Earnings is what we do at EarningsBeats.com. While a lot of traders are hoping, perhaps gambling, that companies they own come through with great results, we're doing our homework to prepare for our next Top 10 Stocks webinar on November 19th. That's when we'll select 10 equal-weighted stocks for each of our four portfolios. Earnings reports play a huge role in that selection process. After a company reports better-than-expected results, I watch to see Wall Street's reaction. Gaps to the upside and downside are common, but usually, after an earnings gap, we'll see a quick reversal to "fill that gap," or return to the previous closing price. The companies that produce great results and gap higher, subsequently NOT filling their gaps, typically do so because the demand is so great that market makers cannot provide enough of their capital to slow the advance. Those stocks tend to be leaders and great performers over the next several weeks. Let's start today's article with 2 such companies that already appear to be in huge demand. Then, I'll give you 2 that I believe will report stellar upcoming results.
Snap, Inc. (SNAP)
I believe internet stocks are going to produce big winners this earnings season, and SNAP certainly became one of those winners this week. After blowing away its revenue and earnings estimates, SNAP has surged 50% in three trading sessions. That's a fairly clear-cut signal that the market needs to revalue this company and is in the process of doing so. Personally, I will no longer be expecting to see a gap fill on SNAP. The major support will now be the TOP of gap support at 34.97:
The black-dotted vertical line shows that SNAP was already a leading stock in a leading industry group before reporting blowout results. This latest earnings report just cements its leadership position.
Align Technology, Inc. (ALGN)
Medical supplies ($DJUSMS) had been consolidating just beneath major resistance - that is, until ALGN posted what might turn out to be the most unbelievable beat of earnings season. ALGN was a leader in the medical supplies space before posting EPS of $2.25 per share. Wall Street's consensus estimate was pegged at $.59! ALGN is going higher. My only question is how long it takes to get there:
Like SNAP, ALGN was clearly a leader in its space before earnings. But now that these new numbers have been released, there's a major revaluing of the company taking place. The volume that has accompanied both stocks perfectly illustrates the demand for these companies.
As we look ahead, however, who might the next SNAP or ALGN be? What leaders should we be watching? I'm going to give you two names in the software space ($DJUSSW) that report this week. First up is a company reporting after the close on Monday:
Twilio, Inc. (TWLO)
TWLO is a $45 billion software company that provides a cloud communications platform that enables developers to build, scale and operate communications within software applications around the globe. There is no doubt what Wall Street believes: TWLO is a leader in its field. We've been seeing accumulation of the company in recent weeks as its accumulation/distribution line hit a fresh 52-week high within the past week:
TWLO pre-announced in early October that its revenues would be reported above expectations. I believe we're going to see a solid report, along with raised guidance when TWLO announces its results after the bell on Monday.
Tenable Holdings, Inc. (TENB)
TENB is a much smaller software company with a market cap of $3.8 billion. The company provides cybersecurity solutions across the globe and handily beat expectations when it last reported quarterly results in July. The recent selling has left TENB close to key price support ahead of its Q3 earnings, which will be released on Tuesday after the market closes. I wouldn't be surprised to see a test of recent highs at that time:
The growth story has taken a back seat of late, but I don't think it's over - not with interest rates still near all-time record lows. Companies that can prove that they're capable of growing revenues and earnings rapidly will command much higher valuations. We've seen that recently with SNAP and ALGN. There will be plenty more to command the same, and TWLO and TENB might be two software companies that fit that mold as well.
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