It’s that time again. We’ve reached the end of the first quarter, and March 31st marks the end of a cycle. Sales teams are working around the clock. They’re trying to close the “big deal” in the final hours. Everyone’s worried about making quarterly numbers.
The bean counters are going nuts.
Accountants around the world are working hard on closing out the books. They’re adding up the numbers and counting inventory. They’re checking the bank balances and calculating final quarterly earnings.
The lawyers are getting into the act…
High priced corporate attorneys are lining up to help public companies produce and file government reports. The Securities & Exchange Commission is waiting anxiously to see who can get their reports in on time… and who walks in late.
Even institutional investors and fund managers are awaiting the quarterly results… And maybe you are too.
But let me ask an important question… Should we really care about quarterly earnings?
Think about it for a moment. Don’t many investors look at the long term objectives of a company? Shouldn’t we concern ourselves more with yearly results and not quarterly results? Isn’t the future of the company more important than its past?
All of these are really good questions… and I’ll get to them in a moment.
But first, let’s take a quick look at the next few weeks. We’re on the tip of earnings season. The next month will hold an avalanche of earnings announcements, press releases, and conference calls. Not to mention some wild swings in the market.
The Good, The Bad, and The Ugly…
Earnings season is always filled with surprises. Some companies will have blow-out earnings.
They’re going to release record numbers, and the stock will pop. The CEO will be carted around Wall Street meeting with investors… smiling. Some CEOs might even make the front page of The Wall Street Journal or get interviewed on CNBC.
Those management teams will strut around like proud peacocks.
Other companies will report less than stellar results. They’ll lose a big contract, or miss revenue targets. Expenses might get out of hand, and earnings will suffer. The stocks will take a big hit… and the CEO will scramble to explain the poor results.
It’s situations like these where the masters of “Spin control” really make their money.
The rest of the pack will announce earnings without fanfare or excitement. The CEO might call a few of their bigger shareholders. But there won’t be any round the world trips or back-to-back meetings with investors.
Those CEOs say their peace then head back to work just like the rest of us.
How It All Starts…
Kicking off the excitement of earnings season is Alcoa (AA).
For years Alcoa has been one of the first to report their quarterly earnings. And this season is no different. On April 11, Alcoa will host an earnings conference call to let shareholders know how they did over the last 90 days. I recommend you go to the Alcoa website and get all the details of the conference call… then listen in.
See, Alcoa has long been seen as a bellwether stock.
If they do well, then earnings season should go well. However, if Alcoa does poorly, the rest of earnings will have a dark cloud hanging over it. And having the right expectation for earnings season is very important.
So let’s get back to the question that kicked this all off… Should we still care about quarterly earnings?
My answer is a resounding – YES!
But my reasons might shock you.
I am a believer in investing in some companies for the long term. I do believe the annual results matter more than the quarters… but only in a few instances. Long term investing is one thing… but, remember we’re here to make money, not show undying loyalty.
Consider this… quarterly earnings are a time for reflection! No, I’m not going all soft and granola on you… no new age stuff here.
Management has an opportunity to look at the results and make important adjustments to the business. And quarterly earnings give you the opportunity to examine your holdings once again.
You’ll see little things start to happen. For example, revenue growth might start to accelerate… or slip. You might also see expenses growing… or shrinking. You even get a good look at earnings. This will tell you how well a company’s really doing.
You can learn a lot from the numbers every quarter. And as an investor it gives you the opportunity to evaluate how your investment is doing.
The advantage of making your own investments is big… you can change your mind at any time.
There’s nothing that says you can’t change “horses” or stocks in the middle of a race! If you look at your investments every quarter and find one company is outperforming all the others… then the choice is simple. Sell your weakest performer and buy the strongest.
Don’t be afraid to change up your investments from time to time… this is your future… your retirement… your livelihood we’re dealing with after all!
So, as promised, here’s one way to make money with earnings.
Before I tell you, first I have to say this can be a risky strategy. It works for some stocks but not others. It works in some types of markets and not others. The strategy is simple. And powerful.
And if you hit it just right, you could make a boatload of money.
So what’s the strategy?
Investing with the trend… but not just any trend. Look for blow-out earnings trends.
Every once in a while the stars align for a particular industry. Customers wake up one day and decide they have to have the latest product regardless of the cost. And it’s great news for a handful of companies.
So watch earnings results closely… and look for a company announcing off the chart results. Then watch for another company in the SAME industry to report. If those numbers are good too, you can bet an industry trend has developed. If a handful of companies are crushing numbers, you can bet most others in the industry are seeing an uptick in business too.
It’s an opportunity to jump into a handful of smaller companies, and capture their success over a very short period of time. If you think about it, these are very short term trades. Get in before they announce solid earnings then sell a day or two later as the market pushes them higher.
Obviously, this strategy works best in hot industries. So pay close attention to earnings season, and you might have a number of winners on your hands.