Three Keys to Unlock Earnings Season
- Alan Knuckman: Talking heads aren’t the only ones…
- … who can read an earnings report
- Oil’s spill
- Dividend stocks should be like a long-term relationship
- Ray Blanco’s bold Nvidia prediction
- “Do these glasses look good on me?”
- And a reader says, “I don’t wish… death upon anyone,” but…
“If you watch business news channels regularly,” says Alan Knuckman, “you’ll start to notice a pattern.”
Alan’s a 25-year trade veteran at the Chicago Board Options Exchange and he’s seen earnings seasons come and go. Every three months, the financial media can talk of nothing else and then… radio silence.
Is the fanfare warranted?
Alan says sort of… if you know what you’re looking for.
As for earnings, Alan says there are three things to consider….
- Earnings surprises
- Management’s outlook
- Bellwether companies
“An earnings surprise is when the company reports a different figure than what the analysts expected,” says Alan.
According to Alan, analysts’ “favorite pastime” is guessing how much money a company will make in a quarter.
“They use their knowledge to guess how much profit a company will make and divide it by the number of shares outstanding.
“This is called earnings per share,” Alan says, “essentially, how much each share would be worth if the company were to distribute its profits to shareholders.”
If earnings per share are higher than expected, it’s called a beat. If lower, it’s a miss.
You can imagine the volatility in a stock’s price if it’s a beat or a miss. “A beat means the company is stronger than most people thought,” Alan says, “which convinces investors to buy the stock.” Of course, a miss causes the opposite reaction.
“Another key part of the earnings announcement is management’s outlook on earning per share next quarter and next year.”
Stocks are always looking ahead; their prices indicate how investors expect shares to move — up or down.
“So positive sentiment,” Alan says, “coupled with strong results tends to help maintain a bullish trend in the stock price.”
But sometimes — even with strong earnings — shares might falter. That’s because a company’s management forecasts a slowdown — something smart investors should take into account.
“The last reason why earnings season is so important is because we can learn clues about the general state and direction of major industries,” Alan says, “if not the entire economy.
“Bellwether companies are big blue chip stocks that lead the herd. If they’re reporting good results, then the rest of their sector tends to follow suit.
“And if enough bellwethers from each industry are thriving,” he says, “the rest of the stock market tends to do the same.
“In other words, when bellwether companies announce earnings, smart investors pay attention.
“So the next time a financial news channel breaks into regular programming to talk about a company’s latest earnings, pay attention.”
Because now you’ll know how to sort the wheat from the chaff when it comes to earnings reports.
“An earnings miss or beat could open an opportunity to buy a great stock at a bargain price,” says Alan, “or lead to a lucrative options play.
“Management’s future earnings outlook could also help you time some stock option trades.
“And bellwether companies’ quarterly results can give you insights on stocks you already own… or help you find other industries to explore.”
Alan concludes that knowing what’s important when it comes to earnings is “certainly a better strategy than taking a drink every time a talking head says ‘earnings.’”
Heh… he said it’s “better,” not more fun!
[Ed. note: Alan’s excited about earnings season… that really revs up tomorrow!
So excited, he’s making an unheard-of guarantee for new subscribers of his earnings-driven trading service called the 42-Day Retirement Plan.
“I’m guaranteeing 20 trades that will double your money over the next 12 months,” he says. “And if I’m wrong, I’ll work for free.”
Meaning, if fewer than 20 of his trades double in value, the service is yours free.
This offer expires today at MIDNIGHT. Check it out now — no long video to watch.]
Now to the markets… where the DJIA’s up 221 points, to 24,922.
The S&P 500 gained 21 points and sits at 2,795.
Gold’s still floating above the danger zone; today, it added $3.10 to its price of $1,247.50.
Just for kicks — we haven’t checked in for a while — bitcoin’s valued at $6,184.93 according to CoinDesk. Looks as though it’s been hovering in the $6,000 region for the past month.
Oil took a spill yesterday: The price of a barrel of crude fell off by 5% — the steepest drop since Sept. 1, 2015.
Market sentiment seems to have gotten the best of traders who “chose to focus on expectations for higher global output,” says MarketWatch.
Despite this tidbit: “On Wednesday, the Energy Information Administration reported a 12.6 million-barrel drop in U.S. crude supplies for the week ended July 6. That was more than double the 4.8 million-barrel decline expected by analysts.”
