Right now, there is a lot of noise that is affecting the direction of stocks. For example, last week’s slew of economic data that confirmed inflation is still very much alive and kicking.
(You can find a full review of last week’s numbers here.)
As I said last week, inflation has declined for seven straight months, but the rate of decline is starting to level off, and that’s disappointing. It means inflation could remain at elevated levels for longer than we hoped.
This gives the Federal Reserve more reason to continue raising key interest rates to curb inflation – which is exactly what they confirmed yesterday with the latest Federal Open Market Committee (FOMC) meeting minutes.
As reported by CNBC:
Federal Reserve officials at their most recent meeting indicated that there are signs inflation is coming down, but not enough to counter the need for more interest rate increases…
Inflation “remained well above” the Fed’s 2% target, the minutes stated. That came with labor markets that “remained very tight, contributing to continuing upward pressures on wages and prices.”
The minutes confirmed that the Federal Reserve intends to continue rate hikes to fight inflation, with a 25 basis-point hike expected in March.
As we’ve discussed, I don’t trust a lot of the economic data for January. January is the biggest month for seasonal adjustments, and I anticipate we’ll see big revisions to the January payroll and retail sales reports in the upcoming months.
But the fact is, right now the markets are still very sensitive to every economic headline.
However, there is an even more important catalyst that can impact stocks. So, in today’s Market 360, I’ll reveal what that catalyst is… and how you can capitalize on it.
It All Comes Down to Earnings
Earnings remain an important catalyst for the stock market…
Stocks that post stunning quarterly results and guide higher are being rewarded. Even companies that missed analysts’ earnings estimates but announced spectacular results have seen their shares soar higher.
You can look no further than my Growth Investor Buy List company Quanta Services, Inc. (NASDAQ:PWR) as an example.
PWR surged more than 13% to a new 52-week high today, thanks to better-than-expected quarterly and yearly results. For the fourth quarter, the company reported adjusted earnings of $1.68 per share and revenue of $4.42 billion. That topped analysts’ estimates for fourth-quarter earnings of $1.60 per share on $4.28 billion in revenue.
Full-year adjusted earnings came in at $6.34 per share and revenue was $17.07 billion, which also exceeded expectations for adjusted earnings of $6.32 per share and revenue of $16.93 billion.
In addition, company management noted that the fourth-quarter and full-year results were both new records for the company.
The reality is that earnings are the key to success in a narrower market environment, as institutional and individual investors alike are growing more fundamentally focused.
The good news is that the fourth quarter should represent the trough for the S&P 500’s earnings, even though the S&P 500 is still expected to post negative earnings growth in the first two quarters of 2023.
As the earnings season draws to a close, I expect the major indices will continue to oscillate more and more.
But I don’t want you to worry.
It’s normal for there to be a bit of volatility in the wake of a quarterly earnings season – and we’ll likely see stocks that rallied strongly post-earnings consolidate these gains in the upcoming weeks.
Invest In Fundamentally Strong Companies
If you continue to invest in fundamentally strong companies, you will come out on top in the long run.
My Growth Investor High-Growth Investments Buy List is up about 9% year-to-date, and my Elite Dividend Payers Buy List has rallied more than 4% so far this year. Compare that to the S&P 500’s 4% increase and the Dow’s 0.2% decline this year (as of this writing).
Much of the strength that my Buy List stocks have exhibited in the past seven weeks can be attributed to earnings.
Currently, my Growth Investor stocks are characterized by 38.9% average annual sales growth and 283.8% average annual earnings growth. My Buy List is now trading at only 7.6 times median trailing earnings.
Due to low price-to-earnings (P/E) ratios, strong dividend growth as well as strong sales and earnings growth, I expect that my stocks will be very resilient in the upcoming months.
The fact is, my Growth Investor stocks, have achieved wave-after-wave of double-digit earnings growth. In fact, even some of the companies that missed earnings estimates still achieved double- or even triple-digit earnings growth.
Tomorrow, I’m releasing the March issue of Growth Investor, where I’ll detail two new buy recommendations with stunning fundamentals.
I’m confident my Growth Investor stocks are the crème de la crème, and that they should continue to emerge as market leaders. This is especially true as investors grow even more fundamentally focused in the final weeks of earnings season.
Sincerely,
Louis Navellier
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:
Quanta Services, Inc. (PWR)
