It’s finally here: earnings season.
And while positioning through the event can lead to above-average and quicker returns, it can also be very risky business. That’s especially relevant in today’s “priced-for-perfection” market environment. So, to better guard against those risks, let’s look at three recent earnings beats — also backed by price action and charts — that are worthy of stronger risk-adjusted positioning.
Overall, the reality of how a stock reacts to earnings — even an earnings beat — is a crapshoot at best. When it comes to quarterly reports, one plus one often leads to an answer other than two. And if the market is always right, it simply doesn’t matter if your calculator, spreadsheets and charts are telling you something different.
The bottom line, and more than ever, is that being selective and investing in stronger risk-adjusted situations matters. It’s time to be patient and wait on companies that deliver the quarterly goods, enjoy investor support and only buy stocks with price charts that don’t look like a bull on its last legs.
So, let’s take a closer look.
Earnings Beats to Buy: IBM (IBM)
IBM (NYSE:IBM) is the first of our earnings beats to buy. The blue-chip tech outfit didn’t blast Street estimates, and sales were largely flat year-over-year. However, the company’s high-value mix, productivity, improved gross margins and strong free cash flow still make it a name to consider.
Additionally, there’s other reasons to like IBM stock in today’s market. The company delivered surprisingly strong numbers, which suggest a bullish mainframe cycle is just underway. There’s also an above-the-market, and well-supported dividend payout of around 4.5% to consider with this earnings beat.
Lastly, Wall Street was on board with the IBM’s results. And technically, a very large and constructive double-bottom looks ready to clear angular resistance and the 62% retracement level after confirming an uptrend off 2019’s bottom.
Overall, this earnings beat is a buy on a modified breakout above $145. I’d suggest a stop-loss below $134, as that’s sensible on the wallet and the price chart. On the upside, taking partial profits near $170 and pattern highs is an equally smart business decision.
Logitech (NASDAQ:LOGI) is our next earnings beat to buy. The Swiss-based computer hardware giant topped consensus views on the back of solid demand for the company’s gaming gear, PC peripherals and video-conferencing products.
The report showed LOGI stock is clearing tough 2018 comps tied to that year’s Fortnite frenzy. What’s more, sales of simulation gear are growing strongly for Logitech — and its recent Streamlabs acquisition puts the company in the center of the increasingly popular live-streaming market.
Investors have been hitting the buy button on their gaming consoles this week, and now it’s time to join them.
Technically, shares of this earnings beat have just cleared a corrective cup-shaped base to new all-time-highs. I’d set a price target of $60 based on a conservative measured move out of the pattern. And to ensure protection against larger potential losses, an exit below $46 would be a no-brainer.
Netflix (NASDAQ:NFLX) is the last of our earnings beats to buy, as the report wasn’t without its flaws. Furthermore, disappointing guidance, slower-than-expected subscriber growth in Netflix’s North American market and competition fears helped bears and profit-takers put together a decline of about 4% in the immediate aftermath. But, at the end of day — literally and figuratively — things are looking up for NFLX stock.
The fact of the matter is the subscription video on demand (SVOD) giant surpassed earnings and sales forecasts in the face of new streaming platforms rolled out by Disney (NYSE:DIS) and Apple (NASDAQ:AAPL). Moreover, global gains are where NFLX stock’s future growth lies. And the company continues to deliver, demonstrating its value-add proposition for its subscribers over the competition.
Technically speaking, this earnings beat is also looking up. Aside from investors backing away from their initial impression of the report, NFLX stock has formed a solid-looking weekly hammer candlestick. With the pattern well-positioned to clear channel and 62% resistance within Netflix’s larger W-base structure, a momentum entry looks increasingly attractive.
For positioning in Netflix stock, I’d suggest buying on strength as shares breakout above $360. Look to take some risk off the table in-between $400-$425 for obvious reasons. And with the week coming to a close and investors showing their hand, a stop-loss below $334 looks like sufficient leeway off and on the price chart for this earnings beat.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.