Turning Earnings Season into Profit Season This April
|
Listen to this post
|
For the mathematician Archimedes, it came while taking a bath. As he lay down in the tub and watched water spill over the sides, he realized the displaced water must be equal to the volume of his body — and thus stumbled upon the principles of buoyancy and density.
He was reportedly so excited that he jumped out of the bath and ran through the streets shouting “Eureka!”
For John Lennon (according to rock-and-roll legend), the eureka moment came in an antique store when he noticed an interesting poster, which would inspire his song “Being for the Benefit of Mr. Kite!”
For George de Mestral, it came on a hike when he noticed burrs attached to his dog’s fur. He took the burrs home, examined them, and eventually imitated their structure to create Velcro.
For LikeFolio founders Andy and Landon Swan, their eureka moment came from their memories at the racetrack.
Inspired by a horse racing tip sheet, Andy and Landon launched a Weekly Earnings Scorecard “tip sheet” that contains scores and trade ideas for every company reporting earnings in the week ahead.
I won’t bog you down with information about the proprietary technology behind it, but I will say that LikeFolio’s consumer data gives them a unique ability to predict which companies will surprise the market and which will disappoint.
With earnings season almost upon us, it’s the perfect time to share LikeFolio’s “1-2-3” process for spotting big opportunities.
And “big” is not an exaggeration, as this upcoming earnings season could contain 40 of the most profitable trading days of the entire year.
No. 1: Be Mindful of Market Trends
When the LikeFolio team constructs an earnings trade, they start with an overall market trend, since that can act as a headwind or tailwind for individual stocks.If a particular sector is in a downtrend, they’ll lean aggressively into their bearish earnings signals.
Should they see upward momentum in another sector, they’ll focus more on bullish earnings signals.
That said, the “one thing” that creates the hottest investing opportunities — the thing the LikeFolio team has built their whole system around — is the consumer.
And what consumers are saying in their Twitter posts gives LikeFolio a big head start on finding moneymaking opportunities.
No. 2: Consumers Are ‘the Force’ — Use the Force
If you have any doubt about the power of the consumer, remember this single data point: In America, consumer spending drives nearly 70% of everything that happens in our economy.Consumer spending is like one big election, where wallet-based voting takes place each and every day. That voting separates the winners and the losers… with products and services, and with the companies that sell them.
A product that’s a big hit can do wonders for a company’s sales and earnings — and its stock price.
Understanding where consumer interest is hot — and where it’s not — gives you an enormous edge heading into earnings season.
The cheat sheet below breaks down where consumers are voting with their wallets, and it can serve as an excellent guide throughout earnings season:
The green industries (on the left) are seeing positive consumer interest — a tailwind for companies in those categories. This could make corporate execs more optimistic, boosting the potential for an all-important “forward-guidance increase” when they talk about their full-year 2023 outlook.
The red industries (on the right) are just the opposite. Consumers are cooling their spending in these categories, which means companies there could become more conservative for the year.
But it’s all about balancing guideline No. 1 and guideline No. 2.
If LikeFolio sees a negative earnings score on a company that is in a green consumer sector, or a positive score on a company in a red consumer sector, they’ll probably play it more conservatively — or pass on it altogether.
However, if a company’s earnings score lines up with the overall consumer trend for its sector, they’ll move into the trade aggressively, seeking big profits.
This brings me to LikeFolio’s third — and final — rule.
No. 3: Be Opportunistic
The beauty of LikeFolio’s research is that they can set up trades to cash in on consumer trends in publicly traded companies before those companies report earnings.Here’s an example.
In early January 2022, LikeFolio saw bullish trends for binge-watching favorite Netflix Inc. (NFLX).
New subscriber growth mentions were up 3% year-over-year (YoY) while other streaming services were losing steam.
Major green flags like those naturally led to a bullish earnings signal ahead of the company’s fourth-quarter earnings report, which came out Thursday, Jan. 19.
Thanks to that early signal, LikeFolio doubled down on their already-bullish thesis for the company and alerted readers to the opportunity on Jan. 13.
And boy, did it pay off.
The quarterly report was so positive that Netflix shares spiked 8% on the news. And readers who followed their bullish recommendation were able to bank 112% gains in the space of just five days.
And that’s just one example. LikeFolio’s research allows them to look at big — scratch that – huge moneymaking opportunities every week of every earnings season.
It’s exciting, fun, and — as you saw — full of profit potential.
As the earnings report rollout begins, remember:
- Be mindful of market trends.
- Use consumer trends by sector to spot big profit plays.
- Be opportunistic.