After the S&P 500 gained 12% last week, making it the strongest week since 1974, we’re about to have a whole bunch of corporate earnings this week.
That actually kicked off today, and here’s the deal so far:
- Johnson & Johnson (JNJ) lowered its 2020 guidance, but posted a nice first-quarter beat and raised its dividend. JNJ gained 5% on the news. After all, it’s not just a “safe haven” stock, the maker of baby products and Tylenol. JNJ is also working on “bringing an affordable and accessible vaccine to the public” for the coronavirus.
- Meanwhile, Fastenal (FAST) kicked off earnings season for industrial stocks with first-quarter results that were slightly better than expected. Fastenal is a distributor that is helping get safety masks and gloves to U.S. businesses, though the company notes that these don’t have the profit margins of, say, the fasteners that the company’s better known for. FAST gained more than 6% on the first-quarter beat.
- Conn’s (CONN), a furniture and appliance store in the South and Southwest regions of the United States, posted a big earnings miss in the quarter ended January 31. Revenues were slightly better than expected, but Conn’s is delaying planned expansion in light of the coronavirus crisis (though stores remain open, and the company’s raising cash). Shares initially fell -9% in early trading, though CONN later popped higher with the broad market.
Most talked about were the banks like JPMorgan Chase (JPM) and Wells Fargo (WFC), which reported that earnings would have been fine…if not for the banks’ need to build up their credit reserves for the “fairly severe recession” ahead. Bank stocks are tricky, so I will be dedicating a whole Market360 article to the big banks later in the week. I’ll be in touch as soon as it’s ready.
The bottom line is this: So far, from what I can tell, earnings are working the way they should. If a stock disappoints, they take it down; if it beats, they reward it. And that’s what I really care about. Because I go into earnings season locked and loaded.
In my services like Growth Investor, I’ve already trimmed some stocks where the analysts have not been that positive on their estimates. But I’m expecting earnings announcement season to be very good to my high-quality stocks.
I do expect a lot of my growth portfolios to become much more concentrated here in the upcoming weeks. More than ever, we need to focus on crème de la crème stocks that will essentially become an oasis for investors amidst our economic slowdown.
In the big picture, uncertainty is starting to diminish not only for earnings, but also in other areas like the oil market. Yesterday, OPEC+, which includes Russia, the United States and other countries like Mexico, came up with 9.7 million barrels per day (bpd) in cuts. Mexico was the last holdout; they wanted them to cut 400,000 bpd, they only agreed to cut 100,000 bpd. But interestingly, President Trump tweeted Monday that it’s going to be “20 million barrels a day” – that would involve a lot of U.S. production being cut!
Obviously, President Trump doesn’t control that. He would need to get all the energy executives on board, as well as other major oil-producing countries. He’s been meeting with them; he’s trying to preserve all those jobs in the energy patch in America, he doesn’t want all those people to go on unemployment. So, I don’t know if I believe that his claim in that tweet will pan out. But you can see he’s trying to firm up the oil patch.
And, of course, President Trump is also eager to reopen America from the quarantine. It’s important that coronavirus cases peak and the deaths continue to diminish, the infection rate slows dramatically and the hospitalization cases slow. That’s really the key to opening up the economy. There’s going to be new guidelines. I’m sure factories are going to have to be sterilized more, I’m sure people are still going to be wearing masks for months to come. There’s strains in the system – whether it’s food processing, retail operations, delivery, and obviously health and safety.
Hopefully as the cases peak, we’ll all start to get back to normal. As a stock-picker, all I really care about at this moment is that interest rates remain stable and earnings work. With stocks yielding much more than bonds, it’s going to be very hard for the market to pull back and retest those lows.
But, again, it’s going to be a very narrow, very selective market. Just look at the strongest sector right now: biotech stocks. They’re not strong enough to buy, in my opinion! Some of the stocks are better than others – but here’s what you should know. My weekly scan with Portfolio Grader includes 750 Health Technology stocks, and very few have strong fundamentals. In fact, when you look at the scores, only 19% were a buy on the fundamentals. 81% of Health Technology stocks were middling to poor on the fundamentals. Plug any of them into my Portfolio Grader and you’ll soon see for yourself.
If there’s a great buying window for other growth stocks, I’ll make the call this week – if I see it. On the dividend side, we’ve already been rallying for over three and a half weeks, and I expect those stocks to continue to meander higher. But I’m obsessed with targeting only the crème de la crème on the growth side…and I just want to see a few more earnings come out.
In the meantime, there are growth stocks with great Report Cards that also offer dividends to boot! That’s true of the stock I’ve nicknamed my A.I. Master Key.
This company makes the “brain” that all artificial intelligence (A.I.) software needs to function, spot patterns, and interpret data.
If you’ve ever used Netflix (NFLX) or Zillow (Z) – which use A.I. to recommend the right movie or the right house, respectively – or even an email spam filter, then you’ve already seen the benefits of A.I. in your own life.
This company’s Volta Chip is what makes it all possible…and the stock’s a “Strong Buy” now in my Portfolio Grader.