Earnings Season Ga Ga
This thing … called earnings season. I just … can’t handle it! This thing … called earnings season. I must … get around to it. Are you ready?
Yes, dear reader, second-quarter earnings season is upon us. It’s time to shake all over like a jellyfish … I kinda like it.
So, what companies are under pressure this week?
Well, we have practically an entire sector entering the earnings confessional before Friday: the financial sector. There’s also a smattering of tech stocks and airlines looking to break free.
Here’s a brief list for those who want it all:
- Tuesday: JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC), Citigroup Inc. (NYSE: C) and Delta Air Lines Inc. (NYSE: DAL).
- Wednesday: Goldman Sachs Group (NYSE: GS), UnitedHealth Group Inc. (NYSE: UNH) and Infosys Limited (NYSE: INFY).
- Thursday: Bank of America Corp. (NYSE: BAC), Morgan Stanley (NYSE: MS), Charles Schwab Corp. (NYSE: SCHW), Johnson & Johnson (NYSE: JNJ) and Netflix Inc. (Nasdaq: NFLX).
- Friday: Meh.
In last week’s Chart of the Week, I noted that Wall Street isn’t expecting much this earnings season. Projections are for bottom-up earnings to fall off a veritable cliff. Because expectations are so low, I think we’ll see more than a few upside surprises in the coming weeks.
This is doubly true for any company issuing guidance that beats expectations — I’m looking at you Netflix.
However, we need to remember that with earnings season comes increased volatility. You might think “Don’t Stop Me Now!” only to watch your portfolio bite the dust by a sell-the-news event. Profit-taking will be big this earnings season, so watch your back.
Still, the show must go on. And if you’re looking for stock market research that will rock you during this volatile earnings season, look no further than “Flow Trading.”
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Start your earnings season off with a round of “We Are the Champions!”
Good: No Coke, Pepsi.
PepsiCo Inc. (NYSE: PEP) was the first out of the gate this earnings season, and the stock’s reaction confirms all my suspicions above: Expectations are low … and easy to beat.
The snack-and-beverage giant said that earnings fell 14.3% year over year, while revenue dropped 3%. Before the pandemic, Pepsi expected 4% revenue growth and 7% earnings growth for 2020. Those expectations look like a pipe dream now.
But never fear: Wall Street’s expectations were even lower than Pepsi’s results. Where Pepsi said earnings were $1.32 per share, analysts projected $1.25 per share. Where Pepsi’s revenue was $15.95 billion, analysts expected $15.5 billion.
See? It’s all good. Just lower your expectations, and stocks will rally.
Looking ahead, Pepsi didn’t provide an outlook for fiscal 2020, noting the economy “…has remained volatile and much uncertainty remains about the duration and long-term implications of the pandemic.”
Better: Pfizer Pfast Ptracked
Another contender in the great vaccine race has emerged.
The FDA just fast-tracked two coronavirus vaccine candidates made by Pfizer Inc. (NYSE: PFE) and its partner BioNTech SE (Nasdaq: BNTX).
In early stage testing, patients with Pfizer’s vaccine showed higher levels of COVID-19 antibodies than typically seen in people infected with the virus. (That’s good … if you’re wondering.) It means that this vaccine prompts the body to produce antibodies at a very high rate, increasing the chances of immunity.
Pfizer plans to start a 30,000-patient trial later this month for its leading vaccine candidate. The company also noted it can make 100 million doses by the end of the year and more than 1.2 billion by the end of 2021.
Naturally, this all depends on whether the vaccine continues to prove effective during clinical trials. But investors aren’t waiting, sending PFE more than 4.5% higher and BNTX more than 15% higher on the news.
Best: Tesla Joining the S&P 500?
If you thought 2020 was strange, get this: Tesla Inc. (Nasdaq: TSLA) CEO Elon Musk is now richer than the Oracle of Omaha. (That’s Warren Buffett … if you’re wondering.)
This staggering fact was brought to you by TSLA’s 300%-plus rally in 2020. And Musk’s fortunes could grow even larger.
Tesla’s on the verge of joining the S&P 500. All the company needs to do is report a profit for four consecutive quarters, and it’s eligible for inclusion in the index. That could happen as soon as Thursday next week, when Tesla steps up to release its quarterly report.
If you believe analysts, however, Tesla may have to wait on its S&P 500 membership.
Currently, Wall Street expects Tesla to report a loss of $2.35 per share on revenue of $4.67 billion. Furthermore, expectations haven’t budged since last week, when Tesla reported stronger-than-expected vehicle deliveries of 90,050 units.
