The combined companies in the S&P 500 have reported negative earnings growth for every quarter in 2020.
Until now…
With over 75% of S&P 500 companies having reported earnings by now, it’s safe to say that this will market the first and only profitable quarter for earnings in 2020.
It was a long shot for earnings to be profitable in the fourth quarter. At the beginning of the quarter, expectations were for a 6.8% drop in earnings growth.
But, thanks to better than expected results by 80% of the companies, we can celebrate positive earnings growth once again.
The great news is that it is just beginning.
There’s double-digit growth expected in each of the four quarters of 2021 due to the COVID-19 pandemic.
The economy is still struggling to get back on its feet, but as it does, it’s going to lift earnings growth for most companies around the world.
With the bottom-line results set to improve, it’s hard not to bet on a positive stock market positive 2021.
Today, we’ll look at five companies on my Winning 75 list — a shortlist of stocks with proven trends after they announce earnings.
I know it’s not as exciting after earnings are out, but that’s the point. No one is looking at profit potential from jumping into stocks after the announcement. Everyone wants to gamble on the event.
Not me.
I follow stocks through earnings to get a jump on what I know comes next — an earnings drift with a consistent history of playing out.
And tomorrow, I’m finally pulling back the curtain on the details of this unique earnings strategy.
You won’t want to miss it. Click here to sign up.
On to this week’s Earnings Edge…
5 Earnings Reports on My Radar
Stock No. 1: NVIDIA Corp. (Nasdaq: NVDA)
Earnings Announcement Date: Wednesday, February 24, after the close.
Expectations: Earnings at $2.80 per share. Revenue at $4.81 billion.
Average Analyst Rating: Outperform.
NVDA, a semiconductor stock, hasn’t climbed higher for the last few months.
After a massive 200% rally from the lows a year ago, shares have consolidated into a wedge pattern until February 9. Shares rode a market rally to breakout to the upside. It lasted for a few days, and then we got a pullback heading into earnings this week.
But the pullback is just testing the previous resistance level.
It’s a classic BRB pattern — breakout, retest, bounce.
NVIDIA Is Ready to Bounce Higher
Shares are headed into the “bounce” stage next.
And its earning could kickstart a rally that will send the stock towards $680 a share in the coming weeks.
One thing that concerns me, though, is that the company just announced new chips designed for mining the cryptocurrency Ethereum.
The last time we went through this cycle of chipmakers focusing heavily on crypto mining, their share prices get strongly tied to the currencies.
NVIDIA won’t escape that talk if Ethereum starts to fall from its epic rally.
The options market is looking for a 3.7% move in the stock. As long as that resistance level holds and we see the bounce, look for that jump to be to the upside come Wednesday.
Stock No. 2: NetApp Inc. (Nasdaq: NTAP)
Earnings Announcement Date: Wednesday, February 24, after the close.
Expectations: Earnings at $1.01 per share. Revenue at $1.43 billion.
Average Analyst Rating: Outperform.
NetApp, an enterprise storage company, has been a direct beneficiary of the pandemic work environment. The shift to remote offices and virtual learning led to a boom in the cloud storage market.
That’s helped the share price rally more than 50% since November. After the surge, the stock is now trending higher in a tight upward price channel. Take a look:
NetApp Is Riding the Cloud Storage Boom
Believe it or not, the stock heading even higher after a strong rally is very bullish news.
What you don’t want to see is a price collapse, like GameStop’s short squeeze. That tells you the rally wasn’t sustainable.
This, however, tells us there’s plenty of upside left.
We may or may not get a breakout on earnings this week, but a bullish report will have us heading higher from here.
Based on option prices, investors are only looking for a 3.5% move — that’s enough to keep it in the price channel regardless of the direction.
Just keep an eye on that rising channel to make sure the stock is going in the right direction.
Stock No. 3: Best Buy Co. Inc. (NYSE: BBY)
Earnings Announcement Date: Wednesday, February 24, before the open.
