Navellier Growth: your source for market-beating growth stocks

 

Tis the season. No, not that one. That season only comes once a year and you have to give everyone presents. The season I’m talking about is much better and involved investing money during a prime time in the stock market. It comes 4 times a year and WE get the presents! In fact earnings season is my favorite 4 times of the year. Most corporations, especially those here in the United States, report their earnings each quarter on a calendar basis, so every January, April, July and October we get earnings releases pretty much every day of the month that keep us up to date on the quarterly sales and overall earnings results reported by the majority of companies.

Why is this good? Because it is earnings that make our high quality growth stocks go up in price, thus rewarding us with profits, of course. Altogether, earnings growth is one of  8 powerful fundamental factors that make stocks move higher in price. Most of these come into play during earnings season and can drive our stocks up in dramatic fashion because it’s during this time that people like you and I begin investing in the stock market more than ever.

An earnings surprise can have an especially pleasant affect on our stocks. Brokerage and research firms pay analysts fat salaries to guess how much money a company will make for the quarter and for the year. They then plug this number into their valuation model to derive an estimate of what the companies stock is worth. In recent years, after all the scandals and allegations surrounding Wall Street analysts, the prosecutions by Elliot Spitzer and the passing of the Sarbanes-Oxley act, most analysts are cautious in their estimates. This is good for us because it helps tell us exactly when and how to invest.

Why we love a good surprise

Let’s say the analyst for the XYZ Technogadget Corporation estimated that the company would make $1.00 per share this quarter. Combine his guess and all the other analyst guesses (which will be pretty close to his) and that becomes the consensus estimate of how Wall Street thinks the company is performing that quarter. Let’s say the Wall Street analysts decide that the stock is worth 50 cents per share this quarter. The company comes out and announces that business is much better than Wall Street expected. They made $1.25. Whoops! A new number is in the spreadsheet and suddenly the company’s shares are worth a lot more than anyone thought. Not worth more later. Worth more right now. This tends to create a bit of a buying frenzy and shares rocket forward.

In fact, for the stocks on my Blue Chip Growth and Emerging Growth Buy Lists, I keep scorecards during earnings season to show my subscriers how much each of our stock picks have beaten estimates.  Let me tell you, it’s a lot of fun to watch our stocks surprise and zoom ahead!

Often we get a double whammy just a few days later on our stock, when on the heels of a surprise in earnings, the analysts now have to raise their estimates for the next quarter and for the rest of the year. There are literally thousands of institutional investors such as hedge funds and mutual funds who use these estimates when deciding what a stock is worth. When the estimate is raised, Wall Street often raises their idea of what to pay for the stock. The result? Buying frenzy part two.

Earning season is 4 of the best months of the year. Because we buy only those stocks that have the very best fundamental characteristics, our portfolios are far more likely than most to experience a lot of earnings surprises and, in turn, earnings estimate revisions. These two items alone can provide enormous returns to growth stock investors. This is the reason that as we enter every earnings season I urge my subscribers to be “locked and loaded” going into the first week of the month. I want you to own the very best stocks, those most likely to produce positive surprises and the ensuing profitable price moves.

Bottom Line: Tis the season. Forget milk and cookies under the tree. Sit back and enjoy them yourself as you watch your portfolio enjoy the very best seasons of all.

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