After a rocky start to July, the stock market found its footing last week. The S&P 500 and Dow gained more than 2% and the NASDAQ jumped more than 3%.
The strength was due to two catalysts: positive inflation data and the beginning of the second-quarter earnings season.
As I discussed in last Thursday’s Market 360, inflation cooled on both the consumer and wholesale levels in June. So much so that the Consumer Price Index (CPI) is now running at the slowest pace since March 2021. The core CPI, which excludes food and energy, is now running at the lowest pace since October 2021. The Producer Price Index (PPI) rose 0.1% in the past 12 months, which is the slowest annual pace in almost three years (since August 2020).
The second-quarter earnings announcement season also kicked off on Friday with three of the big banks – Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Wells Fargo & Company (WFC) – and all three exceeded earnings expectations. (Click here to check out my full review of their earnings results.)
I should also add that Bank of America (BAC), which announced its second-quarter earnings results this morning, also beat analysts’ estimates for the top and bottom lines. The bank reported earnings of $0.88 per share on revenue of $25.2 billion. This compares to earnings of $0.73 per share and revenue of $22.7 billion in the same quarter a year ago. Analysts were calling for earnings of $0.84 per share and revenue of $25.02 billion.
All in all, I expect the second-quarter earnings season to be a strong one, and FactSet concurs.
Early earnings season results show that 80% of companies have topped analysts’ earnings estimates so far. That’s nicely higher than the 10-year average of 73%. And the average earnings surprise is 8.8%. I suspect as the second-quarter earnings announcement season heats up in the coming weeks, we’ll see even more positive earnings surprises and positive analyst revisions for the third and fourth quarters (as well as into 2024).
And based on stocks’ post-earnings moves, earnings are working. For example, shares of JPM, WFC and BAC rallied higher in the wake of their better-than-expected earnings results. C shares slipped lower, which isn’t surprising given that its earnings and revenue are still down from a year ago (despite topping analysts’ expectations).
So, if you want your portfolio to prosper this earnings season, then you’ll want to stay away from stocks with weak fundamentals.
This Week’s Ratings Changes
In preparation for earnings season, I took a closer look at the latest data on institutional buying pressure and each company’s fundamental health and decided to revise my Portfolio Grader recommendations for 69 big blue chips.
Thirty-two stocks were downgraded over the weekend. I’ve listed the first 10 stocks that were downgraded to a D-rating, or “Sell,” but you can find the full list – including the stocks’ Fundamental and Quantitative Grades – here. 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 |
|---|---|---|
| C | Citigroup Inc. | D |
| COF | Capital One Financial Corp | D |
| COST | Costco Wholesale Corporation | D |
| FMC | FMC Corporation | D |
| FTS | Fortis Inc. | D |
| GLW | Corning Inc | D |
| J | Jacobs Solutions Inc. | D |
| KMX | CarMax, Inc. | D |
| LUV | Southwest Airlines Co. | D |
| MU | Micron Technology, Inc. | D |
“Lock and Load” for Earnings Season
Right now, your best bet for profits is in fundamentally superior stocks. If you’re not sure where to look, then consider Growth Investor. My Growth Investor stocks are “locked and loaded” for the second-quarter earnings announcement season, as my average Growth Investor stock is expected to achieve at least 100% annual growth.
So, I fully expect my Growth Investor stocks to break out as market leaders. The fact is investors’ focus is shifting to stocks that post the strongest earnings and provide positive guidance – and my Growth Investor stocks fit the bill.
Become a member of Growth Investor today and gain full access to my Growth Investor Buy Lists, as well as all my Monthly Issues, Weekly Updates and Special Market Podcasts. I’ll also send you four special reports – 3 Stocks Powering the $150 Trillion AI Revolution, 3 Tiny AI Stocks that Can 10X Your Money, Portfolio Destroyers: 10 Ticking Time Bombs to Sell Now and Top 5 “Superstar Stocks” for 2023 – as soon as you join.
Click here to join me at Growth Investor today.
(If you are already a Growth Investor subscriber, you can log in here.)
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:
Costco Wholesale Corporation (COST)
