Earnings season has a history of delivering epic overnight gains and losses and the current quarter has been no exception. Today’s leaderboard is teeming with companies flying higher after dazzling the Street with better-than-expected numbers. A handful of the biggest gainers should be considered top stocks to buy.
Many traders entered earnings season with a great deal of trepidation. As the first quarterly report since the novel coronavirus outbreak, investors were eager to see just how bad the economic fallout has been for corporate profits. With the lion’s share of S&P 500 companies now reported, it’s fair to say the market has been pleased by the numbers, particularly in the tech sector.
I’m putting today’s picks up as poster children for the best earnings reactions. They’re up anywhere from 15% to 41%.
Let’s take a closer look at what could be today’s best stocks to buy.
3 Stocks to Buy with Monster Post-Earnings Gains: Twilio (TWLO)
The gains in TWLO stock on May 6, the day after the company trounced earnings, are stunning. At Wednesday morning’s peak, the San Francisco-based cloud communications company saw its share price top $175, after gaining 41% on the session. Consider that at the depths of March’s market crash, TWLO was at $68!
This week’s rocketship rise was brought to you courtesy of an earnings report that handily beat estimates. For the first quarter, Twilio saw earnings per share rise to 6 cents on revenue of $364.9 million. Analysts were forecasting a loss of 11 cents on $331.3 million in sales.
The company announced its number of active customer accounts had risen to 190,000 and further said its services were well-positioned for the current environment. If you view the entire report through the lens of the market’s response (which you should), there’s no denying this was a blockbuster quarter.
From a charting perspective, TWLO is now in record territory with every bullish indicator flashing green. So you have two choices. Climb aboard now and play the momentum, or wait for a pause or pullback to digest today’s monster gain. I like call spreads if you’re willing to enter now.
The Trade: Buy the July $180/$190 bull call spread for $3.50.
Lyft (LYFT)
Lyft stock was demolished in March on understandable fears the company was ill-positioned to weather new social distancing trends. But given May 6’s 21% jump in response to earnings, however, it appears the market oversold in the pandemic panic.
For the first quarter, the on-demand transportation provider raked in sales of $955.7 million but ultimately lost $1.31 per share. With those gains, LYFT stock is back above both its 20-day and 50-day moving averages and has invalidated the support break, which we saw earlier in the week.
But given the stock still has multiple resistance zones to contend with, I don’t like aggressive bullish trades here. I’d rather capitalize on its low share price and my now neutral-to-slightly-bullish bias by selling naked puts.
The Trade: If you think the stock is unlikely to lose today’s gains, then sell the June $22.50 put for around 65 cents. Consider it a bet that LYFT remains above $22.50 for the next month.
Peloton (PTON)
Shutter all gyms across the nation and what do you get? A banner quarter for Peloton.
The New York-based company provides fitness equipment and subscriptions to live-streaming and on-demand video classes. Its audience of potential customers naturally exploded in response to the flurry of stay-at-home orders across the nation.
Sales for the quarter soared 66% to $524.6 million, while earnings per share came in at a loss of 20 cents. Peloton’s spinning bike sales grew by 61% year over year, and subscription revenue was up 92% compared to a year ago.
PTON stock rallied as much as 18% to a record high, in a continuation of the uptrend that began mid-March. Perhaps the most impressive thing on its chart is the consistent accumulation of volume over the past two months. High volume up days have cropped up again and again to show big buyers wading into the waters.
While the price could use some backing-and-filling after today’s moonshot, this is a stock to buy when a low-risk entry presents itself. If you don’t want to wait for a pullback, then at least consider using a high probability trade like bull puts. That way, you have a wide profit zone if profit-taking strikes the shares.
The Trade: Sell the June $35/$30 bull put spread for around 90 cents.
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