Earnings season is flying by, and it’s been significantly better than analysts initially anticipated. Given the coronavirus pandemic, analysts’ estimates have been overly pessimistic for the second quarter.
As a result, companies have been able to easily exceed these low-bar expectations. FactSet even reported on Friday that, of the S&P 500 companies that have reported results so far, 81% have posted a positive earnings surprise.
That’s not too bad!
Unfortunately, it’s not exactly blue skies for the airline stocks. As you may recall, the travel and leisure industry took it on the chin following the travel bans and subsequent lockdowns to combat the coronavirus pandemic. As a result, American Airlines (AAL), Southwest Airlines (LUV), United Airlines (UAL) and Delta Airlines (DAL) saw their profitability take a major nosedive into the negative triple digits. Their latest earnings reports say it all:
While AAL and LUV did post earnings beats, the reality is that the airlines are still losing money hand over fist. As the chart shows us, earnings are still down significantly from a year ago. All told, earnings declined a whopping 530%, 295%, 321% and 289%, respectively. That’s not so good.
Now, the airliners did jump in mid-July, around their earnings results, but none of the rallies had any staying power. For the third quarter, the stocks were down anywhere from 3% to 8%, as you see below. In comparison, the S&P 500 is up 3.5% for the third quarter.
When you take a step back, the numbers are even worse. Year-to-date, AAL, LUV, UAL and DAL are down 59%, 40%, 62% and 55%. Meanwhile, the S&P 500 is about flat.
Clearly, 2020 has not been kind to the airliners. And, due to the coronavirus, the outlook remains quite cloudy – so much so that AAL, DAL and UAL withdrew full-year guidance for 2020.
Had you been following my Portfolio Grader, then you would’ve known to avoid the airline industry entirely. Way back in May, when folks first started wondering if these stocks were a buy after their sharp bounce, I was firmly against them. In fact, my Portfolio Grader listed them all as sells. The same held true in June.
Following their second-quarter earnings, I still wouldn’t touch these stocks with a 10-foot pole, as they remain sells in Portfolio Grader. This isn’t surprising given their plummeting sales and earnings growth. Buying pressure is drying up, too.
The bottom line is there are better stocks out there.
I’m talking about the fundamentally superior companies that report strong earnings and sales growth. These are the companies like the ones I recommend in Growth Investor: large-caps which are characterized by 21% average annual sales and 68.1% annual earnings growth. In addition, my average Growth Investor stock beat the S&P 500 by about 4% in the past month.
Plus, in the past three months, the analyst community has revised their average earnings estimates 15.2% higher. So, not only are my Growth Investor stocks poised to surge even higher as the second-quarter earnings season continues, but they are likely to post earnings surprises, too.
When you add it all up, there’s no doubt that these stocks will continue to break out as market leaders.
I look for my 5G play, which is set to report its quarterly earnings in early August, to be one of the big winners. Now that we’re all upgrading to 5G from coast to coast, around the world, imagine all the technology involved. And, particularly, all the new hardware involved. This is where the best opportunity for investors comes in.
For my money, I’m not going to bet on any one application of 5G. Or even one provider of 5G. I want the companies who make it all possible.
The King of 5G “Turbo Button” Technology
Big Telecom and device makers like Samsung and Apple all need 5G to maintain their edge – and get people into new smartphones. But the big profits will come from the companies that help create 5G.
One such company I like now is much lesser known than those companies but has excellent growth prospects.
This company is already one of the biggest semiconductor equipment manufacturers in the world. These days, its products for machine learning, optics, sensors and analytics are getting deployed for all sorts of next-generation technologies: the self-driving cars, robotics, cloud computing and the larger Internet of Things (IoT).
Most importantly for a Growth Investor, this stock is highly rated in my Portfolio Grader now.
So, if that company doesn’t sound familiar to you, I’d like to change that. This is the kind of stock that can help you profit from all the 5G infrastructure that’s popping up everywhere.
I have a fresh, complete investment report on it, called The King of 5G “Turbo Button” Technology. You can secure a copy by watching my free briefing on 5G and joining us at Growth Investor today.