Second-quarter earnings season is winding down, and by most measures, this has been one of the best earnings seasons in a long time. Around 66% of companies in the S&P 500 delivered positive earnings surprises, but the number that really stands out is the growth rate. Earnings are up a solid 8.5% year over year.
So far in Q2, a solid 61% of companies have beaten expectations on the top line. That’s well above the Q4 average of 55%, and growth has been pretty decent too with revenues up 4.5%.
Positive revenue and earnings surprises are great. However, if management guidance is weak and/or if analysts revise their earnings estimates lower, a stock can still get punished with negative revisions after a good quarter, which is the case for many stocks this earnings season.
The Triple Play
Overall, estimates for S&P 500 total earnings in the third quarter have trended lower as earnings season has progressed. At the start of the quarter, the consensus predicted 6.3% total earnings growth for Q3. Since then, the expectation has dropped to 4.2%. However, the magnitude of these negative revisions is actually a notable improvement from what we have seen in recent quarters.
Earnings and revenue beats simply are not enough to be strong stocks to buy. The true winners from earnings season are those who can deliver the coveted “Triple Play”: A positive earnings surprise, positive revenue surprise, and significant positive earnings estimate revisions.
So which companies have delivered the coveted “Triple Play” this earnings season? I ran a screen in Research Wizard, and here are four of the resulting stocks to buy: