Two Strategies to Maximize Your Earnings Season Profit Potential

By TradeSmith Editorial Staff

Listen to this post
By next week, anywhere from 100 to 400 companies will report earnings each day — an overwhelming flood of information.

But Jason Bodner — the inventor of the Quantum Edge investing system — has simplified things with two strategies for making money during this time.

The first is to focus on the best sectors.

In his system, those are tech, industrials, and discretionary — of which have all been delivering sales-and-profit surges quarter after quarter.

The second is a little more nuanced — understanding the difference between a “rebound” and a “turnaround” for companies so that you know where to place your investing dollars.

A rebound is where things start to “click” for investors and they see that a strong company has been undervalued.

Those are the types of opportunities worth looking into.

But a turnaround is where you’re betting on a company with sketchy financials, hoping the execs of that firm will finally figure things out and customers will come around.

Jason labels this as the “turnaround trap,” and by knowing how to avoid it, you can save your investing dollars from disappearing into nothingness and put them towards the companies that will actually make you money.

Turnaround Trades? No Thanks

Whenever Jason hears about a “turnaround” story or a new “catalyst” that is going to send a stock price higher, he can immediately go into his Quantum Edge system, look up key metrics, and see if the company deserves his attention and investing dollars.

Like with Alibaba Group Holding Ltd. (BABA). In a surprise shakeup that may inspire renewed optimism heading into its expected August earnings announcement, Alibaba now has new leaders at the helm.

Daniel Zhang is stepping down as chairman and CEO and will be replaced by Alibaba co-founder Joe Tsai for the chairman position. Eddie Wu, previously serving as the chairman of the e-commerce units Taobao and Tmall Group, will take over as CEO.

The news comes just months after the company announced its biggest restructuring plans in 24 years, with Alibaba splitting into six separate units.

But from what Jason is seeing, Alibaba could be classified as a “turnaround trap.”

Its scores are very low in his system.

The second data point he can drill into to help you avoid investing traps is showing what “Big Money” is doing.

After spending decades on Wall Street, Jason had the realization that if you could follow where some of the smartest and wealthiest Big Money players were putting their money, you could piggyback off their trades and create your own successful results.

Looking at chart below, you’ll see only two Buy Signals (green) over the last 90 days and two Sell Signals (red) in March as the only major activity on the stock from Big Money players.

Underdogs do occasionally win, but these tend to be longshot bets — and their rallies can flame out just as quickly as they started.

If you’re even a tiny bit late to the game, you’re more likely to lose money than to make money.

Just like with the “turnaround” meme stocks GameStop (GME) and AMC Entertainment (AMC) back in 2021:

You had to time your entry and exit perfectly to have made any money on those stocks.

That’s why Jason would rather focus on a company that ticks all the boxes for financial strength on the fundamental side — and when its shares are a magnet for money from big institutional players.

His strategy combines fundamental, technical, and money-flow components — and is a lot like the classic “CAN SLIM” method created by Bill O’Neill, the stockbroker who founded Investor’s Business Daily back in the ‘80s.

CAN SLIM stands for:

  • Current quarterly earnings growth
  • Annual earnings growth
  • New product/service, management, or price high
  • Supply and demand (accumulation on heavy volume)
  • Leadership in its industry
  • Institutional ownership of the stock
  • Market direction: Is the stock in sync with the broader trend?
He also looks for one- and three-year sales-and-earnings growth.

And for double-digit profit margins. Slim margins don’t cut it for him.

On top of that, even if the company is making a bunch of money, he studies the debt load to make sure it’s not overleveraged.

To give you some opportunities to explore, in his free issue of Power Trends, Jason shared two companies that just reached “top-ranked stock” status in his system.