The first-quarter earnings season is just starting to kick into gear, and I couldn’t be more excited.
The reality is this is when the wheat is separated from the chaff. Every company must open its books and show Wall Street how they performed in the quarter and share their longer-term outlook. The companies that reveal strong results and positive guidance are typically rewarded by investors, while those who post weak results and guidance are punished.
This first-quarter earnings season is looking like it’s going to be a stunner. As of April 9, Factset is projecting that S&P 500 companies will achieve first-quarter earnings growth of 24.5% and sales growth of 6.4%. In addition, analysts have aggressively revised their earnings estimates up 6.5% higher. Not only are analysts raising their estimates for the first quarter, but this first quarter also stands as the biggest upwards revision since Factset first started tracking analysts’ earnings revisions nearly 10 years ago.
Now, the big banks, including JPMorgan Chase & Co. (JPM), Citigroup (C), Bank of America (BAC) and Wells Fargo & Co. (WFC), will release their earnings results this week, “officially” kicking off the earnings season. Interestingly, the analyst community revised its earnings estimates 78.7% higher for the financial sector.
Helping boost analysts’ predictions is the expectation that the big banks will release some of the billions in loss provisions they’d set aside to prepare for loan losses in the aftermath of the pandemic. That, in turn, will help boost the banks’ bottom lines.
Earnings estimates for the financials have also risen because of more favorable economic conditions and higher Treasury yields, which benefit banks’ bottom lines related to their core lending businesses.
Wells Fargo & Co.
- First to report will be Wells Fargo & Co. on Wednesday morning. Analysts expect the bank to bring in earnings of $0.67 per share on revenue of $17.6 billion. Over the past 90 days, 11 analysts have revised their forecasts for the bank upward, while one has revised downward. The company’s stock has gained 32% so far this year, and about flat in the past month.
JPMorgan Chase & Co.
- On Thursday morning, analysts anticipate earnings of $3.00 per share on sales of $30.4 billion. Over the past 90 days, 22 analysts revised their estimates upward, while just one revised lower. The stock is up over 21%, year-to-date, but is down over 1% the past month.
Bank of America
- Analysts expect Bank of America, which reports on Thursday morning, to announce earnings of $0.64 per share on $21.9 billion in revenue. Over the last 90 days, 22 analysts have revised their earnings estimates for the company upward, while one revised downward. Bank of America shares have soared over 29%, year-to-date, and are up about 4% in the past month.
- Also reporting on Thursday, Citigroup is expected to see earnings of $2.48 per share on sales of $18.9 billion. 10 Wall Street analysts have upped the estimates over the past 90 days. Citigroup shares are 17% higher year-to-date but have dropped 5% in the past month.
So should you buy the big banks ahead of their earnings reports this week?
The short answer: Nope.
The reality is I’m not a fan of the big banks. I like to focus on high-growth, high-quality stocks, and financials simply don’t fit that bill.
And even if some of these big banks post earnings and sales growth, I would still stay away. Long-time readers know I’m an ex-banking analyst who worked for a division of the government that is now part of the Federal Reserve. During my time there, I saw how they essentially “cook their books” and that scarred me for life.
It’s also important to note that rising Treasury yields can eventually derail interest rate sensitive value stocks, but growth stocks have historically prospered in a rising interest rate environment.
So ahead of their earnings announcements, today makes for a good day to take a look at where these big banks stand in my Portfolio Grader. As you can see below, two — Bank of America and Wells Fargo — earn a Total Grade of “D” and are “Sells” going into earnings announcements, with poor marks for their Quantitative Grade as well, which measures institutional buying pressure under the stocks. Meanwhile, Citigroup and JPMorgan earn a Total Grade of “C,” and are a “Hold” right now.
The bottom line: If you want to have a successful growth portfolio, these stocks should not be on your buy list.
Time for Power Options
Now, if you are looking to boost your portfolio’s performance this earnings season, I would consider adding call options plays on fundamentally superior stocks that are poised to surge higher on their strong quarterly results.
If you’re not sure how to trade options, I’ve got you covered with my Power Options service. At Power Options, the premise is simple: Use Long-term Equity Anticipation Securities, known as LEAPS, to leverage the gains from fundamentally superior stocks with explosive potential. Through LEAPS, we have months to years to benefit from the underlying stock’s movement, which also helps limit our risk.
My strategy starts by using my proprietary system to scour nearly 5,000 stocks per week and pinpoint those with growing sales and earnings that are sure to move higher over the next year or two. Once I’ve found the right stock, I do a second deep dive to find the safest, most lucrative LEAP options for maximum gains.
A recent example is a fundamentally superior semiconductor company that’s beaten analysts’ earnings estimates every consecutive quarter since the second quarter of 2018.
This company will be up to bat with its first-quarter earnings results on Thursday. Not only does the analyst community expect double-digit year-over-year earnings and sales growth but they have also revised earnings estimates for the stock about 8% higher in the past three months. Typically, positive earnings surprises precede positive analyst earnings revisions, so a fifth-straight earnings surprise is likely.
I look for its earnings report to drop kick and drive the stock higher, which, in turn, should boost the LEAPS call position, too. This trade remains under my buy limit, but time is running out to get in before it really takes off.
Now if you’re not an options expert, that’s perfectly okay! I am especially proud that my Power Options service is easy for brand-new options traders and pros alike, as all of my recommendations are very straightforward and easy to follow. I also offer a LEAPS Trading Primer and educational videos to help get you started.
The Editor (Louis Navellier) hereby discloses that as of the date of this email, the Editor (Louis Navellier), 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:
Bank of America (BAC), JPMorgan Chase & Co. (JPM)