The first-quarter earnings season has certainly quieted many of Wall Street’s bears. The reality is that the “Zombie Apocalypse” that many bears have been predicting ran into two stiff problems lately.
The bears’ number-one problem is volume. Back when the stock market crashed in March, there was panic selling, and selling volume on down days was much heavier than buying pressure on up days. However, the S&P 500’s trading volume on down days, like last Tuesday, has been the lightest since late February. That means investors are no longer panicking on down days.
On the flip side, buying volume has been much higher on up days. This is great news, as it means there are now more buyers than sellers in the market right now. And this has been happening for three-straight weeks.
As we’ve discussed in Market360 and my other newsletters like Accelerated Profits, dividend stocks have been leading the market higher during this time. The collapse in crude oil prices and the ultralow interest rate environment have driven yield-hungry investors back to the stock market. The fact of the matter is that the 10-year Treasury now yields about 0.6%, while all of the dividend stocks in the S&P 500 yield about 2.8%.
According to the folks at Bespoke, the spread between the S&P 500 dividend yield and the 10-year Treasury is at its widest margin in 50 years. So, it is clear to me that investors are facing a once-in-a-lifetime buying opportunity. With investors pouring back into the stock market, the S&P 500 has soared 28% and the Dow has rallied 30% off the lows from March 23.
And that brings me to the bears’ second problem: Part of the stock market’s recent strength also can be attributed to a strong start to earnings announcement season for the first quarter.
According to FactSet, about 24% of S&P 500 companies have released results from the most-recent quarter so far. Of these companies, 60% have topped analysts’ earnings and sales forecasts. While that’s below the five-year average, it’s still better than the doomsday scenario that many bears were painting.
Of course, I prefer the fundamentally superior stocks. And I’m pleased to report that my selections are posting even stronger results. At Accelerated Profits, our Ultimate Growth Trades are characterized by 27.4% forecasted sales growth and 64.2% forecasted earnings growth. And our stocks have a strong earnings surprise history (60.6%).
As a result, I’m particularly pleased with how our stocks have kicked off the first-quarter earnings season. One of them opened the week 17% higher, thanks to its first-quarter earnings beat.
And in today’s session, despite the tepid performance of broad indexes, select stocks have gained roughly 10% on good earnings news.
Many of these are what you might think of as “coronavirus stocks.” For example, F5 Networks (FFIV), which does web applications, beat on earnings and revenues in this past quarter. F5’s CEO noted “increased demand for capacity as customers looked to quickly and, in some cases, massively scale remote access capabilities to keep their employees safe and their businesses running.”
You’ll also recall the collapse in oil markets that’s driving astronomical fees for oil and gas tanker ships (since storage is filling up on land). Naturally, the tankers like Gaslog (GLOG) and Nordic American Tanker Shipping (NAT) were also top performers today.
In crafting my Ultimate Growth Trades for Accelerated Profits in this market, I certainly want exposure to the strength in this industry.
But I’m also recommending stocks for the big picture. Outside of “coronavirus stocks,” I like the housing market as a long-term play. So, I was pleased to see that D.R. Horton (DHI) also delivered an earnings and revenue beat today. In fact, the homebuilder closed 8% more homes last quarter – and earnings were up 40%.
Not only did DHI gain 10% on the news…so did its peers like Hovnanian (HOV) and PulteGroup (PHM). (The company I like in this industry is a lesser-known one, but it has significant upside potential as people take advantage of the ultralow interest rate environment to buy homes or refinance their loans.)
In the earnings call, Donald Horton did warn that operations “can be affected by changes in economic conditions that negatively impact the housing, lot development and financial services markets.” But the bottom line is, earnings are working. Wall Street is responding positively to earnings beats, so I suspect that wave-after-wave of positive first-quarter results will continue to silence the bears.
And I fully expect fundamentally superior stocks to continue to emerge as the silver lining, critical path that investors can follow in the upcoming weeks.
I also published my latest Weekly Profit Guide for Accelerated Profits yesterday. For three Ultimate Growth Trades to buy on dips – as well as today’s newest Ultimate Growth Trade – give Accelerated Profits a try today.