In fact, there’s quite a bit of Tesla doubt and bearish activity running around on Wall Street right now. Short sellers currently hold $20 billion in TSLA stock short right now, or about 9.47% of all of TSLA shares. That’s just as impressive as it sounds: $20 billion in shorted TSLA stock.
Here’s the thing: If Tesla does report a quarterly profit next week, these short sellers will be in a lot of pain. Not only will the company shock analysts with a surprise profit — its fourth in a row — but TSLA will also join the S&P 500.
This means that the stock will join several index-tracking and exchange-traded funds — which means that those fund managers will have to purchase TSLA stock.
That’s a whole lot of buying. And … that’s a whole lotta damage for short sellers, who may be forced to join in the buying spree just to keep from losing their shorts. (Ha … losing their shorts … I kill me.)
In short, a surprise Tesla profit next week could easily see the shares top $2,000. Is TSLA worth $2,000 a share? Probably not. But that won’t stop speculation, index fund buying and a massive short squeeze from pushing the shares past $2K.
If this scenario plays out, get ready to bank your profits. These over-extended gains may be short-lived.
Editor’s Note: Forget chasing Tesla… For your way in on the electric vehicle market explosion, click here!
Longtime Great Ones know how much we like to geek out over the latest earnings releases in our Chart of the Week features. But we aren’t visiting our ever-faithful companion, the Confessional Calendar from Earnings Whispers, just yet.
We could also focus on the exploding case count that I’m sure you’ve already heard about a million times today. (You doing alright down there, Florida?)
But earnings season is still heating up for most sectors … and obsessing over negative viral news isn’t making you money. So, let’s remedy that, starting with a trend that the Great Stuff team’s introverted side has relished for years: the surge of remote work!
If it’s news to you … it shouldn’t be. In fact, Great Stuff has kept your portfolio entrenched in the work-from-home trend for months. (More on those Picks in just a sec!)
Now, before the deluge of emails floods in… I get it. Not all industries can go remote. Remote work is a privilege, not a right. So on, so forth. I get it. Really.
Hot tar roofers? Yeah no remote options there, pandemic or no pandemic. That Sabrett cart you liked way back in the “Before Times”? That’s not going virtual. (Virtual hot dogs, though … perish the thought.)
But everyone peacefully plucking at Excel sheets or Word reports? Or me, making memes and poking fun at the financial pillars of our nation?
I mean, do you personally care if this email comes to you from an office block or from under my stairs? (Hey, you work when and where you can during tornado season…) I’ve been working remote for nigh on a decade — y’all are just catching up.
And recent research out of the U.K. shows that the work-from-home tide is finally turning. Via VisualCapitalist.com:
…almost half of the survey participants were founders, and nearly a quarter were managers below the C-suite. Prior to pandemic-related lockdowns, 94% of those surveyed had worked from an external office. … Gen X and Millennials made up most of the survey contingent, with nearly 80% of respondents with ages between 26-50, and 40% in the 31-40 age bracket.
Now for the juicy details:
The results are hardly contested. We’re just splitting hairs over how much remote work is enough at this point.
Mr. Great Stuff, this is nice for all the younglings. But I’ve been retired for years. Why should I give a flying flip about remote work?
I have three quick reasons for you:
- You don’t just change a major workforce dynamic without some shift in the economy.
- We’re about to see a radical transformation in how commercial real estate is used — aka, all those empty office buildings and corporate parks.
- Investment opportunities ahoy!
On that last point, the Great Stuff Picks portfolio has three stakes that benefit from homebound workers:
- Citrix Systems Inc. (Nasdaq: CTXS), which we opened on April 23, 2020. Up about 8%. Our recommendation: Buy.
- ServiceNow Inc. (NYSE: NOW), which we opened on July 25, 2019. Up roughly 47%. Our recommendation: Buy.
- Wix.com Ltd. (Nasdaq: WIX), which we opened on July 2, 2019. Up over 102%! Our recommendation: Hold.
With more and more companies about to make the jump to virtual working (permanently or otherwise), these web services and software stocks are your golden ticket. Now, if you’ll excuse me, I have an urgent team meeting in my dining room with, err, Takis and caramel creams…
Great Stuff: The Virtual Shift
So, have you every worked remote? Are you supposed to be working remote right now? (We won’t tell your boss, promise.)
Whatever your thoughts about the work-from-home trend, we want to hear from you! Spill your beans at GreatStuffToday@BanyanHill.com.
Of course, we want to give a shout out to all the essential workers still toughing it out on the front lines. Thank you all!
And thank you for tuning in to another issue of Great Stuff. You can also see us on social media: Facebook, Instagram and Twitter.
Until next time, stay Great!
Editor, Great Stuff