This week, we had what chartists might call a “blow-off top” in the major indices. But even while that sharp rally lasted yesterday, it was very narrow. And I just want to tell you what’s really going on here.
Once again, Tesla (TSLA) was the Nasdaq leader. I’ve shared my thoughts on TSLA, Nikola (NKLA), and whether sales are ever likely to live up to the hype. The talking heads on CNBC keep featuring these electric vehicle (EV) companies. But remember: Just because you can do a nice video on the web and paint a pretty picture of the future doesn’t mean you’re going to be successful.
Now there’s another EV company going public: Fisker Inc. You may remember, from the early 2010s, the original Fisker car. It was a plug-in hybrid, built like a Chevy Volt, where there was a battery and an engine that acted as a generator for its twin motors. That didn’t work out for Fisker Automotive – so now Henrik Fisker has an electric version.
Fisker is going public through what they call a reverse merger with a shell company. That’s how Nikola came public. And, again, just because there are more EV companies out there doesn’t mean they’ll all be “the next Tesla.”
What these stocks do have right now is major buying pressure from environmental, social and governance (ESG) portfolios. There’s a lot of ESG money out there looking for “green” investments, disruptors, companies that might change the future. It’s spreading fast…but I think it’s very disturbing to buy companies that just don’t know when they’re going to produce anything!
In other words, popularity on Wall Street isn’t everything. Sure, institutional buying pressure is a big factor in my Portfolio Grader that helps me find high-quality stocks – but I didn’t stop there. I also formulated a Fundamental Grade. This combination is turning up much more exciting stocks, like Friday’s two new buys for my Breakthrough Stocks list.
When you run the numbers on a company’s fundamentals (sales, profit margins, analyst forecast trends), you can see through this froth and speculation pretty quick.
Somebody like me, who counts on earnings quarter to quarter, knows that competition is coming. And it’s not going to come from Nikola or Fisker. It’s going to come from the major auto companies like Hyundai, Volkswagen Group, Mercedes, which now has its electric truck out there. This competition is fierce.
That’s just one example; I think there’s a lot of bubbles to be pricked out there. And I think we’ll sort it all out this earnings announcement season. That’s why I’m so excited about the latest additions to my growth and income buy lists.
Second-quarter earnings basically kicked off today with the big banks: Citigroup (C), Wells Fargo (WFC), JPMorgan Chase (JPM). It’s hardly a secret that I’m no fan of the big banks. But I do like the prospects for stocks in general – especially since the Federal Reserve is fully in control of the yield curve. This just forces more money into the market. After all, if you’ve got cash on hand, you’ll get next to nothing from Treasury bonds.
That being said, if you’re looking to buy, do NOT buy all these speculative, “frothy” stocks.
I’m considered old-fashioned because I count on sales, earnings, margin expansion, earnings surprises, positive guidance… And I know a lot of people that don’t think that’s the way to invest anymore. But if you want to survive the next drawdown, this is how you have to invest!
I’ve been watching the fundamentals, and I’m very comfortable and confident that my Buy Lists like the Platinum Growth Club Model Portfolio are going to have a very good second-quarter announcement season…even though the S&P earnings are supposed to be down over 40%, overall. (They’ll probably be down 35%, because analysts are too cautious.)
But don’t stop at second-quarter earnings. You’ll also want to look at forward guidance. That’s going to be incredibly important. Given that economies are still in recovery mode, lots of stocks will have had a rough quarter – but could still pop higher if they have strong third-quarter guidance.
That’s the playbook, folks. So, if you keep these factors in mind, you can enjoy earnings season, hang in there, and enjoy the ride. I’ve already got plenty of stock alerts waiting for you in my investing services.
In Friday’s Monthly Issue of Breakthrough Stocks, my small-cap service, I announced two July buys. At first glance, they couldn’t be more different: a discount retailer and a maker of semiconductor components. Yet, crucially, both companies crushed Wall Street’s first-quarter earnings forecasts.
Even more crucially, my Portfolio Grader alerted me that both companies are headed for another earnings surprise here in July. Platinum Growth Club members get these buy signals and ALL my alerts, issues, special reports, podcasts…everything I publish for growth investors.
Note: I also hold exclusive chats for Platinum Growth Club members, and I’ll be holding this next VIP chat on Monday. We’ll plan to discuss the recent market action, a 2020 “highlight reel,” the type of economic recovery I’m expecting, second-quarter earnings season, and (as always) I’ll answer subscriber questions. So, I hope you’ll consider starting your risk-free trial today through this link. Hope to “see” you Monday!