Here’s Why Earnings Season Matters… And How YOU Cash In!
If you watch business news channels regularly, you’ll start to notice a pattern.
Every three months, like clockwork, they’ll devote hundreds of hours of programming to one single topic.
During this period — which usually lasts about five weeks — you’ll hear the same words over and over… and endure an endless parade of “breaking news” interruptions.
Near the end of it, you’ll be ready to switch the channel to soap operas for something a little less dramatic.
But the media does have a good reason for following this event(s) closely. The number one reason being you could make A LOT of money…
Happy Earnings Season!
I’m talking about earnings season — the quarterly period when public companies report their financial results.
The media focuses so much attention on these numbers because they can help you make smarter investment decisions… even if you don’t own any shares of the companies being discussed.
Of course, if you are a shareholder, these updates are critical. You’ve forked over capital expecting a return — so naturally you want to be kept in the loop.
Here are the three most important things to look for during earnings season:
- Earnings surprises
- Management outlooks
- Bellwether companies
And because the next earnings season kicks off tomorrow, today I’m going to discuss all three to get you ready for the upcoming wave of announcements.
Earnings Surprises — In case you were wondering what all those men and women on Wall Street do every day, for a large portion of them it’s this: they spend hours upon hours estimating how much money each company will make going forward.
Nearly every publicly traded company has at least a few professional analysts looking closely at their businesses. And some of the bigger companies — like Apple, Amazon and Walmart — have dozens.
Each analyst uses their knowledge to guess how much profit a company will make and divide it by the number of shares outstanding.
This is called earnings per share… essentially, how much each share would be worth if the company were to distribute its profits to shareholders.
Since analysts use different methods in their calculations, they come up with different numbers. News organizations average out the estimates of leading analysts, which becomes the “consensus.”
An earnings surprise is when the company reports a different figure than the consensus.
If earnings per share comes in higher, it’s called a beat. The opposite is a miss.
A beat or a miss causes a lot of volatility in the company’s share price.
A beat means the company is stronger than most people thought, which likely causes the stock to spike. While a miss, of course, means the company isn’t doing as well as people thought, causing shares to sink.
Management’s Outlook — Another key part of the earnings announcement is management’s outlook on earnings per share next quarter and next year.
This is important because stocks are forward-looking, meaning their prices reflect where investors expect shares to be in future, whether up or down.
So positive sentiment coupled with strong results tend to help maintain a bullish trend in the stock price.
On the other hand, sometimes earnings are great, but management sees a potential slowdown in their earnings. It’s one reason why a stock’s price could fall even if it beats last quarter’s earnings estimates.
Bellwether Companies — The last reason why earnings season is so important is because we can learn clues about the general state and direction of major industries, if not the entire economy.
Bellwether companies are big blue chip stocks that lead the herd. If they’re reporting good results, then the rest of their sector tends to follow suit…
And if enough bellwethers from each industry are thriving, the rest of the stock market tends to do the same.
In other words, when bellwether companies announce earnings, smart investors pay attention.
So the next time a financial news channel breaks from regular programming to talk about a company’s latest earnings, pay attention.
An earnings surprise could open an opportunity to buy a great stock that’s heading higher…
Management’s future earnings outlook can help you time some entry and exit points…
And bellwether companies’ quarterly results can give you insights on stocks you already own… or help you find other industries to explore.
I hope today’s alert cleared up some of the confusion surrounding these much-talked-about earnings seasons.
For a list of companies on deck to report this week, read on for our “Must Know” stories of the week…
Must Know Stories for Monday, January 13
Earnings on Deck — On Tuesday, JP Morgan Chase, Citigroup, Wells Fargo, Delta Airlines, and First Republic Bank report earnings. On Wednesday, Bank of America, Goldman Sachs, PNC, US Bancorp, Alcoa and UnitedHealth report earnings. On Thursday, BNY Mellon, CSX, Morgan Stanley and Charles Schwab report earnings. And wrapping up the week on Friday, Schlumberger, Fastenal and J.B. Hunt report earnings.
Boeing’s New CEO — Dave Calhoun officially takes charge of Boeing today after the company parted ways with Dennis Muilenburg following his mishandling of the 737 Max crisis. Calhoun, a former board member and GE executive, enters just days after reports surfaced of employees bragging about fooling regulators and stating “the Max was “designed by clowns, who in turn are supervised by monkeys.” Expect any bad news still hidden in the closet to soon be announced.
Iran Protests Turn Violent — Iranian citizens protested the last two nights after their government admitted to downing a Ukrainian passenger jet, killing all 176 people on board. This was after Iran spent days denying their involvement and accusing western governments of “psychological warfare.” Videos posted on social media show clashes between protesters and riot police, with chants in opposition to Supreme Leader Ayatollah Ali Khamenei.
Phase One Deal Signing — Chinese Vice Premier Liu He is traveling to Washington on Wednesday to sign “Phase One” of the trade deal. The deal includes Chinese commitments to respect intellectual property laws, not manipulate its currency, and purchase $200 billion in U.S. goods over two years to help reduce the trade deficit and repair some of the damage suffered by U.S. farmers.
That’s all for me today. I hope you have a great week and I’ll talk to you tomorrow!
Here’s to growing and protecting your wealth!