Buy These 3 Stocks on Any Earnings Dip

by James Brumley | September 9, 2013 8:09 am

buy sell[1]Have you ever felt the urge to buy into a stock after a poor earnings report crushed it, but couldn’t shake the feeling you were trying to catch a falling knife?

You’re not alone.

As scary as owning a stock through an earnings report can be, it’s not much easier stepping into one immediately after disappointing earnings news — plenty of stocks have established a “from bad to worse” situation following poor quarterly results, after more and more investors had time to digest the numbers and conclude the worst about a company.

On the flip side, there are plenty of stocks that suffer earnings-based hits, only to rebound and move on to higher highs once the dust settles. These are companies that, regardless of the response to one quarter’s earnings, have more going for them than against them, which means the big selloff after earnings is a prime buying opportunity.

Great, but how’s an investor supposed to figure out which companies are part of the latter group? One only has to look back at a stock’s post-earnings history. Sooner than later, their charts recover, reflecting the bigger earnings growth trend rather than one earnings miss. In fact, three stocks stand out above the rest when it comes to shrugging off post-earnings pullbacks and sustaining a march to new highs:

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It’s a relatively young publicly traded company, but SodaStream (SODA[3]) has already established itself as a name that can shrug off an earnings-prompted pullback and come back stronger then ever.

Not that it happens a lot, or extensively. SodaStream has only missed estimates twice since its 2010 IPO, and although we saw a little weakness following the August 2012 and the February 2013 earnings misses, the following quarters’ earnings beats more than made up for it. Shares rallied more than 50% once earnings were posted again in November 2012, and they jumped 33% when SodaStream topped estimates in May of this year.

Point being, Sodastream rarely misses, and when it has, it doesn’t take the company — or the stock — long to get back on track.

SodaStream should post its current quarter’s numbers in early November.

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Like it or not, there’s no way to deny that Google (GOOG[4]) is part of nearly everyone’s social and technological landscape. Whether it be phones or tablets or search engines or television or whatever Google Glass ends up becoming, Google is a permanent fixture with a lengthening history of capitalizing on its everywhereness.

Bet against it at your own risk — the people who have bet against it of late following disappointing earnings reports have been burned for doing so.

Three of the past four earnings misses led to big drops that were eventually erased … two of them beginning within just a few weeks. The January 2012 pullback was reversed two weeks later, and that rebound didn’t stop until shares had gained 12% by eight weeks later. The October 2012 initial plunge of 8% turned into a 13% plunge within a few weeks, but by March of this year, shares had advanced 28%. The earnings-based dip from July of this year has finally started to turn around as well.

Google’s next earnings report is slated for release on Oct. 17.

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First and foremost, kudos to Qualcomm (QCOM[5]) for topping estimates in 14 of its past 15 quarters, and for growing its top line so well after digging itself out of 2010’s stumble. And for what it’s worth, most of the post-earnings responses have been bullish rather than bearish. Even the three initially bearish responses (July 2011, April 2012 and April 2013), however, were short-lived pullbacks. Qualcomm shares clearly are in a long-term uptrend, and even knocking on the door of new all-time highs.

The secret of Qualcomm’s success? It makes much of the underlying technology (aka “the guts”) used in several brands of smartphones, so it doesn’t really care who’s winning the smartphone war. The thing is, the company is so well entrenched into current smartphone designs, manufacturers are going to continue tapping the company indefinitely.

Look for Qualcomm to post its next quarterly update sometime in early November.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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