Thank God It’s Earnings Season!
I don’t know about you, but I’m so tired of reading about China, trade and Trump tweets. If I had to write about tariffs one more day in a row, I’d gnaw my fingers off.
Today, we have corporate earnings. Glorious corporate earnings.
Well … mostly glorious. So far, 34 of the 500 companies in the S&P 500 (I feel there’s a “well, duh” joke in here somewhere) have released their quarterly reports. Of those 34, 29 topped analyst expectations, according to The Earnings Scout.
That’s not too shabby. But, remember that many analysts were projecting an earnings recession. In other words, expectations were pretty low. Typically, beating lowered expectations is nothing to crow about.
But, in a market besieged by disappointing trade deals and global recession forecasts, beating even lowered expectations provides a much-needed sentiment boost to the market.
Those providing the biggest boost today are JPMorgan Chase & Co. (NYSE: JPM), which reported record revenue, and UnitedHealth Group Inc. (NYSE: UNH), which beat earnings estimates by $0.12 per share.
The Takeaway:
I’m trying hard to be the shepherd today, Ringo.
As investors, sometimes we have to look past the calls for recessions, the no-deal trade deals, the weakening economic data and the inequities of evil men (OK, I just threw that last part in there for the heck of it).
There are opportunities to be had in this market. As Banyan Hill expert Ted Bauman likes to remind me, the well-run companies with solid ideas and stable balance sheets will always come out of tough times stronger.
With this earnings season, we’re about to find out which companies fit this mold. But I’m going to take this advice one step further.
Record revenue like JPMorgan’s is all fine and dandy. What you really want to watch for this earnings season is those companies that get punished for spending money on growth. The companies that I want to invest in are not those that are spending billions on stock buybacks, but the ones that are reinvesting in their operations, spending on content and future growth.
There are always a few of these companies every earnings season, and they typically get punished for not living up to expectations in this shortsighted market environment.
When the market is all short-term topsy-turvy, you need to focus on the long term. And there are few who do that better than Ted Bauman in The Bauman Letter.
See, Ted invests in the corporate world’s well-oiled machines, if you will. The companies that deliver long-term fortunes from solid operations, instead of tiny, “flash in the pan” gains.
Click here to sign up for The Bauman Letter today.
Good: The New Apple
I must admit, I’m starting to come around on Apple Inc. (Nasdaq: AAPL).
No, I don’t plan on buying an iPhone or a Mac anytime soon. But I’m liking the company’s new discount game plan. The new iPhone 11 models are cheaper than their predecessors, and today we’ve got rumors of a new iPhone SE 2 launching in the first quarter of 2020.
The kicker? This new model will reportedly sell for just $399. For that price, Apple is offering up what is essentially an iPhone 8 with the brain of an iPhone 11.
With the new processing power and the low price point, maybe Apple will get some of the many iPhone 6 users to finally upgrade — and it might even gain a few Android converts in the process.
Now, you may think that Apple is going the discount route to boost lagging iPhone sales. And you’re right … but only half right.
Apple’s real goal is to boost services revenue. The iCloud, Apple TV, Apple Arcade, Apple Music, Apple News … they all revolve around putting an iPhone or other Apple device in your grubby little iHands.
This is the real moneymaker for Apple. The margins on iPhones were good, but the margins on services are better.
If confirmed, the iPhone SE 2 is another step down that lucrative services road.
Welcome to the new Apple.
Better: I Told You So
Roku Inc. (Nasdaq: ROKU) is up more than 7% today following news that Apple’s Apple TV+ service is coming to Roku devices on November 1.
When ROKU plunged more than 12% back in September, I told you this would happen. Apple wasn’t going to miss out on revenue from the most widely used streaming device on the market. It just wasn’t going to happen.
And yet, ROKU investors panicked and sold when Apple’s streaming service was announced. I believe the concern was “something, something, competition”? It doesn’t really matter. It’s in the past.
There was never going to be any real competition here. Apple TV+ was coming to Roku. Period.
Scott Rosenberg, Roku’s senior vice president and manager of platform business, said: “Roku is a valuable partner for content providers looking to reach a large and engaged audience, and we’re looking forward to bringing this new option to Roku users.”
I know ROKU is up massively so far this year, but, as you can see, there’s plenty more where that came from.
Best: Get Your Nug On
I keep telling people that cannabis stocks are the place to be. But no one believes me.
It’s probably the massive sell-off the group has had since July … yeah, that’s probably it.
Today, Aphria Inc. (NYSE: APHA) reminded us that what you really need when it comes to cannabis companies is quality … not quantity.
In its fourth-quarter report, Aphria said earnings came in at CA$0.07, versus expectations for a loss of CA$0.02. Revenue skyrocketed 848.8% year over year. The company also said it sold 3,317 kilos of recreational cannabis and 1,354 kilos of medical.
Those are solid numbers. What’s more, the fact that Aphria avoided a loss on the quarter speaks volumes about the company’s leadership in the cannabis space.
Remember, the cannabis market isn’t down because no one wants its product. It’s down because customers can’t get the product where and when they want it. Distribution and production are still considerable hurdles.
Overcoming those hurdles will take lots of cash — something investors don’t like to think about. But Aphria’s quarterly report proves that it’s balancing these issues while still providing positive earnings and revenue.
The fact that it’s doing this without gobs of cash from a big-name backer says even more about the company’s ability to make it big. It’s why Aphria remains one of my top picks in the sector.
Another season of assessing quarterly guesses on earnings is upon us.
Of course, these quarterly events are really meaningless with regards to the long-term performance of a company.
That said, these quarterly calls aren’t a waste of time, especially for one type of company: small-cap stocks.
Many of these firms don’t have daily news releases. Shoot, sometimes they don’t even have monthly news releases. So, the commentary we get from management each month is critical to help investors assess their progress.
We have several small-cap stocks in our Profit Line portfolio. The market appreciates their quarterly comments … and the growth their companies are seeing.
— Brian Christopher, Profit Line editor
We’ve already talked about looking for the real opportunities this earnings season. But Brian’s Profit Line service takes that advice one step further. In fact, Brian has a patent pending algorithm designed to exploit Wall Street’s biggest weakness … and turn it into massive profits!
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I can’t tell you. It’s a secret. I mean, we can’t give everything away for free.
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Great Stuff: Expectations vs. Reality
There is one massive issue with earnings season that we haven’t touched on today. It’s probably the biggest driver of them all. That’s expectations versus reality.
Banyan Hill expert and options trading specialist Chad Shoop wrote an excellent article on just this topic. In it, Chad said:
Expectations versus reality is a key battle on Wall Street. It’s the push and pull we witness day to day.
You see, investors have certain expectations for how companies are doing. Every three months they get a reality check.
He’s talking about corporate earnings. But I’m not going to steal all of Chad’s thunder. You can find out more by reading his article: “Investor Expectations vs. Economic Data: How They Sway the Stock Market.”
And if reading isn’t your thing … you’re in luck! There’s a video too:
Until next time, good trading!
Regards,
Joseph Hargett
Great Stuff Managing Editor, Banyan Hill Publishing