Hmm… What happened to supply and demand?
Among other things affecting the price of oil, Saudi Arabia increased production in June by 405,400 barrels per day. And Libya’s trying to resume oil exports… but that’s iffy due to disruptions at major ports.
Last, the strong dollar is putting downward pressure on oil’s price. “As oil is pegged to the dollar,” says MarketWatch, “a stronger greenback usually doesn’t bode well for oil buyers using other currencies.”
Today, a barrel of crude sells for $69.78, down slightly from yesterday.
“Consumer prices were 2.9% above their year-earlier level last month, the Labor Department reported on Thursday, marking the largest on-the-year gain since February 2012,” The Wall Street Journal reports.
“That had a lot to do with rising gasoline prices, but core prices, which exclude often-volatile food and energy costs, were up 2.3%, offering further evidence that inflation in the U.S. is warming up.”
As to whether wholesale prices are being passed down to the consumer, WSJ says this: “Price changes for wholesale and retail consumer goods used to track each other more closely.”
See the widening gap? (Wholesale=blue; Consumer=Red)
“That [close connection] changed starting in the 2000s — around when Amazon.com Inc. really came onto the scene and widespread internet use made it easier for Americans to comparison shop.
“This is one reason why retailers have struggled so much even in a strong economy.”
Our income and retirement strategist Nilus Mattive likens investing in dividend stocks to marriage: “The best dividend stocks are investments you can… love for the rest of your life.”
Even though some of the most recognizable dividend stocks have started to take a breather recently, Nilus says, “Hey, every relationship has some rocky moments.”
That doesn’t mean divorce papers are in order….
“Many dividend-paying companies offer an immediate advantage over most other conservative retirement investments out there right now,” says Nilus, “namely, the ability to hand you more income right from the very first year of ownership.
“Those dividends represent immediate nonrefundable returns on your investment, and they continue to garner favorable tax treatment to boot.”
Even with interest rates near 3% for 10-year U.S. Treasuries, most dividend stocks can beat that return — annually. “Plus,” Nilus says, “the companies are actually in better financial shape than the U.S. government!”
A few more things to remember…
FIRST — Many dividend-paying companies have business models that can withstand the ups and downs of the market.
SECOND — If you hold onto your dividend stocks for the long term, you’ll likely garner significant capital appreciation.
THIRD — Historically, dividend stocks have stayed strong — even during market pullbacks.
Nilus says: “Just consider 2008, the worst year for stocks since the Great Depression…
“Dividend stocks outperformed nonpayers by roughly 6%.
“And there is similar proof going even further back in history: In 2002, the S&P 500 fell 23%. Shares of nonpayers in the index fell 30% while dividend payers dropped just 11%.”
So whether you’re interested in income, downside protection — or both — dividend stocks are the way to go.
“And here’s the single biggest reason to favor dividend stocks for the long term…
“Many companies have raised their dividends annually for many decades (even a century or more!),” Nilus says.
“Over time, this means you’re getting larger and larger annual yields on your initial investments.
“The best part of this principle, called ‘yield on cost,’ is that it applies to all dividend-paying stocks.”
If you invest in companies that are increasing their payments, “your effective yields will keep going up,” says Nilus, “and there’s absolutely no limit to how high they can go!
“So it’s entirely possible to start earning relatively safe annual returns of 3%, 4% or 5% right now,” he continues.
“Moreover, when you choose the right stocks, it’s equally likely that you will end up collecting relatively safe annual yields of 8%, 9% or 10%”
Here with another opportunity to ring the cash register is Ray Blanco. And he makes a very bold prediction.
“Many big names in tech believe the driverless car trend will be huge,” says Ray Blanco, “and soon.
“It’s clear there’s a huge future in self-driving cars,” he continues.
“Intel estimates the autonomous-driving economy will be worth $800 billion by 2035, swelling to $7 trillion by 2050.”
Intel’s chasing this industry: The company announced it will come out with a 5G self-driving engine in 2020, to be used in automated vehicles in 2022.
“Intel, however, is still playing catch-up to many other chipmakers,” Ray says.
“The true king of driverless car tech is Nvidia,” says Ray. “And they’re well on their way to massive new gains thanks to this trend.”
Ray’s been a fan of chipmaker Nvidia since 2015. And “in the race to become the first in self-driving cars,” he believes “Nvidia has a clear edge.”