Expectations: Earnings at $3.45 per share. Revenue at $17.2 billion.
Average Analyst Rating: Outperform
The nationwide electronics retailer is looking to beat expectations after a very important quarter. The fourth quarter covers the holiday shopping period, and analysts want to see if consumers bought all the electronics they needed earlier in the year for school and work-from-home environments.
Shares have rallied in the last twelve months thanks to this shift, but you can see on the chart below the stock started to wobble in the fourth quarter.
It hasn’t made a new high since November 6.
Now the stock is trading in a downward price channel.
Best Buy Is Trending in the Wrong Direction
That could spell bad news for the company when they announce earnings this week.
A strong resistance level just above where the stock is trading means it would need a great report to breakout of this range.
But, even with a minor slip up, shares are headed for a double-digit decline back to the bottom of this price range.
Options traders are only pricing in a 3.6% move, which could get blown away when they announce earnings. Best Buy has a history of seeing wild price swings on earnings, even in the double-digit range.
Stock No. 4: Universal Health Services Inc. (NYSE: UHS)
Earnings Announcement Date: Thursday, February 25, after the close.
Expectations: Earnings at $2.78 per share. Revenue at $2.99 billion.
Average Analyst Rating: Outperform.
UHS, a hospital and health facility operator in the U.S., has actually seen a negative effect on it’s business due to COVID-19.
While we hear about all the sick people from the virus, there are actually fewer amounts of people visiting hospitals. This can be attributed to a few different factors:
- Fewer flu patients.
- Patients putting off non-urgent procedures.
- Virtual visits have picked up.
That’s why UHS hasn’t hit a new all-time high like the majority of other stocks. But it is headed in the right direction.
Shares broke out of a major resistance level back in November, but an old resistance level turns into support once it breaks.
And there’s a long-term trend line converging together at the same time, giving the stock extra support heading into this earnings announcement.
UHS: Two Trends Converge
With two key levels holding up the stock just before earnings, it nudges the expectations to the upside for me.
And considering the stock has failed to rally to new highs like the rest of the market, there’s plenty of upside. All it takes is a return to normal.
Even though President Joe Biden said it might take until Christmas to get back to normal, with a vaccine, consumers will have more confidence to venture back out.
Not only will other viruses like the flu pick back up, but those procedures that were put off a year ago will finally be back on the table.
This is one stock I wouldn’t bet against in 2021.
Stock No. 5: HP Inc. (NYSE: HPQ)
Earnings Announcement Date: Thursday, February 25, after the close.
Expectations: Earnings at $0.66 per share. Revenue at $15 billion.
Average Analyst Rating: Hold.
The PC giant is in the same boat as Best Buy.
Analysts wonder if all the electronics for the work-from-home and school-from-home environment stole the thunder from the holiday shopping spree.
We know there was a surge in demand for new computers and monitors during the pandemic. Factory shutdowns also hit the industry with a chip shortage reducing the supply of appliances, next-gen consoles and more.
And in November’s earnings release, HP said it was suffering through the chip shortage as well. I experienced the shortage firsthand when I tried to buy our son a gaming laptop for beginners. There was a very limited selection.
Laptop after laptop was listed as sold out online.
Now we get to see how bad it hurt sales during the busy holiday season of the fourth quarter.
From its price chart, you wouldn’t think there were any issues.
The stock has trended higher in a very tight trading range — a rally that may be too steep for the PC giant.
Is HP’s Surging Stock Price Sustainable?
I know consumers wanted more electronics in the fourth quarter last year. But I think the chip shortage hurt HP.
And when you look at how sharp this rally has been, the steepness of that price channel, I find it hard to believe we get a surging stock on earnings this week.
Hopefully, I’m wrong and a strong U.S. consumer base is ready to spend even more on electronics than they did last summer.
It’s just not a risk I’d be willing to take.
Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.
Click here to join his free newsletter, Weekly Options Corner.