Off to the Races: Earnings Are Revving – And We’re Looking to Buy

Drivers, start your engines.

Even if you’re not an auto-racing fan, I’m betting you’re aware of that goosebump-triggering line that brings the cars to life. (It used to be “Gentlemen, start your engines.”)

Investors heard a similar call this past week …

Corporations, release your earnings.

The second isn’t as exciting (or dramatic) as the first. But it’s just as important. And in both cases – with high-performance cars and with stocks – we can be off to the races.

Over the next few weeks, thousands of companies will tell us how much they money they brought in during the last quarter, how much they made, and in most cases, what they expect for the future.

Tucked inside that stampede of earnings are some major moneymaking opportunities.

I’ve built a cutting-edge quantitative analysis system that each day analyzes millions of datapoints to predict future stock prices. But if we boil it down to the very basics, how much a stock rises or falls is really tied to the underlying company’s sales, profits and projected growth.

For stock and data nerds (like me), earnings season really is an adrenaline-inducing “event” – and each victory delivers a tangible payoff.

A significant chunk of the Quantum Score my system assigns to more than 6,000 stocks every day is a separate Fundamental Score. And sales and earnings growth are among the biggest chunks of the fundamental ranking.

Those Fundamental Scores change the most four times a year when companies publicly disclose their financial results. Many companies maintain their established ratings and trends, but there are those that jump from “meh” to “wow,” and those who fall from “count me in” to “I’m outta here.”

In a moment, we’ll take a look at some of the first companies to tell us how they’re doing. But let me first explain why I think this particular earnings season will add to the list of catalysts for the fourth-quarter stock market surge that I’ve been predicting.

The Apocalypse that Never Came

Analysts and pundits have forecast an “earnings apocalypse” pretty much since the Covid shutdowns started in March 2020. The warnings picked up again in early 2022, when the inflation surge and the Federal Reserve’s hawkish language triggered some dark thoughts about stocks and the economy.

But that “apocalypse” never happened.

Sure, earnings got squeezed. But they never really cratered. Current expectations are for third-quarter earnings to decline just 0.3% from a year ago.

Current expectations are for fourth-quarter earnings to jump 7.8%.

Those reports will come out in January, but you know that stocks will move before then. As in anytime now. As in during the best quarter of the year for stocks, which we’re now in.

The highest-quality stocks with the strongest sales and earnings growth will be the biggest winners – the stocks I designed my system to identify and that are the best stocks in the market to invest in.

And if that’s not enough, consider that stocks almost always beat analysts’ expectations.

Last quarter, 79% of S&P 500 companies earned more than analysts said they would.

And that wasn’t an outlier quarter. The five-year average is 77%.

This is fact, not opinion. It’s clear as day in data (my favorite thing) from the well-respected firm FactSet.

So, companies exceed expectations about 80% of the time.

I won’t get into whether an 80% error rate among analysts speaks more to their incompetence, their overly conservative nature, or gamesmanship. But you can be sure Wall Street takes full advantage to make money when shares pop after a company does better than expected.

Smart investors can do the same. One way is to track Big Money, which my system does. I can see which stocks it is pouring into, and those massive inflows along with strong fundamentals and technicals produce the biggest winners for investors.

Off to a Good Start

Financial companies like banks and insurers hold the “pole position” in earnings season – since they tend to dominate the early reports.

Three of the big banks released results yesterday. And more come next week.

Early results were – you guessed it – better than expected. (Imagine that.)

JPMorgan Chase (JPM) grew earnings 38.8% to $4.33 per share, well above  estimates for $3.96.Sharesjumped in early trading but ultimately gained 1.5% on the day.

JPM Quantum Score: 51.7. The fundamental ranking will update this weekend,but the business strength and technical strength aren’t high enough to be in my “buy zone.”

Wells Fargo (WFC) turned in an even hotter lap, with profits zooming 72% to $1.48 per share, beating expectations for $1.24. The stock rose 3%.

WFC Quantum Score: 37.9. Too low.The fundamentals and technicals are both weak.

Citigroup (C) didn’tgrow earnings at all over, making $1.63 per share in the third quarter this year and last year. But… that trounced estimates for $1.21 per share. Starting to see the pattern here?

C Quantum Score: 34.5. The lowest of the bunch and definitely not a buy. The fundamentals aren’t horrible with a 54.2 rating, but the technicals are bottom of the barrel at 20.6.

The real fun begins next week when both Netflix (NFLX) and Tesla (TSLA) release results on Wednesday. Their current Quantum Scores are 62.1 (decent) and 75.9 (excellent) currently. I don’t usually like to buy stocks so close to earnings reports, but Tesla especially will be worth watching to see if it maintains its strength both fundamentally and technically.

Another Reason to Buy Now

I’ll continue pounding the drum.

Now is the time to be in stocks.

My Big Money Index flashed its most powerful buy signal recently when it fell to oversold, which means a reversal higher is almost certain. The Federal Reserve is quite possibly done raising interest rates, and may start cutting in 2024. The economy has stayed surprisingly strong through the rate hikes. 

And then we add earnings catalysts:

  1. Earnings are almost certain to beat expectations. (They always do.)
  2. Earnings are recovering. If they decline from the third quarter – and they might not – they are expected to grow nicely in the fourth quarter.
  3. Largely positive earnings news – and positive expectations for early 2024 – will come out during the strongest time of the year for stocks.

There’s still time to invest in elite stocks at discounted prices. Earnings and sales are just two ways we rank the fundamentals, which along with technicals and Big Money inflows constitute the three-legged Quantum Edge stool of successful investing.

It’s time to start your engines not just for earnings season but for a fourth-quarter rally that should takes us into 2024.

Talk soon,

Jason Bodner’s Power Trends