Ray says: “Nvidia has leveraged its gaming expertise to create the equivalent of a supercomputer that sits in your car.
“Using cameras and sensors, Nvidia’s autonomous-driving system, DRIVE Pegasus, can identify vehicles, pedestrians and hazards with image recognition so accurate it can tell the makes and models of other vehicles around it.”
Early this week, Nvidia hammered out a deal with German automaker Daimler and electronics company Bosch to develop a fleet of self-driving taxis.
“Nvidia’s new DRIVE system will be the platform for ALL Daimler and Bosch self-driving vehicles beginning in 2020.” And testing for these autonomous vehicles starts next year in California.
“The importance of this deal can’t be understated,” Ray says. “It’s a huge growth catalyst.
“With demand for self-driving cars set to grow sharply over the next few years, advanced chipmakers again look to be a great bet.
“Weighing all these factors together, it becomes clear Nvidia has placed itself in exactly the right place for big growth.”
Ray says: “Nvidia $1,000 here we come!”
Would you wear these silly-looking glasses?
While not exactly fashionable, engineers at carmaker Citroën claim its “[Seetroën] glasses will eliminate any motion sickness you’re feeling after wearing them for just 10 minutes,” says an article at Gizmodo.
“So how are these goofy glasses supposed to alleviate the problem?
“The Seetroën glasses have four liquid-filled rings that, thanks to gravity, simulate the angle and movements of the horizon so that the motions of the blue-dyed liquids seen by the wearer’s eyes match what their inner ear is detecting,” Gizmodo says.
“For roughly 95% of the population, that should be all that’s needed to eliminate motion sickness”… whether on a plane, train or automobile.
“Citroën will be selling its Seetroën glasses via its online lifestyle store for about $115.”
Ever been carsick? Worth. Every. Penny.
To the mailbag and our theme of Trump versus the Fed: “Perhaps the best quick description of what’s going on with the Federal Reserve, our current administration in Washington and the economy would be an extension of a Jim Rickards’ summation:
“‘Both the Fed and the administration are committed to their own separate models of how the economy works, and these models not only differ, they clash. This has resulted in a deep divide with those on each side mostly ignoring any activities on the other side of the gap as they fervently pursue their own goals.’
“According to Rickards, the Fed is desperately trying to ‘normalize’ its balance sheet and raise its basic interest rate so it can be lowered again to counter the next recession, which may trigger the very recession for which it’s trying to prepare.
“The current administration is apparently trying to use deficit spending to create some Greater Prosperity that will, among other things, generate enough additional tax revenue that it will not only offset the deficits created by tax cuts used to create the Greater Prosperity, but also eliminate the deficit that existed before those tax cuts, too. A strategy that hasn’t worked before now (see 1987, 1921, 1931, 1894 — OK, 1921 seemed to work, but then 1929 happened), but hey, maybe This Time Is Different.
“To the extent that anyone in each group is aware of what the other group is doing, and if asked, the response would probably be that the other group is screwing things up and in the end making the economic situation worse — remember every boom ends in a bust sooner or later.
“Mr. Rickards contends that the Fed’s model is flawed. I would suggest that BOTH of the models in use here are seriously flawed, and that one of the scarier opinions I’ve seen in The 5 recently is that Mr. Kudlow is a top-level economist who knows something about the economy.
[That was a reader, not us! Just to be clear…]
“In my view he’s an unreconstructed Reagan-era trickle-down supply-sider yes-man who fits extremely well into Steve Bannon’s wrecking-ball theory of government deconstruction.
“And while I specifically choose not to wish illness or death upon anyone, given Mr. Kudlow’s mild heart attack after his ‘barking dog’ G-7 performance, I was hoping someone would quietly whisk him off to retirement. But no, and now he’s back with a false ‘The deficit is falling, and falling rapidly’ statement, which he then tried to walk back to a ‘Well, it’s GOING to fall’ position.
“Which I’m still waiting to see. But at least Mr. Kudlow notices the ticking time bomb over at the Eccles building. But I suspect that it’s now too late for anyone to do anything about it.
“Have a good day, everyone.”
The 5 Min. Forecast
P.S. Don’t forget: Alan’s earnings-driven trading system — the 42-Day Retirement Plan — ends tonight at MIDNIGHT.
Alan’s guarantee goes away then, too.
Twenty trades that will double your money over the next 12 months… or you get his service free. Don’t miss out on this unprecedented guarantee.