What the Financial Media Isn’t Telling You About the Big Banks’ Earnings

The second-quarter earnings season is here! And, just like every other earnings season, I couldn’t be more excited.

The reality is that this is the time when companies have to put their money where their mouth is. For months we’ve seen companies be pumped up to ridiculous values, like Tesla (TSLA) and Nikola Corporation (NKLA), despite facing slowing sales or having no tangible product to sell.

And it’s also been a few stocks hogging all the money. The analysts at Bespoke found that as of July 13, the seven-largest stocks in the S&P 500 – Apple (AAPL), Amazon (AMZN), Facebook (FB), Google (GOOGL), Microsoft (MSFT), Netflix (NFLX) and NVIDIA Corporation (NVDA) – were up an average 45% year-to-date. The other 493 stocks were down 11% year-to-date.

So, it should come as no surprise that earlier in the week the broader stock market rallies were mostly led by big tech stocks. But since the big banks – JPMorgan Chase (JPM), Citigroup (C), Wells Fargo & Company (WFC), Goldman Sachs (GS) and Bank of America – kicked off earnings season, the breadth of power is improving as the financial media “hyped” up the results following some big earnings surprises.

At first glance, the banks’ earnings do look good. But if you take a step back, the picture isn’t quite as rosy. As you can see in the chart below, the quarterly earnings are relatively solid, but year-over-year growth is slowing dramatically.

While the financial media’s cheerleading did help broaden the market rally, it was not enough to trigger a sustaining rally in the big banks, too. Ultimately, JPM and GS are up about 3% this week. The other stocks are down 2%, even 4% in Citigroup’s case.

The truth of the matter is that the big banks’ growth is dwindling. Prior to earnings, my Portfolio Grader flagged the slowing growth, bringing their ratings down to either a sell or, in the case of Goldman Sachs, a hold. But, as you can see below, when you add it all up the overall Total Portfolio Grade still earns a D-rating. If you want to have a successful portfolio, these stocks should not be on your buy list.

Keeping that in mind, I do expect to see plenty more earnings surprises over the next few weeks. The analyst community is currently forecasting earnings growth to decline 44.6% year-over-year. Personally, I believe they’re being too cautious. I look for earnings to decline 35%. So with the bar set low, it won’t take as much for the companies to beat.

I also want to note that some of the red-hot “coronavirus” stocks last quarter might not be so hot this quarter. Take Netflix (NFLX), for example. The streaming services giant revealed its second-quarter results on Thursday after the market close. Earnings of $1.59 per share came in well below analysts’ estimates for $1.81 per share. So, NFLX posted a 12.2% earnings miss.

Right after the crash, Louis went on record and said 2020 would be the year of the “melt up” – in which fundamentally superior stocks absolutely skyrocket further than anyone thinks is possible.

Today – with the market just hitting new all-time highs – Louis will help you position yourself to make big profits from the next leg up… in what could be the start of the greatest bull market of all time.

Yes, the company’s earnings did grow 165% year-over-year, but its third-quarter outlook isn’t looking too rosy either. Subscriber growth is expected to fall significantly, with expectations of 2.5 million compared to 6.8 million in the third quarter of 2019.

Investors ran for the hills following the results, triggering a more than 6% drop in the stock on Friday.

This is why increasing earnings and sales growth, as well as positive third-quarter guidance, will be critical for a company’s success in this second-quarter earnings season.

Luckily, for my Platinum Growth Club subscribers, my Model Portfolio is chock full of fundamentally superior stocks that fit this bill to a “T.” The reality is that over the next few weeks it’s going to be very important to be invested in the fundamentally superior stocks. A “cool” stock just won’t cut it unless it can put up strong numbers and guidance this earnings season.

The market will narrow again as earnings reports are released and the wheat is separated from the chaff. The crème de la crème, like my Platinum Growth Club Model Portfolio stocks, will rise to the top.

Earnings reports for my Model Portfolio stocks will be coming in fast and furious over the next few weeks. And I expect their solid results to drop kick the companies’ stocks and drive them higher. If you want to get in before the stocks take off and get the most bang for your buck, now is the time to join.

If you want to know exactly what to buy, how to buy and how to craft your growth portfolio going forward, I recommend viewing my free briefing on what’s to come for growth investors in 2020. You can find it here.

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!

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