REVEALED: How to Make Money from This Week’s Earnings Reports
Welcome to earnings season!
It’s hard to believe another quarter has passed and we’re now starting to see report cards for American companies flow in.
As an investor, you should love earnings season because this is when you get the best information on how your companies are performing.
But more importantly, you should really love earnings season because it usually determines how your stocks will perform in the weeks and months ahead.
Let me explain…
First, let’s get back to basics.
Stock prices are determined by supply and demand. More buy orders for a particular stock pushes up the price, while more sell orders for a stock lowers the price.
Now, the reasons that investors buy and sell a particular stock can differ. But earnings are certainly a very important — if not the most important — reason for buying and selling.
This is exactly what makes earnings season so important.
When a company exceeds the earnings estimates made by Wall Street banks, prices can spike higher as investors rush in to buy shares. And when a company falls short of estimates made by Wall Street banks, prices drop quickly as investors lower their opinion of the company’s worth.
Now let’s get back to how you make money…
The Secret to Earnings Season: Follow the Money
People like you and me usually buy a few dozen to a few hundred shares of a particular stock at a time — depending on the price. That means we don’t quite have the power to move stock prices too much.
The professionals on Wall Street, however, are buying thousands to millions of shares of select stocks at a time. Hence, they certainly have the power to move prices higher.
That’s why when you invest during earnings season, one strategy you should keep in mind is to invest alongside these “fat cats” and ride their buying sprees higher.
After all, when I say Wall Street investment banks are buying thousands to millions of shares at a time, I’m not saying they’re buying them all at once.
I’m saying that these large positions are usually secured over weeks and months of steady buying. This should give you ample time to secure your much smaller position and profit as their demand naturally pushes prices higher.
To accomplish this strategy, I recommend keeping an eye out for two specific types of companies this earnings season as they report:
Trend Confirmed Companies — These are the companies that are riding a strong trend higher already, and Wall Street is watching eagerly to see if the trend will continue.
Walmart Inc. (WMT) with its e-commerce resistant business model and Visa Inc. (V), who is currently profiting from the cashless revolution, fit this bill.
If these companies report strong earnings, look for their stock prices to move even higher in the weeks following as Wall Street adds to their positions.
Turnaround Companies — Remember, earnings reports don’t just include hard-to-read financial numbers. Company executives also give commentary regarding their company’s results and how they expect the company to perform in the future.
These comments can be critical in assessing when a struggling company may be able to turn around their performance.
Turnaround companies that I’m looking at today include Boeing (BA) after the 737 MAX crisis, and Charles Schwab as they continue pivoting their business model after dropping commissions to $0.
These are just a handful of the companies that I’ll be watching over the coming days. For the full lineup of this week’s earnings reports, read on below!
5 Must Knows for Monday, October 14th
Happy Columbus Day! — Today is a federal holiday in the U.S., celebrating the anniversary of Christopher Columbus’s arrival in the Americas. If you are a bond investor, please note that the bond market is closed today for the holiday. However, the stock market is open as usual.
Earnings on Deck — On Tuesday, JPMorgan Chase, United, Citigroup, J.B. Hunt, UnitedHealth, Goldman Sachs, Wells Fargo, Charles Schwab, BlackRock and Interactive Brokers report earnings.
On Wednesday, Bank of America, IBM, Netflix, United Rentals, CSX, Alcoa, U.S. Bancorp, Ally and PNC Financial report earnings.
On Thursday, Phillip Morris, Union Pacific, Morgan Stanley, Honeywell, BB&T, E*Trade and Atlassian report earnings.
On Friday, The Coca-Cola Company, American Express, Schlumberger, Synchrony Financial and State Street report earnings.
Here’s What I’ll Be Watching — With so many earnings reports on deck this week, there are bound to be countless insights into not only these individual companies, but their industries and the economy as a whole. Here’s what I’ll be watching:
How are banks holding up in today’s low interest rate environment? And do they finally deserve a higher valuation? What steps are Schwab and E*Trade taking to earn more asset management dollars from customers after cutting commissions down to $0? And what’s the latest with Phillip Morris? Smoking numbers are certainly declining, but can “smokeless” products really fill the void? Find out all this and more in the coming days!
Partial Trade Deal — The Trump Administration announced a partial trade deal with China on Friday. Although the large topics are still unresolved, the agreement is the first step in the right direction.
Per the agreement, China will increase purchases of U.S. farm products and will make some intellectual property and currency-related concessions. Meanwhile, the U.S. agreed to delay an increase on tariffs previously scheduled to take effect Oct. 15th.
The State of the Consumer — Consumers like you are responsible for two-thirds of economic activity in this country. So when thinking about the strength of today’s economy, it’s important to pay close attention to whether consumers are continuing to spend money. On Wednesday, we’ll get an update when the retail sales report is released.
Here’s to growing and protecting your wealth!