The stock market typically grows bumpy in the late summer as the second-quarter earnings season winds down.
The fact is I believe any dip in my fundamentally superior Accelerated Profits stocks is a good buying opportunity – and based on recent action, I’m not the only one.
Our friends at Bespoke recently pointed out that the bull/bear spread has dropped below 20% for only the fifth time since 1990. When the bull/bear has dropped below 20% before, the S&P 500 went on to post median returns of 2.7% in the following month, 9.19% in the next three months, 14.73% in the following six months, and 20.37% a year out.
This is a very bullish signal. So, while there may be some short-term volatility, stocks are headed higher long term.
In the near term, earnings are working. In other words, companies are beating estimates and that’s propelling their stock higher; and companies that miss expectations are falling.
A couple of weeks ago we highlighted this with Elon Musk’s Tesla, Inc. (NASDAQ:TSLA) after the electric car maker posted better-than-expected earnings.
Tesla reported earnings per share of $2.27, a 57% increase year-over-year, and revenue of $16.9 billion, a 42% increase from last year. Free cash flow rose above estimates of $500 million, to $619 million.
While some China related supply chain issues were noted, all in TSLA impressed analysts. And the stock popped 10% the next day.
At the same time, my Portfolio Grader system was flashing a buy with Tesla spotting an A grade. Had you been following along you might have picked up shares before the big pop.
In today’s Market360, we are going to look at three companies’ earnings that were recently upgraded in Portfolio Grader and see whether it’s time to buy.
Humana, Inc. (NYSE:HUM) – Grade B
Humana saw one of the biggest upgrades this week, going from a D-rating (Sell) to a B-rating (Buy).
The company reported second-quarter earnings last Wednesday that crushed estimates. Humana reported earnings per share of $8.67, up 26% year-over-year, and $1 above analyst estimates. Revenue jumped 15% year-over-year to $27.72 billion, ahead of estimates for revenue of $23.47 billion.
The company also raised guidance for the year to earnings per share from $24.50 to $24.75. Analysts were expecting earnings per share of $24.65.
As reported by Investor.com:
The company said that lower utilization among its Medicare Advantage members and lack of Covid headwinds to earnings fueled the earnings beat and guidance raise. However, management said guidance assumes that Covid will become a bigger issue in the fall and a 50-cent EPS drag. Humana also plans to use part of its Q2 windfall to boost marketing outlays for Medicare Advantage.
The day following the report, Humana closed up a little over 1%. And over the weekend, Portfolio Grader upped its ranking to a Buy.
Graco, Inc. (NYSE:GGG) – Grade C
Next up we have American manufacturer Graco. The company went from a D-rating (Sell) last week to a C-rating (Hold) over the weekend.
Last Wednesday the company reported second-quarter earnings for its fiscal year 2022. Graco reported earnings per share of $0.68, above analyst expectations for $0.67. The company’s revenue rose 8.1% year-over-year to $548.5 million.
Following the company’s earnings beat, Graco shares rose almost 3% the following trading day.
While it’s not time to buy shares of GGG, it’s definitely worth watching as we head into the third quarter.
Thermo Fisher Scientific, Inc. (NYSE:TMO) – Grade B
Last up is Thermo Fisher. The company was upgraded to a B-rating (Buy) from a C-rating (Hold) last week.
A week ago, the company topped analyst estimates of second-quarter earnings. Thermo Fisher posted revenue of $10.09 billion, up 18% year-over-year and above the $9.84 billion expected. The company also reported earnings per share of $5.51, exceeding the estimate for earnings of $4.92 per share.
Thermo Fisher Chairman and Chief Executive Officer Marc Casper also raised 2022 full-year revenue forecast by $750 million, a 10% increase over 2021 revenue.
While the company continues to face headwinds from the COVID-19 lockdown in China, amongst other things, Casper said during the earnings call, “We will manage through whatever the world throws at us.”
Shares of TMO rose almost 6% Thursday on the news.
This week, Portfolio Grader raised TMO from a hold to a buy.
Trust the System
The fact is, folks, earnings are working; buy companies with growing revenues and strong reports and you will be rewarded.
We just have to be patient through the last month of the summer… arguably my least favorite month of the year.
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Louis Navellier, Market 360