I know it seems like a daunting task, but it's not nearly as hard as it seems. Obviously, the first step requires finding a method or strategy that works. At EarningsBeats.com, we've found what works for us. It's combining our strengths with StockCharts.com's tools. As a former practicing CPA, earnings matter. They matter because valuations are based substantially on earnings and earnings growth. When a company posts better-than-expected revenue and earnings results, valuation models must take that into account. Raising forecasts is icing on the chart.
I've been asked, well what about companies that miss estimates, but raise forecasts? Honestly, I don't trust them. I'd much rather have companies that under-promise and over-deliver than the other way around. Using an analogy, let's assume you own a business and have two salespeople and both have an annual sales goal of $1 million. Your first salesperson delivers $1.5 million in sales and your other salesperson sells $.75 million. Both tell you that next year they'll do $2 million in sales. Who are you likely to believe?
I want to own companies where I can trust management. I don't want any mid-quarter surprises, waking up to a 17% haircut because one of the companies I own cuts their forecast. So I look for those companies that beat Wall Street estimates as to both revenues and EPS and add them to my "Strong Earnings ChartList" at StockCharts.com. Then using the powerful StockCharts.com scan engine, I'm able to uncover solid reward to risk trades with companies that I trust every single day.
I'll give you an example of how it works.
On Tuesday, in my Daily Market Report, a letter that I send to our members at EarningsBeats.com every day, I provided the scan that I ran, the scan code, and then 3 stocks with solid reward to risk trade candidates from those scan results. Here are the 3 charts that I sent our members:
VC:
MKSI:
TPX:
Listen, there's no guarantee these three trades will work. The idea behind our strategy isn't to provide guarantees of success. Instead, it's to reduce risk by entering stocks at levels where we can keep fairly tight stops and then also to provide solid returns in the event the trade works in our favor. Look at those post-earnings reactions. One thing I can say for certain. I'm glad we didn't chase these stocks after they posted solid gains the day after earnings, because they each lost considerable amounts during their recent pullback/consolidation.
If you're not a big fan of active trading, however, we offer an alternative. Every quarter, I scour the entire stock universe to identify all the companies that beat Wall Street revenue and EPS estimates (must be both), are liquid, and are part of solid uptrends or are reversing downtrends (technically-sound). These stocks comprise my Strong Earnings ChartList. From there, I pick out my favorite 40 stocks to fill out 4 portfolios - Model, Aggressive, Income, and Value. Each portfolio has 10 equal-weighted stocks from 10 different industries and is designed to hold for 3 months. There's no trading. We simply hold what we feel are the "best of the best" (best stocks in the best industries) for a quarter and then we rinse and repeat - always owning leaders.
The results? They've been outstanding since inception. The Model portfolio is now into its 5th quarter (inception was November 19, 2018) and its results speak for itself:
Model Portfolio (since its November 19, 2018 inception): +51.48% (through Wednesday's close)
S&P 500 (since November 19, 2018): +17.20%
That's massive outperformance in just over a year. The latest quarter's Model portfolio selections are performing very well again over the past 10 days:
Model Portfolio (since November 19, 2019): +2.94%
S&P 500 (since November 19, 2019): +1.07%
Later this morning, I'll be hosting the 2nd Market Vision 2020 mini-series event titled, "The Creation and Design of a Winning Portfolio". I'll discuss things like earnings, technical price action, volume, relative strength vs. peers, relative strength of industry groups, etc. It all starts at 11am and you can be a part of it.....for FREE!
If you've already subscribed to our free Market Vision 2020 newsletter, you have already received room instructions and I'll see you there. If you have not already subscribed for free, you can join as well. Just understand that by clicking the link below, you agree to allow us to subscribe you to this free Market Vision 2020 newsletter. There's no credit card and, quite honestly, no reason not to join. Each of our speakers for the main event on Saturday, January 4, 2020, will be sharing their expertise and strategies through these mini-series events like mine today. Also, there are free giveaways. In my event today, there'll be 4 lucky winners drawn (announced next Tuesday) that will receive a quarterly membership to EarningsBeats.com at no charge. That's a $291 value for each winner!!!
So if you'd like to join, just CLICK HERE.
We'll get things started exactly at 11am EST!
Happy trading!
Tom
