I mention often that earnings season is my favorite time of year.
Results from the third-quarter earnings season began trickling in last week (including the big banks’ reports), and they will start coming in fast and furious over the next few weeks. So, in today’s Market360 article, I’d like to explain why earnings season is so important to me.
And I’m going to explain how you can use this knowledge to your advantage in the stock market.
So let’s get started.
If you’re wondering how to know when it’s time to move into a stock, the answer is (deceptively) simple: Follow the numbers.
I always adapt our strategy and portfolio to fit with the latest trends on Wall Street (such as 5G or software), but the focus on the numbers has never changed in my 40-plus years of investing. I have always told my subscribers to invest only in healthy, growing stocks and to avoid companies that are seeing their sales and profits shrink.
You see, I approach stock-picking like a lot of folks approach buying a car. When you go to buy a car, you look at the gas mileage, the warranty, the horsepower, the safety features and a host of other options. Some factors are obviously more important than others, but a failing mark in any area is almost always cause for disqualification.
The same rules apply to stock-picking— you need to look “under the hood” to make sure that your investments are safe, reliable and ready to perform for the long haul.
Take Nikola Corporation (NKLA), the electric truck startup that’s seen a lot of hype in the financial press, and Digital Turbine (APPS), the mobile solutions company, for example. While both reported earnings in early August, the stocks went in complete opposite directions after the results were out.
On August 4, Nikola announced less-than-stellar first-quarter results after it became a public company through a reverse merger with VectoIQ by what’s known as a special purpose acquisition company or SPAC on June 4.
While some of the financial talking heads were calling NKLA the next Tesla (TSLA), I, on the other hand, was calling it the biggest scam nowadays. The reality is the company had yet to make or start selling any vehicles that would contribute to the bottom line.
The stock took off like a rocket ship after going public, rising from $37.55 on June 4 to an all-time intraday high of $93.99 on June 9. But the stock came crashing back to earth following its disappointing second-quarter earnings results. NKLA posted an earnings loss of $0.33 per share, which was wider than the estimated earnings loss of $0.14. So, the company missed analysts’ expectations by a whopping 135.7%.
As for sales, the company booked $36,000, beating Wall Street’s expectations by $16,000. However, every penny of that revenue was attributed to solar installation services to Nikola’s executive chairman, Trevor Milton. Milton has since resigned from Nikola while the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are reportedly investigating the company for allegations of fraud. Meanwhile shares are trading around $20, or about 46% below the company’s IPO price.
As for Digital Turbine (APPS), which released results on August 5, it reported blowout earnings of $0.05 per share, climbing 66.7% from the year prior and beating estimates by 25%. Sales of $39.4 million grew 45% from the year before.
The next day, the stock soared 21% and has more than doubled in less than three months.
Here’s a look at both companies’ stock performance since their last earnings report:
Typically, the companies that post strong results, like APPS, are rewarded by Wall Street and see their stocks dropkicked and propelled higher. The companies that post weak earnings, like NKLA, are punished and fall like rocks.
This is the power of earnings.
Now, if you’d been a part of my Platinum Growth Club then you would’ve been way ahead of APPS’ curve. I added the stock to my Model Portfolio on January 2, 2020. In the 10 months since my initial recommendation, the stock is up an eye-popping 398%!
And, with the company’s next quarterly earnings release scheduled for early November, I don’t expect it to slow down anytime soon. Earnings are expected to climb 123%, year-over-year, to $0.11 per share. Revenue should jump 21.4% to $60.5 million.
Wall Street analysts have revised their earnings estimates 22.2% higher for the company upwards in the past 90 days, so I’m anticipating another strong quarterly report.
Looking for Superior Fundamentals
I find stocks like APPS and avoid stocks like NKLA by focusing on eight “fundamentals.” These various measures of a stock, when taken collectively, can accurately tell you whether a company is doing well. (You can get a full breakdown of these eight fundamental factors here.) And the best time to view the big picture of how a company is doing is during the quarterly earnings announcements.
Because of how closely I watch these fundamentals at Platinum Growth Club, I look forward to each and every earnings season on Wall Street. Earnings seasons cover the end of a quarter, typically in January, April, July and October.
These are the four most pivotal times of the year when companies report their quarterly results. Our Platinum Growth Club Model Portfolio companies post impressive numbers, and tend to surge higher on the strong results. In fact, currently, average sales are expected to be up over 30%, average earnings are pushing 70% and the average earnings surprise should be more than 20%.
Where to Invest Ahead of Earnings
My stocks are already beginning to report earnings and sales for the third quarter, so the window to invest before they really start firing on all cylinders is closing fast.
I’m expecting wave-after-wave of earnings announcements to dropkick and drive our stocks higher. And I predict our average Platinum Growth Club stock will have over 20% annualized sales growth, and at least 50% earnings growth.
So, if you’re interested in fundamentally superior, high-growth stocks that are well-positioned to rally during the third-quarter earnings season, then I encourage you to check out my Platinum Growth Club. I have more than 100 stocks across all my services (I added five brand-new stocks to my Breakthrough Stocks Buy List in my October Monthly Issue). And, as a Platinum Growth Club subscriber, you have full access to each and every one.
Now, earnings season will kick off for my Breakthrough Stocks next week, but it’s already gotten underway for my Growth Investor stocks. In fact, Logitech International SA (LOGI), which I recommended in late August, released its latest earnings results this morning. The company smashed analysts’ expectations and upped its full-year guidance, and the stock soared more than 20% on the news.
Of course, you don’t have to invest in all 100+ stocks. If you’d rather start small, I’ve got you covered there, too. My Platinum Growth Club service comes with my exclusive Model Portfolio. I handpick all of my Model Portfolio recommendations from the different services, so you can rest assured that you’re always invested in the crème de la crème.
If you’re interested, click here for full details. If you decide to join me here at Platinum Growth Club, not only will you have instant access to all my recommendations, but you’ll also receive my special report, Crisis Master Plan , at no extra cost to you. In this report, I’ll show you how to get ready to take advantage of a set of extraordinary financial opportunities that you might not ever see again. And this report serves as my blueprint for taking advantage of these opportunities.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Digital Turbine (APPS), Logitech International SA (LOGI)