Adam here to wrap up our first week of What My System Says Today…
And since it’s Friday, I want to spend some time looking ahead to next week and the companies scheduled to report quarterly earnings.
We’ll identify which reporting stocks are poised for bullish price action and which are most at risk for a bearish decline.
Let’s dig in…
Every Earnings Report Gives Our Model New Data
Before we look at the results of this week’s earnings screen, I want to talk about my Green Zone Power Rating system within the context of quarterly earnings.
When I designed my proprietary system, I didn’t base the entire model around quarterly earnings reports … far from it, in fact.
The system ingests a total of 75 metrics for every stock and then boils those down to six simple factors and an overall rating that is easy to digest.
This gives us a snapshot of the company’s strength and how the stock is behaving … and thus, gives longer-term buy-and-hold investors a good gauge of the stock’s potential to beat the market over the following months and even years.
While an earnings report may spur a short-term move, my Green Zone Power Rating system tells you if that bullish (or bearish) price action should continue or reverse once investors have sufficiently digested the new information.
Of course, my data-driven rating system also “digests” all the new data coming out of a company’s earnings report and accordingly adjusts the stock’s individual factor ratings and overall ratings.
While my Green Zone Power Rating system ought to be your “guiding light” for longer-term investments…
If you’re holding a stock through its earnings report, or even if you’re just watching a stock you’ve done some research on … you’ll want to know whether the company is more likely to report higher or lower earnings than it reported in the prior quarter.
Very often, this simple metric can predict how a stock will trade in the immediate aftermath of the report. There are always “surprises,” of course … but over time, companies that increase earnings tend to get rewarded with strong price action, and vice versa.
Let’s dig in first with companies that are expected to beat their previous quarter’s earnings numbers and thus are poised to trade higher if they succeed at meeting those expectations…
For this screen, stocks must meet four criteria:
- The stock is covered by 10 or more analysts.
- The average analyst recommendation is a “Buy.”
- It BEAT analysts’ EPS estimates for the previous quarter.
- The average analyst estimate for the current quarter’s EPS is greater than the previous one.
Here’s what I found for next week…
We’re outside the meat of “earnings season,” so this week’s list is thin with only two companies.
It will be interesting to see how these two companies report and how investors react to the new information, particularly now that the pullback in stock prices that began on February 19 has continued alongside President Trump’s latest trade war moves.
In a way, BlackRock’s forward guidance is a must-watch as it will provide a gauge of the strength of capital markets ahead.
Meanwhile, Fastenal is an American industrials company that could benefit from increased domestic economic activity if protectionist and “reshoring” policies gain traction.
The Money & Markets team will be watching closely, that’s for sure!
Now, let’s move to companies at risk of seeing bearish price action next week…
Bearish Earnings Ahead?
I’ve designed a more straightforward screen for stocks with bearish potential, mainly because Wall Street’s analysts rarely give stocks “sell” ratings, even when they’re rather obviously deserved.
For this screen, we’re only looking for two things:
- The stock must be covered by 10 or more analysts.
- The average analyst estimate for the current quarter’s EPS is less than the previous quarter.
In short, we’re looking for companies that are covered by a sufficiently large group of Wall Street analysts who collectively expect the company to report a quarter-over-quarter decline in earnings.
Here’s what my stock screen revealed for next week’s quarterly calls:
It’s hard not to mention the somewhat bearish tone of the broader stock market this week, as investors clearly appear to be shellshocked by Trump’s aggressive trade war moves.
Similarly to BlackRock, the report from JPMorgan Chase & Co. (JPM) should provide a guide to future expectations for the capital markets.
Meanwhile, the Delta Air Lines (DAL) and CarMax (KMX) reports will serve as a gauge of consumer spending patterns in general and the potential impact of tariffs on imported automobiles in particular.
Against the backdrop of this week’s trade war news, CarMax (KMX) looks quite vulnerable to a bearish “spook” if it reports declining earnings and warns of likely declines in future quarters.
Until next time…
To good profits,
Editor, What My System Says Today
