Hello, Reader.
When you were a kid, you probably heard your parents throwing around terms like “tax return,” “mortgage,” or “balance the checkbook.” You knew these things were important, but you didn’t really know why.
That’s what earnings season can feel like for newer investors – and it can be especially confusing when companies that report good earnings wind up taking a hit to their share price.
What’s important to remember is that even if stocks do suffer a pullback, this does not detract from their long-term value and potential. While the market can overreact to certain reports, that doesn’t always mean that you’ve made a bad investment.
In fact, a couple of so-so – or even downright bad – earnings reports from otherwise solid companies or sectors can create buying opportunities.
Like the one we want to tell you about today…
But with earnings season in full swing, we do have some things to look forward to…
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Why You Should Pay Attention to Earnings
For beginning investors, earnings season can be confusing. Many traders are inclined to jump ship when their stocks report less-than-stellar earnings.
But it’s important to remember that each earnings season is a period of three months. For most investors, one season does not provide enough data on which to base major moves. It’s only one piece of a bigger puzzle.
Earnings roughly translate to profits, obviously, but holistically, they are “report cards” that contain a lot of data about the company’s current fiscal health. That’s useful info. But more importantly, they tell us a lot about the potential for future profits.
If you have a diversified portfolio with a wide array of stocks from different sectors, then you’ll find yourself catching up with earnings reports more often than not. It depends on their fiscal year, which usually follows the calendar year… unless the company is in the retail sector.
Walmart Inc. (WMT) and other retail companies, for example, have a fiscal year that begins on Jan. 31. That late start allows those companies to reap and tally as many holiday profits as possible, and that means those companies release their reports later during earnings seasons than other industries.
Here’s a tip: Don’t watch only your particular stocks’ earnings reports – keep an eye on the trickle-down effect that certain stocks can have in their entire sector.
As we see large retail stocks release earnings, they can have a domino effect on the competition. Target Corp. (TGT) shares, for example, shot up this morning on the heels of Walmart’s positive third-quarter announcement. Likewise, tech stocks’ share prices plummeted like dominoes two weeks ago as giants like Apple Inc. (AAPL) and Microsoft Corp. (MSFT) announced lackluster Q3 earnings.
Where We’re Looking for Profits Now
We’re focused on earnings reports for consumer defensive stocks this week. Readers of our Strategic Trader trading research service know that we’re extremely bullish on this sector… and that our favorites in it include Starbucks Corp. (SBUX) and Constellation Brands Inc. (STZ). In fact, we closed a trade for a profit on STZ just this morning. (You can go here to learn more about our work at Strategic Trader.)
Today, two big names in the sector announced better-than-expected results: Walmart and The Home Depot Inc. (HD). A glut of inventory hampered big-box retailers like Walmart and Target – which will announce Q3 earnings tomorrow, along with Lowe’s Cos. Inc. (LOW). But it looks like deep discounts have relieved at least WMT of that problem.
Demand for groceries bolstered Walmart’s results and is predicted to do the same for Target tomorrow. Inflation has shrunk many households’ budgets, and even higher-end consumers seem to be looking to Walmart to relieve the burden. Walmart Chief Financial Officer John David Rainey told CNBC that approximately three-quarters of its gains in food revenue could be attributed to households making more than six figures annually.
Going into the holidays, expect to see deep discounts in an effort to streamline remaining excess inventory. The effects of holiday shopping, including Black Friday and post-holiday sales, remain to be seen.
Viewer Questions and Feedback
In last night’s Learning Markets livestream, we addressed viewer questions about the housing market, Nvidia Corp. (NVDA), exchange-traded funds (ETFs), and more.
Each week, we like to address your most burning questions about market trends, trading, and specific stocks in our livestreams and here at Trading Opportunities.
To get your questions answered, just drop us a line in the comments section of our livestreams or email us at feedback@investorplace.com.
Sincerely,
John & Wade
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