How the Big Banks’ Earnings Stack Up This Quarter

In case you haven’t heard me say it yet — we’re on track for a stunning third-quarter earnings season.

Image of a grey cityscape with a large corporate building that features the word bank on it
Source: Shutterstock

That might not come through a lot of the doom and gloom making up the headlines lately. Yes, the market dipped in recent days over rising COVID-19 cases in Europe and the ensuing lockdown in major cities like Paris, as well as rising jobless claims at home and the need for a new stimulus.

It’s why I’m staying focused on the best opportunities in fundamentally superior stocks that are thriving in the “new reality.”

The latest earnings prediction from FactSet is that third-quarter earnings will decline 20.5%, which is up from a previous forecast for a 25.3% drop. I should add that 46 of the 69 S&P 500 companies that have provided third-quarter guidance offered positive earnings guidance. Early results have been promising: 20 of the 22 S&P 500 companies that have announced results topped analysts’ earnings estimates.

I expect most companies will leap over the low earnings bar that analysts have set. With that in mind, let’s take a look at some of the big financial companies that reported last week.

JPMorgan Chase (NYSE:JPM) climbed higher earlier in the week thanks to its better-than-expected earnings report on Monday, though the stock has moved sideways since. Shares of Citigroup (NYSE:C), Bank of America (NYSE:BAC) and Wells Fargo & Company (NYSE:WFC) all slid after they announced decreasing third-quarter earnings growth this week.

As you can see in the chart above, except for JPMorgan Chase, year-over-year earnings dropped in a big way for these big banks.

JPMorgan Chase beat Wall Street’s estimates on the top and bottom lines. Earnings per share of $2.92 beat consensus estimates for $2.23, while revenue of $29.94 billion beat estimates by roughly $1.5 billion.

The big bank also set aside $611 million to provide for loan defaults related to the pandemic — a significant decline from the $10.5 billion it saved for defaults in the prior quarter.

Bank officials noted the U.S. economy appeared better off than previously estimated and expects a smaller contraction in GDP over the coming three quarters than before.

The company’s trading division shined in the third quarter, with revenue of $6.6 billion increasing 20%, year-over-year, and beating estimates by $400 million.

Prior to earnings, my Portfolio Grader flagged the slowing growth for the big banks, bringing their ratings down to either a Sell or, in the case of Wells Fargo, a “Strong Sell.” As you can see below, when you add it all up the overall Total Portfolio Grade earns a D-rating. If you want to have a successful portfolio, these stocks should not be on your buy list.

And they’re a good illustration of why increasing earnings and sales growth, as well as positive fourth-quarter guidance, will be critical for a company’s success in this third-quarter earnings season.

I don’t own financial stocks and banks like this, and all I can tell you is a flat Treasury yield curve like the one we’re in now is not good for financials and banks.

This is why I don’t really care these stocks had mixed results last week.

I do care, however, when earnings announcements start to heat up big-time this week, that the stocks across my portfolios respond positively, which I expect they will.

In fact, recent pullbacks in the market present an excellent opportunity to snap up shares in stocks with superior fundamentals.

Luckily, for my Platinum Growth Club subscribers, my Model Portfolio is chock full of fundamentally superior stocks that fit this bill to a “T.” The reality is that over the next few weeks it’s going to be very important to be invested in the fundamentally superior stocks.

SolarEdge Technologies, Inc. (NASDAQ:SEDG) is a good example of what I’m looking for. SEDG is a solar energy company that invented the DC optimized inverter solution. This invention changed the way power is collected and managed in solar PV systems. Its solution maximizes power generation, while, at the same time, lowers costs.

Even though the company faced “challenges caused by COVID-19” during the quarter, customers in Europe and Australia helped offset some of the diminished demand in the U.S. And the company expects business to continue to improve in the third quarter.

The reality is that SolarEdge Technologies’ home battery pack systems are in top demand in California due to the extreme heat and rolling blackouts recently. The company’s home battery pack systems provide uninterrupted electricity.

So, it should come as no surprise that analysts have revised their yearly earnings estimates for the company — 72.7% higher in the past three months, while revenue is expected to increase more than 3% from the prior quarter, to be exact. Currently, analysts are expecting earnings of $0.85 per share on $342.4 million in revenue.

The company also earns an A-rating in Portfolio Grader, making it a “Strong Buy” right now.

The stock has taken off in the past month and is up over 22% since it entered my Platinum Growth Club’s Model Portfolio on October 1 — just 16 days ago!

My Platinum Growth Club stocks are locked and loaded for what’s to come. Analysts estimate sales for my stocks will be up an average of over 30%, with average earnings growth pushing 70%.

Earnings reports for my Model Portfolio stocks will be coming in fast and furious over the next few weeks. And I expect their solid results to dropkick the companies’ stocks and drive them higher. If you want to get in before the stocks take off and get the most bang for your buck, now is the time to join.

Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

SolarEdge Technologies, Inc. (SEDG), JPMorgan Chase (JPM), Bank of America (BAC) 

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation

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