Coming Soon: The Most Profitable Earnings Season Ever

We spoke yesterday about why now is an excellent time to buy Apple (NASDAQ:AAPL).

If you missed it, none of the three reasons had anything to do with the popularity of the new iPhones.

That’s because there are more important factors that will boost the stock price — factors that most investors are currently missing.

But the best part?

The same factors working in the favor of Apple will also buoy other stocks. But you better get in quickly because it’s now October, which means these stocks won’t stay cheap for long…

So what does October have to do with the prices of this special group of stocks?

The answer is the most exciting (and profitable) time of the year for investors — earnings season.

Four times a year, every publicly traded company is required to report the results of their last business quarter. And the next earnings season officially kicks off next week with reports from big banks Citigroup, Bank of America and JP Morgan Chase.

Three factors that most investor pay attention to are revenue, earnings per share (EPS), and guidance.

As we’ve talked about in the past, guidance should be the most important factor because this tells investors what company management expects business to be like in the future — which ultimately decide stock prices. But the two other factors (revenue and EPS) are also important because these figures allow investors to update previous expectations.

If you’ve ever been watching CNBC or Bloomberg after a company reports earnings, this is why the stock price usually jumps so dramatically. Investors need to be quick to react to the positive or negative news or risk missing the trade.

But what makes this earnings season even more exciting are the positive tailwinds that should boost the numbers reported by U.S. companies.

Let me explain…

Earnings Tailwind #1: This Bull Market Is Real

We are currently in the second longest bull market since World War II. And I expect the market to continue higher for the foreseeable future.

Take a look at the facts.

Consumers right now have more disposable income than ever.1 This is due to the unemployment rate hovering near record lows and the stock market being at all-time highs. This equates to consumers spending more at the companies whose stocks are fueling the rally.

And on top of all this, the last earnings season was the best we’ve had in over a decade with the highest number of S&P 500 companies beating analyst expectations.2 Keep in mind, last earnings season was in July. So ask yourself… what’s changed in 3 months?

Don’t get me wrong, you should always be properly allocated. But investors that are too busy waiting for a correction are the same people who haven’t made a dime in the last few years.

“I still think the markets have great opportunity to keep going higher” says our former floor trader and resident analyst, Alan Knuckman, “just because we’ve come a long ways doesn’t mean we can’t go further.”

Earnings Tailwind #2: The Weak Dollar

We’ve talked about this concept a lot here at The Daily Edge.

A weaker dollar helps U.S. companies that sell goods and services overseas.

Here’s an example:

Take General Electric (NYSE:GE). Let’s say they have a revenue target of $1.2 million on aircraft engines sold in Europe. When the Euro/USD exchange rate was 1.05, they would have to sell the engine for about €1.143 million in order to convert those Euros back to the $1.2 million target.

But now the Euro/USD exchange rate is 1.18, which means the dollar has drastically fallen in value against the Euro.

GE can now lower the selling price to €1.02 million and still earn their target of $1.2 million when the revenue is converted on the income statement.

Earnings Tailwind #3: Trump’s Tax Plan

Taxes are now front and center on the agenda of the White House and Congress. And with the recent comments by White House officials Steve Mnuchin and Gary Cohn, I expect tax reform to be a topic discussed in detail during upcoming earnings calls.

In September, Mnuchin stated that he expects reforms to be passed by the end of the year. While just this week, Gary Cohn finally acknowledged that the Trump administration will push for a 10% repatriation rate.

To get a sense of what I expect during this upcoming earnings season, in July, Morgan Stanley CEO James Gorman said that a 25% corporate tax rate would lift the bank’s earnings by 15%. And that’s just the corporate tax rate!

Throw on top the added windfall from repatriated earnings and the stage is set for the bull market to continue.

Today, I strongly recommend that you keep a portion of your assets invested in equities. Earnings season is upon us and will continue into November.

Plus, I’ll go one step further, and urge you to tune in to our special broadcast on Thursday, October 5th.

As a loyal reader to The Daily Edge, you’ve got a front row seat to this exciting event (absolutely free.) And you’ll learn what could be the best possible way to capitalize on this upcoming boom in earnings.

Click here to get caught up on the action — and stay tuned on Thursday at 1pm.

Here’s to keeping your edge,

Davis Ruzicka

Davis Ruzicka
Managing Editor, The Daily Edge
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1Real Disposable Personal Income: Per Capita, FRED
2Corporate America Is Having Its Best Earnings Season in 13 Years, Bloomberg, Jack Kaskey

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