3 Best Surprises In This Earnings Recession

I’m one of the biggest, loudest bulls there is. So, when I issue an earnings warning like I did on Thursday, people tend to sit up and take notice.

Now, overall, the earnings reports have not been quite as dire as Wall Street analysts anticipated. As of Friday, says FactSet, we’ve heard from roughly half the S&P 500 companies, and three-quarters of them posted a positive earnings surprise.

But we’re still looking at an aggregate earnings decline of 2.3% — the first in almost three years.

So, a quarter of S&P 500 companies are posting disappointing numbers.

This includes some high-profile misses we’ve been getting lately:

Google (GOOGL) — its first miss in two years…
3M (MMM) — which also announced thousands of layoffs…
Tesla (TSLA)…
Spotify (SPOT)…
AllianceBernstein (AB)…
ExxonMobil (XOM)…
The list goes on.

As you can see in my Portfolio Grader, the signs were all there.

I stayed away, since their fundamentals didn’t measure up. And I mention all this to underscore what I always say:

If a company is struggling to sell its products or is spending more than it makes, it’s not a company you want to own for growth.

On the flip side — my faith in high-quality stocks has been amply rewarded.
This is because we stayed away from large multinationals that are paid in eroding currencies — which is certainly the case for 3M and Exxon…

…and by targeting companies with a history of positive earnings surprises.

Amazon (AMZN) is one. With consumer sentiment on the rise, we’ve been in AMZN since August. And on Friday, it smashed analysts’ first-quarter earnings estimates by 50.2%: $7.09 per share (when analysts were expecting $4.72). That was a 116% surge from the same quarter a year ago.

Lockheed Martin (LMT) is another. We’ve been in LMT since summer 2016, and it’s up 24% for us. Last Tuesday, it unveiled earnings of $1.7 billion, or $5.99 per share, which represented 41.7% annual earnings growth.

Analysts were expecting earnings of $4.34 per share, so Lockheed posted a whopping 38% earnings surprise.

As for revenues, LMT posted 23.3% growth for Q1, to $14.3 billion, which was 14.5% higher than analysts expected. Company management also announced that it will pay a second-quarter dividend of $2.20 per share on June 28.

Twitter (TWTR), which I recommended last June, soared 12% last week, after the company beat analysts’ top- and bottom-line forecasts.

For the first quarter, Twitter reported a 1.5% sales surprise: Wall Street expected $775.2 million in revenues, and they turned in $786.9 million, which was an 18.3% increase over Q1 2018.

But Twitter really blew away its earnings expectations: $0.37 per share (when analysts had called for $0.15 per share). That was a stunning 146% earnings surprise, and more than double what it earned in Q1 2018.

However — I can’t stress this enough — not every company will look so good this quarter.

If you missed my presentation on the subject, go ahead and watch the replay now. I’d hate for anyone to be blindsided like so many were with Google, 3M and Exxon this week.

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