What interesting times we’re living in. April brought stocks their best monthly gain since 1987 (and nearly the best gain since 1974), with a 12.7% rally in the S&P 500. March, of course, was the worst month for the S&P 500 since 2008. All the while, states and countries worldwide were on lockdown. Now what will May bring?
The reality is that life will not be normal for some time, since many states are reopening with social spacing restrictions that will continue to impede commerce.
My favorite economist, Ed Yardeni, recently alluded to the very first episode of The Twilight Zone in 1959: “Where Is Everybody?” I agree, it does sometimes feel like we’re living in the Twilight Zone: “the middle ground between light and shadow, between science and superstition.”
In that first episode, a man in a jumpsuit walks alone down an empty country road, into an empty café. Music is blaring from a jukebox, but no one is around. In fact, he doesn’t find anyone, anywhere. It isn’t long before the man panics. And here today, in the real world, empty airports, office buildings, hotels, restaurants, shopping malls, stores and streets will continue to weigh on the American psyche.
At the end of that old Twilight Zone episode, the narrator talks about “the palpable, desperate need of the human animal to be with his fellow man” and “the enemy known as isolation.” People are eager to get out and about again – and for good reason.
Until they do, lots and lots of companies are either going to keep slashing their 2020 earnings estimates…or decline to publish one at all!
Many investors are now growing concerned that Wall Street has “decoupled from reality,” as price-to-earnings (PE) ratios soar with virtually no prospect of earnings materializing any time soon.
I’d like to address that today – because that is certainly not true for all stocks.
For one thing, plenty of companies are legally acknowledged as “essential businesses” and need to continue to operate despite COVID-19 or anything else. That’s the case for one of my small-cap stocks, Repro Med Systems, Inc. (KRMD), which climbed as much as 13% today on its earnings report.
As a medical device company, Repro Med saw “minimal operational disruptions” related to the coronavirus pandemic…and grew sales 27% in the first quarter, year-over-year. Plus, while the company broke even in the year-ago quarter, it did produce positive earnings this time around; clearly, Wall Street is welcoming the 100% earnings surge for KRMD.
As for the large-caps I recommend on the Growth Investor Buy List, we’ve gotten plenty more earnings reports – which also included lots of positive earnings surprises. As of this writing, 33 Growth Investor stocks have reported first-quarter earnings so far, and 70% of them beat expectations, with earnings growth averaging 21.4%.
This is why, personally, I strongly believe that our best defense is a strong offense of fundamentally superior stocks that will continue to post strong sales and earnings.
Don’t get discouraged by negative economic news or partisan bickering over the pandemic. As an investor, your focus should be on first-quarter earnings and second-quarter guidance.
When I look at the broad market, I’m encouraged by the strength among smaller and larger stocks. But, when fewer companies are able to deliver profits, the stock market is naturally going to narrow.
Stocks with superior fundamentals, positive analyst revisions and solid forward-looking guidance will emerge as leaders. Others will be left in the dust. So, obviously, you want your portfolio to be positioned in the first camp – with the high-quality growth stocks.
To that end, I don’t want you to forget about the best growth megatrends like the 5G wireless buildout.
One of my favorite stocks involved in this mass infrastructure upgrade, which I’ve nicknamed The Netflix of 5G, just turned in first-quarter earnings last week. Its revenues and earnings per share (EPS) were a little light of expectations – but still represented year-over-year growth of 9.9% and 4.5%, respectively.
Adjusted funds from operations (AFFO) did beat analyst expectations, with 15.6% growth year-over-year. This enabled the company to raise its dividend by 20%!
Dividend growth is especially valuable now, in a market where other companies are having to cut or even “suspend” dividends entirely. So, go here if you’d like full details on The Netflix of 5G after my free briefing on the incredible potential of 5G stocks.