3 Easy Ways to Turn Earnings Season into Profits

You're receiving this email as part of your subscription to Lou Basenese’s Trend Trader Daily. [Unsubscribe](. [Trend Trader Daily]( 3 Easy Ways to Turn Earnings Season into Profits Thursday, October 14, 2021 It’s counterintuitive — but I want you to ignore all the current headlines. In other words, forget about inflation… pay no attention to the Fed taper... and turn your back on the slumping technicals for the major market indices. You see, as I explained during a Fox Business appearance earlier this week (see [here](), there’s only one factor that actually moves stocks over the long run: Earnings. Period! And guess what? We’re about to get bombarded with third-quarter earnings reports in the coming weeks. Take a look: (click image to enlarge) So, before the onslaught begins, here are three key earnings metrics you should be tracking… And, of course, a surefire strategy for you to turn reporting season into profits. > ADVERTISEMENT < Write this Number Down: 0001139685 [Number]( This code is the KEY to unlocking almost unbelievable investment gains. It's not an options symbol, bond, or any crypto. But 10-digit codes like this could potentially change your life. [Click here now to see how »]( A Strong Start on the Top Line The first metric you should be tracking is the Revenue “Beat Rate” — in other words, the percentage of companies reporting higher than expected sales figures. The thinking here is straightforward: At this stage of the economic recovery, companies can no longer cut costs to increase profits. Instead, they need to increase sales prices and/or volumes. And if they’re doing so quicker than analysts expect, it’s a sign that demand for goods and services is stronger than expected. So the higher the revenue beat rate, the better. The first quarter revenue beat rate for S&P 500 companies checked-in at 87%, which is well above the five-year average of 65%, according to FactSet Insights. So the bar is set high going into this quarter. However, top-line sales mean little if it doesn’t translate to bottom-line earnings… We Need Bottom-Line Strength, Too The second metric worth tracking is the Earnings “Beat Rate” — the percentage of companies beating their earnings expectations. This is crucial, because as I’ve said here frequently, share prices ultimately follow earnings. (Just so you know, this isn’t a clever theory of mine. It’s a cold, hard, time-tested fact.) The reasoning is ultra simple: since a company’s value is based on the amount of profits it produces, the more profits it generates, the more it’s worth. And to compensate for this higher worth, stock prices must rise. So if the majority of companies report better than expected earnings, it stands to reason that the majority of stock prices will also trend higher. Last quarter, the earnings beat rate checked-in at 87%, solidly above the five-year average of 76%. Anything north of 76% this quarter, and this bull market still has plenty of room to run. How much room? Well, it all comes down to the third indicator… Show Me the Optimism Since the stock market is a forward-looking beast, past results don’t matter as much as expectations for the future. That means guidance can oftentimes be more important than the actual results. Now it’s true that companies aren’t required to issue guidance. But enough do, which makes it worthwhile to track the Guidance Spread — the difference between the percentage of companies raising guidance and those lowering guidance. A positive spread indicates that more companies are optimistic about the future. And a negative spread indicates that more companies are pessimistic. Heading into this quarter, all signs point to a positive spread. I say that because 103 companies in the S&P 500 have already issued guidance for the current quarter. And 56 of them have issued positive guidance, versus 47 negative. Any positive reading should be considered bullish. So giddy up! And the more positive the spread this quarter, the higher we should expect stock prices to go. Translating the Data into Strategy Now, before someone quips that all these metrics are meaningless unless we can use them to identify new opportunities, let me do just that… It stands to reason that “triple plays” — companies beating earnings expectations, beating revenue expectations, and raising guidance — are the most fundamentally solid, and therefore, the most investment worthy. And if we focus on the sectors with the highest beat rates, too, we should be able to increase our odds of investment success even more. After all, high beat rates indicate that the sector is benefiting from some type of tailwind. Otherwise, companies would be missing expectations, not beating them. Furthermore, if we also focus on small caps, we can put another burgeoning trend on our side — the increase in Mergers & Acquisitions activity. A takeover offer represents a surefire way to boost our profit potential by 40% (or more). And I’m pretty sure no one’s going to argue with that. Rest assured that I’ll be tracking the upcoming earnings reports for companies that meet all these criteria — and then I’ll be sharing them with you! TREND TRADER PRO TRADE OF THE WEEK [ ACTION TO TAKE ] FOR TREND TRADER PRO READERS ONLY [> Learn more](  Ahead of the tape, [Lou Basenese] Lou Basenese Founder & Chief Investment Strategist Copyright © 2021 Trend Trader Daily, All rights reserved. You signed up on []( Our mailing address is: Trend Trader Daily 301 S. 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