estimates, while guidance disappointed. This time investors are wary of an expensive plan to transition its business model to free video games.

Rival Take-Two Interactive (TTWO) missed on profit but had a stronger outlook for its future bookings. Both companies were among the key growth stocks with that drove the Nasdaq-100 higher between 2015 and 2018.

Other Tech Stocks Rally

While CSCO and ATVI drifted lower, investors pivoted to some other technology companies.

DXC Technology (DXC) had its biggest rally in 3-1/2 years after newly installed CEO Mike Salvino announced a major corporate overhaul. His plan involves spinning off and divesting three business lines to focus on its core IT services. Is there finally order for this hodgepodge company, pieced together from the remnants of older tech firms?

Datadog (DDOG), on the other hand, is a new tech company that shot to new highs after its first quarterly report as a public company. Earnings and revenue at the provider of cloud-computing software beat estimates.

Rockwell Collins (ROK), whose automation devices help run factories, crushed estimates and provided strong guidance. It joined peers like United Technologies (UTX), General Electric (GE), Honeywell (HON) and Fastenal (FAST) and Illinois Toolworks (ITW) by surging to new 52-week highs this earnings season.

Discovery, D.R. Horton

Discovery Communications (DISCA) is also showing signs of a turnaround after management squeezed out costs. That inflated the media company’s margins and drove profit ahead of estimates.

Homebuilder D.R. Horton (DHI) beat consensus across the board: earnings, revenue, guidance orders, and selling prices. Don’t forget there are more housing catalysts next week like housing starts and Home Depot’s (HD) quarterly results.

Two consumer-related stocks round out the reports. Monster Beverage (MNST) gapped higher after successfully raising prices for its energy drinks. Advance Auto Parts (AAP), on the other hand, gapped lower on weak same-store sales.

In conclusion, this earnings season has seen a shift of enthusiasm toward older blue-chips like WMT and DIS as recent tech leaders struggle. Smaller companies like DXC, Xerox (XRX), Coty (COTY) and DISCA have shown signs of turning their businesses around. Industrials are also trying to break out, despite talk of a recession in the manufacturing sector.