The stock market has rallied nicely higher these past two days as investors refocus on the third-quarter earnings season, which, I might add, has gotten off to a strong start. According to FactSet, of the S&P 500 companies that have released their latest quarterly results so far, 69% have posted earnings surprises and 67% have announced revenue surprises.
The even better news is that earnings are working. For example, Goldman Sachs (GS) jumped more than 4% in early trading following its better-than-expected earnings and revenue for its third quarter this morning. Meanwhile, Johnson & Johnson (JNJ) pulled back after lowering its full-year 2022 guidance.
Now, as Wall Street returns its attention back to fundamentals, it’s critical to be invested in companies that boast superior fundamentals. I’m talking about the ones that continue to grow their earnings and sales and announce positive forward-looking guidance.
The fact of the matter is fundamentally superior companies will likely be rewarded for their strong earnings and guidance, while companies with weakening fundamentals will likely be punished. In other words, positive earnings reports should dropkick and drive a company’s stock higher, while negative reports should drive a company’s stock lower.
So, how can you find these fundamentally superior companies?
A great place to start is with my Portfolio Grader tool.
When it comes to finding market-beating stocks on Wall Street, there are two critical characteristics at the center of my stock analysis. The first is strong fundamentals – sales growth, earnings growth and the like. The second characteristic you’ll find in any great stock is strong institutional buying pressure. The more shares institutions snap up, the higher the shares will rise. The same is true if an institution starts selling; buying pressure dwindles and the share price drops.
I take these characteristics and boil them down into two grades: Fundamental and Quantitative (institutional buying pressure). I then blend these two grades together, and that gives me a Total Grade. I consider a stock with an A- or B-rating a Buy, a C-rating a Hold, and a D- or F-rating a Sell.
I should add that of these two grades, the Quantitative Grade carries more weight (it accounts for 70% of the Total Grade). An example of this is Chewy, Inc. (CHWY), which held a B-rating for its Quantitative Grade last week and a B-rating for its Total Grade. However, when the stock’s Quantitative Grade slipped to a C-rating over the weekend, its Total Grade slipped to a C-rating, too.
And Chewy isn’t the only stock that saw its Total Grade drop recently. After taking a close look at the latest data on institutional buying pressure and each company’s fundamental health in Portfolio Grader on 77 blue chip stocks over the weekend, 36 stocks were downgraded from a Buy to a Hold and another 17 stocks were downgraded from a Hold to a Sell.
I’ve included the first 10 stocks that were downgraded from a Buy to a Hold below, but you can click here to find the full list of 77 stocks – including their Fundamental Grade and Quantitative Grade. Chances are that you have at least one of these stocks in your portfolio, so you may want to give this list a skim and act accordingly.
|Ticker||Company Name||Total Grade|
|ADI||Analog Devices, Inc.||C|
|ALNY||Alnylam Pharmaceuticals, Inc||C|
|AMX||America Movil SAB de CV Sponsored ADR Class L||C|
|APD||Air Products and Chemicals, Inc.||C|
|BEKE||KE Holdings, Inc. Sponsored ADR Class A||C|
|BR||Broadridge Financial Solutions, Inc.||C|
|CHWY||Chewy, Inc. Class A||C|
|CP||Canadian Pacific Railway Limited||C|
|CSGP||CoStar Group, Inc.||C|
|DEO||Diageo plc Sponsored ADR||C|
Now, with the third-quarter earnings season kicking off, it’s especially important you adjust your portfolio to make sure that you’re invested in fundamentally superior companies – companies with strong sales and earnings growth and positive outlooks. With growth getting harder to find, these will be the go-to names for investors once earnings season gets underway.
While the Portfolio Grader can be a helpful starting point, if you want to invest in the best stocks, then you’ll want to consider my Growth Investor Buy Lists, which are chock-full of high-quality stocks that are becoming go-to names for investors.
Case in point: Lockheed Martin Corporation (LMT).
Lockheed Martin exceeded analysts’ top- and bottom-line estimates for its third quarter on Tuesday morning. The defense contractor reported third-quarter earnings of $1.8 billion, or $6.71 per share, which was up 193.2% from $614 million, or $2.21 per share, in the same quarter a year ago. Sales rose 3.8% year-over-year to $16.6 billion. The consensus estimate called for earnings of $6.67 per share on $16.65 billion in sales.
Thanks to continuing sales and demand for its F-35 fighter jet, Lockheed Martin reiterated its guidance for fiscal year 2022. It still anticipates full-year sales of $65.25 billion and earnings of $21.55 per share.
LMT shares surged more than 9% this afternoon to trade back at levels it hasn’t seen since late August, and I fully expect this momentum to continue now that the company’s earnings results have shown that LMT’s fundamentals have real staying power.
Click here to become a Growth Investor member today and take advantage of all my service has to offer, including new recommendations, Weekly Updates, Monthly Issues, Special Reports, Special Market Podcasts and much more!
P.S. There is a great divide opening up in America – and investing in my Growth Investor stocks will help get you on the right side of it. On one side is a new aristocracy that’s amassing more wealth more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.
On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.
What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.
Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.
It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns 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:
Broadridge Financial Solutions, Inc. (BR)