Wall Street has thrown quite the tantrum this week following reports of record numbers of new coronavirus cases in Europe. As a result of the increase, some European countries are reinstating lockdown protocols. For example, Italy ordered that all movie theatres, gyms and swimming pools must stay closed, while restaurants and bars can no longer serve customers after 6 p.m.
Stocks plunged on the news, with the broader market falling about 2% on Monday and then more than 3% on Wednesday.
I know the recent gyrations have left some investors’ heads spinning, but I feel very good right now! The reality is there are several factors that could trigger a major market rebound in the coming weeks. I’ll discuss each factor in tomorrow’s Growth Investor November Monthly Issue, but I’d like to share two with you today.
Third-Quarter Earnings Season
The first is the third-quarter earnings season. My Market360 readers know earnings season is my favorite time of year, and this earnings season is no different. The analyst community has revised their consensus earnings estimate up a whopping 25.5% in the past three months. Right now, average earnings surprise is running at an incredible 34.2%.
I look for my own Growth Investor stocks to post wave-after-wave of positive earnings results, as the average Growth Investor stock is characterized by 45.7% annual sales growth and 65% annual earnings growth. And I’m pleased to say that my Growth Investor stocks have yet to disappoint. As of this morning, 27 Growth Investor companies have released their results so far and 23 posted topped analysts’ expectations. On average, the earnings surprise is currently 21.3%.
Not surprisingly, many of these stocks have been dropkicked and propelled higher on the heels of their strong numbers. Take Generac Holdings, Inc. (GNRC), for example. Yesterday, the company unveiled all-time record third-quarter results, thanks to strong demand for its products. Company management stated, “Third-quarter revenue and adjusted EBITDA far exceeded all-time records led by dramatic growth in sales of home standby and portable generators.”
For the third quarter, Generac Holdings achieved total sales of $701 million, or 17% year-over-year growth. That crushed analysts’ estimates for sales of $664.71 million. Generac noted that residential product sales jumped 37% year-over-year to $459 million, up from $335 million in the same quarter a year ago.
Adjusted third-quarter earnings soared 47.8% year-over-year to $133 million, or $2.08 per share, compared to $90 million, or $1.43 per share, in the third quarter of 2019. The consensus estimate called for adjusted earnings of $1.66 per share, so Generac posted a 25.3% earnings surprise.
Thanks to the record third-quarter results, Generac upped its full-year 2020 guidance. The company now expects to achieve full-year sales growth between 10% and 12%, up from previous guidance for 5% to 8% annual sales growth.
Wall Street cheered the results, and the stock bucked the broader market’s downward trend and soared 5.3% to a new 52-week high yesterday of $218.63 yesterday. That momentum continued into this morning, as the stock hit a new 52-week high of $220.88 before pulling back on a bit of profit-taking later in the day.
IDEXX Laboratories, Inc. (IDXX), one of my longer-held positions in Growth Investor, is another great example. The company posted an 18.2% earnings surprise following its most-recent earnings release this morning and popped nearly 7% to a new 52-week high of $452. (I’ll share the full details of this company’s latest earnings report on Saturday, so stay tuned!)
The second factor is what I like to call a “presidential honeymoon.” Typically, after a presidential election, the stock market often has a relief rally on the hope that all the political infighting will ebb. Presidential honeymoons tend to last 100 days or so. And with the uncertainty about to diminish surrounding this presidential election, the stock market could easily surge in a relief rally, as there is so much cash on the sidelines. One very good sign is the record number of early voters, which makes disputing any results much more difficult.
At the end of the day, though, whether Joe Biden or Donald Trump wins the presidential election really makes no difference, since the federal deficit will remain above 100% of GDP. With such a massive debt burden, the Federal Reserve cannot raise key interest rates, since the interest on the Treasury debt would crush the federal budget deficit. As a result, the U.S. dollar may remain under pressure as international investors realize that the Fed has to print more money to monetize the Treasury debt.
The bottom line is that I expect a big bounce is coming, and my Growth Investor stocks, in particular, are perfectly positioned to ride the next wave. In fact, 15 stocks on my High-Growth Investor Buy List and three stocks on my Elite Dividend Payers Buy List have gained over 100% since their initial recommendations. Clearly, my Growth Investor stocks can prosper in even the most uncertain times.
As I mentioned earlier, I will be sharing the other main factors that will drive stocks higher in the coming weeks and months in tomorrow’s Growth Investor November Monthly Issue. I will also release three new buy recommendations, my latest Top 5 Stocks list, review the latest earnings results (there are a lot of them!) and preview next week’s earnings reports. There will be a lot to talk about, so sign up here now so you don’t miss out.
Note: I believe stocks are poised to go much higher over the longer term. In fact, I’m predicting the Dow will hit 200,000 in the coming years.
I know that sounds crazy, but history proves otherwise.
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:
Generac Holdings, Inc. (GNRC), IDEXX Industries, Inc. (IDXX)