Wall Street remains distracted by the stimulus negotiations underway on Capitol Hill, and as a result, the stock market’s daily gyrations continued this week, sending the broader indices lower.
Personally, I still expect a lot of the uncertainty that’s been hitting the markets to shake out after the presidential election.
Regardless, I think our time is therefore better spent focusing on the third-quarter earnings season that’s just kicked off.
Results are starting to trickle in and we’re seeing more S&P 500 companies post more earnings surprises than average, and by a wider margin. I’m not too surprised considering analysts aggressively increased earnings estimates in the three months prior to the earnings season kickoff.
About 10% of the companies in the S&P 500 have reported so far, and already a whopping 86% beat analysts’ estimates, which is higher than the five-year average of 73%, according to FactSet. Of those companies that have reported earnings, the companies are reporting earnings 21.7% have come in above the estimates, which also beats the five-year average of 5.6%.
Earnings aside, positive news on the labor front helped buoy stocks late in the week.
In fact, initial claims for jobless benefits fell by 55,000 last week to a seasonally adjusted 787,000, which is far below the 870,000 Bloomberg estimated and its lowest level since mid-March. The latest figures include revisions from California that reduced the overall number of claims in October. The state has now resumed reporting unemployment insurance claims data again after a two-week pause brought on by a surge of claims that led a massive backlog to the state’s aging system.
Plus, the coronavirus pool of treatments deepened this week as the FDA granted full approval to Gilead Sciences (GILD) for its antiviral treatment remdesivir, which sent the biotech’s shares higher.
As I mentioned yesterday, Tesla (TSLA) climbed following its blowout earnings and sales third-quarter earnings report on Wednesday, while Netflix (NFLX) had a tough third quarter, with earnings falling below analysts’ estimates and disappointing new paid subscribers figures.
Tesla stock has climbed modestly after its earnings announcement, while Netflix continues to fall. Either way, neither stock impresses me at the moment. There are better growth stocks out there.
On Thursday, Chipmaker Intel (INTC) reported earnings of $1.1 per share, which was in line with analysts’ expectations, while revenue slightly bested (by 0.4%) expectations at $18.3 billion. Still, shares plunged over 10% in after-hours trading as investors weighed lagging data center growth for the company. The company’s data center for enterprise and government business segment fell 47% after two quarters of more than 30% growth.
Intel’s data center issues could be good news for competitors in the hot cloud sector, including Advanced Micro Devices (AMD), one of my Accelerated Profits stocks, which was up 1.4% in after-hours trading – and up 63% on my Buy List overall.
As you know, I’m expecting wave-after-wave of positive earnings, especially from my fundamentally superior Growth Investor stocks. In fact, I’m pleased to report that all eight Growth Investor companies that reported this week crushed analysts’ earnings expectations. Clearly, we’re off to a strong start.
Invest in the Fundamentals
At Growth Investor, my Buy List stocks are characterized by 45.8% average annual sales growth and 65.4% average annual earnings growth. Analysts have also continued to increase earnings forecasts, so I still look for even more of our Growth Investor stocks to post better-than-expected earnings forecasts in the coming weeks.
An early example this quarter is Logitech International SA (LOGI), which I recommended in late August. The company smashed analysts’ expectations by a stunning 228.1% and upped its full-year guidance. The stock soared more than 20% on the news on Monday. On Tuesday, it hit a new 52-week high of $95.71 before pulling back a bit later in the week.
Another example is NextEra Energy (NEE), an energy company recommendation that generates electricity in North America by way of wind, solar, nuclear and more. The company posted a 3.1% earnings surprise on Wednesday and its stock is now trading about 2% below its 52-week high of $308.06.
After a solid third quarter, NextEra Energy is on track to deliver full-year results that are in-line with the company’s guidance.
Ready for the Next Big Market Event?
I’ve got plenty more stocks locked and loaded for earnings season. This is why I’m so excited for next week.
I have 23 Growth Investor Buy List companies scheduled to report earnings from the latest quarter, and I’m expecting them to report wave-after-wave of positive earnings results
But there’s something else I’m looking forward to as well. I think the market is about to experience a rare event we haven’t seen in decades. I call it a Foreshock. If you thought the run-up from 2009 until now was impressive, you haven’t seen anything yet.
I believe stocks are poised to go much higher from their current levels. In fact, I’m predicting the Dow will hit 200,000 in the coming years. At its current level of about 28,200, it’ll have to rise about 609% to get there.
I know that sounds crazy, but history proves otherwise.
Remember what happened after the huge run-up in stocks in the 1980s until 1991? The Dow went on a 234% tear during the ‘80s. And by the end of the decade, analysts and the media were calling for a market crash in the early ‘90s, much like some naysayers are today. Instead, the Dow surged almost twice as high in the ‘90s as it did in the ‘80s.
The bottom line: The stock market still remains the best game in town.
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:
Advanced Micro Devices (AMD), Gilead Sciences (GILD), Logitech International SA (LOGI), NextEra Energy (NEE)