Last week was a whirlwind of earnings announcement — we had no less than 16 Blue Chip Growth companies report! And I’ve noticed an interesting trend in the way investors are responding to quarterly results.
To start, investors are becoming less concerned with beating analyst estimates for the past quarter, and more preoccupied with forward guidance. So, we had companies like Check Point Software Technologies (NASDQ:CHKP), which beat the consensus earnings estimate by 3%, but posted a conservative guidance for the second quarter, so it saw its share price dip. We ran into a similar story with Baidu (NASDAQ;BIDU), which gapped down even after it beat earnings estimates. The fact of the matter is that Wall Street is looking for any excuse to take profits, so many investors are overreacting to even the slightest change in forward guidance.
However, I consider this a shortsighted strategy. This earnings season represents a “trough” in earnings growth where year-over-year comparisons were tough, but upcoming earnings would be stronger.
However, contrary to popular belief, most big blue chips are blowing analyst estimates out of the water. In fact, the S&P 500 companies that have reported earnings so far have posted an average of 12% earnings growth, beating analyst forecasts by 9.4%. And from here, I expect earnings growth to accelerate.
The market is getting narrower, so I’m going to be keeping our Blue Chip Growth Buy List in the “sweet spot — that is, limiting all new picks to the top 10% of stocks.
In addition, I will be favoring companies engaged in aggressive stock buyback programs. I’m talking about companies like Apple (NASDAQ:AAPL), AutoZone (NYSE:AZO), Chipotle (NYSE:CMG), O’Reilly Automotive (NASDAQ:ORLY) and Priceline.com (NASDAQ:PCLN).
These are among the smoothest and steadiest stocks out there — in fact, these five stocks have gained an average 5.3% last week alone! Even though these are pricier stocks, they’re worth it because the aggressive share repurchase programs gives these stocks incredible relative strength regardless of what’s going on in the economy.