The first-quarter earnings announcement season is officially underway – and it’s been an interesting start so far.
At the beginning of earnings season, big financial institutions and regional banks have dominated the earnings releases, and the results have shocked a lot of investors, as most financials have topped estimates.
Bank of America Corp. (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) all exceeded analysts’ earnings expectations for the first quarter. The Goldman Sachs Group Inc. (GS) posted mixed results, beating earnings estimates but missing revenue forecasts. And while Morgan Stanley (MS) reported better-than-expected earnings, it experienced a 20% drop in earnings due to a slump in mergers and acquisition activity.
As a result, Wall Street’s reaction to earnings data was a bit muted last week. All of the major indices ended the week slightly lower, with the S&P 500 and the Dow down 0.1% and 0.2%, respectively.
This week, several of the big tech stocks took the earnings stage – Alphabet Inc. (GOOG), Amazon.com (AMZN), Meta Platforms, Inc. (META) and Microsoft Corporation (MSFT) – and their quarterly numbers were mostly celebrated. (I’ll review their earnings results in Saturday’s Market 360, so keep an eye on your inbox for that!)
Overall, the broader market is oscillating, but the good news is that earnings winners have been rewarded.
In today’s Market 360, we’ll discuss what you can expect from the first-quarter 2023 earnings season and how you can best make sure your portfolio is “locked and loaded” to profit it from it…
Earnings Kick Into High Gear
FactSet recently reported that S&P 500 companies that have posted a positive earnings surprise have experienced an average rise of 2.2% in the two days prior to the release through the two days following the earnings report.
You know what that means: Earnings are working!
I’ve seen that firsthand with our Growth Investor stocks already this earnings season.
Case in point: Lockheed Martin (LMT) bested analysts’ earnings estimates by 6%, and its shares rallied nicely higher last Tuesday.
Another example: Lamb Weston Holdings, Inc. (LW) crushed earnings expectations by 44% earlier this month, and the stock has rallied about 6% higher in the past three weeks.
And today, KLA Corporation (KLAC) jumped more than 6% after topping analysts’ estimates by 7%.
Needless to say, I’m very pleased with the strong start that my Buy List stocks have had to the first-quarter earnings season – and I fully expect wave-after-wave of positive earnings surprises to continue to drive my stocks higher.
And the best part? First-quarter earnings season is just starting to heat up, with only about 20% of my stocks through earnings season right now.
While we wait for companies to release their results, the best way to position yourself is to “buy the dip” on fundamentally superior stocks.
“Buy the Dip” Works
As reported by our friends at Bespoke, in 2023, the “buy the dip” mentality has returned in a big way.
The SPDR S&P 500 ETF Trust (SPY) – which tracks the S&P 500 index – has averaged a gain of 0.30% on the day after down days. Meanwhile, after an up day, SPY has averaged a small decline of 0.04%.
Bespoke even dove a little deeper and found some surprising results.
Going back to 1993 when SPY began trading, nearly all of its gains have come from owning it on the day after down days (as opposed to the day after up days). Below is a hypothetical chart showing the cumulative performance of only owning SPY on the day after down days versus only owning SPY on the day after up (or exactly flat) days. Only owning after down days results in a gain of roughly 740%, while only owning after up days results in a gain of roughly 10%.
While data doesn’t take into account trading costs and commission fees, the results are clear.
“Buying the dip” could greatly increase your profits over the long term.
And that’s exactly what I recommend my Growth Investor readers do – “buy the dip” on fundamentally superior stocks that consistently produce stellar earnings.
“Locked and Loaded” for Earnings Season
Right now my Growth Investor Buy List is “locked and loaded” for the first-quarter announcement season.
My average Growth Investor stock is characterized by an 18.4% average annual sales growth and a 241.6% earnings growth, even though they trade at only 10.9 times median trailing earnings.
So, I am anticipating wave after wave of better-than-expected earnings announcements and positive guidance to dropkick and drive my Growth Investor stocks higher.
Furthermore, with an average dividend yield of 3.84% and a 178.1% dividend growth in the past year, my Growth Investor stocks are much safer and less volatile than the overall stock market.
As always, our best defense remains a strong offense of fundamentally superior stocks!
Tomorrow, I’m releasing the May issue of Growth Investor to my readers. In the issue, I will detail three new buy recommendations that will further position my readers to prosper this earnings season and beyond. Plus, I will also release my latest Top Stocks lists.
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:
Lockheed Martin (LMT), Lamb Weston Holdings, Inc. (LW), KLA Corporation (KLAC), Microsoft Corporation (MSFT), Meta Platforms, Inc. (META), Alphabet Inc. (GOOG), JPMorgan Chase & Co. (JPM), and Bank of America Corp. (BAC)