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Getting Ready for Earnings Opportunities

July 17, 2018, 10:13 am

Every three months, earnings season consumes our lives for five weeks, leaving a few months of “normalcy” in between to digest the quarterly news and pivot around developments beyond Wall Street.

We’re now back in the season, and I’m extremely excited.

In several of my services, we’ve cashed out of some nice wins and rotated out of other stocks so we can redeploy that cash to the dynamic opportunities that earnings season will open up.

I generally avoid buying stocks ahead of the actual releases, but every company is a potential buy once the numbers are out. And I must say, those numbers are starting to look spectacular. While reaction to Friday’s kickoff reports from banks was mixed, we saw more strength yesterday led by Bank of America (BAC) after it beat expectations and reported growth in loans and deposits.

Overall, the trend remains more supportive than it has been since 2010 when the economy was still climbing out of the recession and year-over-year comparisons were all over the map.

That timeframe is crucial enough to restate: With 20% earnings growth on Wall Street’s radar, the environment for stocks is now better than it has been for the entire nine-year recovery cycle so far. If you’ve been bullish over the past decade, you haven’t seen anything yet, at least according to these numbers. For people who are hanging back on the sidelines, the time to get that money working is NOW.

In the current conditions, I’m generally eager to stay overweight technology, which has been the only reliable game in town lately. We’ve made good money on three of the four FANG stocks in recent months in some of my services, and depending on what earnings tell us, we could repeat one of those. Netflix (NFLX) just reported earnings and is down sharply this morning, so I’ll be watching for a buying opportunity there. I’m also willing to consider the right financial stock or open a position in energy, other commodities or manufacturing.

The entire market is going to be our playground in the next month. Some companies will reveal that they aren’t worth our money and time, and those will stay off our Buy Lists for another quarter. Others will flash the green light that means we’ll grab them the minute the chart offers the right combination of momentum and reasonable upside – we want to see headroom as well as the force to get there.

Best of all, Wall Street’s focus should turn back to, well, Wall Street. Earnings season isn’t about politics or international gossip. It’s about the fundamentals that drive stocks behind the ebb and flow of rumors. Once the fundamentals are clear, we’ll know which trends are worthy of our available cash.

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