It’s been one of those washing machine market weeks, with the markets consolidating on Thursday, but on low volume, and then back up again today.
The main thing I want you to know right now is that as long as the volume is low on down days, there’s really no reason to worry. In fact, I remain extremely confident in all my fundamentally superior stocks thanks to an incredible earnings season.
On Monday and Tuesday, we saw the start of a “mean reversion” rally I told you about in Tuesday’s Market360, where sectors that had been performing poorly in the pandemic — like oil, airlines, hotels, and cruise ships — began to rise on high volume. Meanwhile, stocks that have been outperforming, like COVID-19 testing companies, collaboration platforms and tech stocks all sold off earlier in the week.
Understandably, investors were excited for a return to more normal economic conditions based on the prospects of a highly effective vaccine candidate from Pfizer (PFE) and BioNTech (BNTX).
We later learned the Pfizer’s CEO was actually selling some of his stock. That’s part of a normal insider selling rotation, but the fact that he announced the vaccine’s effectiveness during a trial the same day he was selling stock raised a lot of eyebrows. There’s also been some confusion about how long it will take to get a vaccine widely distributed.
The reality is that COVID-19 isn’t going away any time soon, and I still anticipate the washing machine market will persist in the near-term, as the impact of the pandemic remains uncertain. Still, with several vaccine candidates expected to be put in front of the FDA in the coming weeks, including highly anticipated results from Moderna (MRNA), we may have an approved vaccine by yearend or early 2021.
Also, many companies have discovered how productive employees can be working from home, so a lot of our plays on the new work-from-home culture will continue to prosper.
Indeed, clearer heads prevailed mid-week and into Friday. As a result, many of our fundamentally superior stocks have rebounded strongly.
Case in point: Vipshop Holdings Limited (VIPS).
The Chinese online discount retailer of brand-name consumer goods reported third quarter results before the market opened today and beat analysts’ expectations for the top- and bottom-line.
The stock had dipped along with similar online platform stocks on Tuesday but bounced back Thursday and is up over 5% today at the peak with the good earnings news.
Total sales of $3.4 billion came in 18.2% higher than a year ago and beat analysts’ expectations for $3.25 billion. Earnings per share of $0.27 beat analysts’ estimates by a penny.
The company’s number of active customers grew 36%, year-over-year, to 43.4 million, and both new and existing customers improved their next-month retention compared to a year prior, said the company’s CEO, Eric Shen. Vipshop Holdings also increased its gross merchandise value – the total value of merchandise sold — by 21% from the prior year to 38.8 billion.
Going forward, the company expects fourth quarter revenue will come in 15% to 20% higher, year-over-year.
I recommended VIPS to Growth Investor subscribers back in March and the stock is sitting pretty with a 57% gain.
Overall, our Growth Investor stocks remain characterized by 45.7% annual sales growth and 65% annual earnings growth— and continue to benefit from positive analyst revisions. In other words, earnings are working, and I’m expecting at least two more quarters of positive earnings growth—and I’m not alone.
According to FactSet, the analyst community continues to up their fourth-quarter earnings estimates. During the month of October, analysts have increased fourth-quarter earnings estimates by 1.8%. Now, that doesn’t sound like a significant increase, but when you consider that analysts have historically lowered earnings estimates by 2.6% during the first month of a quarter over the past five years, these positive analyst revisions are a very, very positive sign.
We’re also heading into the seasonally strong time of year, and as Thanksgiving week approaches, I think the market is set to take off. So, if you have any cash to invest, please be invested before Thanksgiving!
The bottom line: It’s lock and load time, folks.
What to Do Next
Over the longer term, I think stocks are set to go much higher. Actually, I’m predicting the Dow will hit 200,000 in the coming years.
Now, that might sound crazy, but history proves otherwise.
During the ‘80s, the Dow went on a 234% tear and by the end of the decade, analysts and the media were calling for an end to the good times and a market crash in the early ‘90s, much like some naysayers are doing today. Instead, the Dow surged almost twice as high in the 90s as it did in the ‘80s.
My special Financial Foreshock Summit has all the details on the factors I believe will drive stocks higher. (You can watch my free briefing here.) I also share where I see the best opportunity to play the growth.
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:
Pfizer (PFE), Vipshop Holdings Limited (VIPS)