Top Post-Earnings Season Stock Plays

With earnings season now complete, we analyzed the price charts of the sixty-two stocks that reported earnings triple plays (beat earnings and revenue estimates and raised guidance) to find the ones that currently look the most attractive as long plays from now through the start of next earnings season.

The thirteen stocks listed below caught our attention the most.  Each stock just had a very strong quarterly earnings report, and its technicals look strong as well.  We also provide price charts and company descriptions for each of the names shown.  As always, we recommend using these lists as a starting point for further research before making any investment decisions.

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Earnings Season Gains

As we noted in our prior post, the S&P 500 gained 6.36% this past earnings season (from Alcoa's report date on 1/9 through Wal-Mart's report date yesterday).  Below we highlight the S&P 500's percentage change during all earnings seasons since 2002, sorted from the best to the worst.  We also include how the S&P 500 did during the following earnings off-season.

As shown, the 6.36% gain for the S&P 500 this past earnings season was the fifth best for the index over the last ten years.  When the index has rallied more than 5% during earnings seasons, it has averaged a gain of 3.25% in the following off-season, with positive returns four out of five times.  The average performance for the S&P over all earnings off-seasons has been 0.83%.

Over at Bespoke Premium, we just published our in-depth Earnings Season Wrap-Up report.  Click here to become a Premium member today.

Final Earnings Season Stats

Earnings season came to an end yesterday with Wal-Mart's (WMT) release of its quarterly numbers.  Wal-Mart's report must have been bittersweet for market bulls since the S&P 500 rallied more than 6% this past earnings season. 

As shown below, the percentage of companies that beat earnings estimates for the reporting period finished at 60.4%.  This is slightly lower than the reading from the prior earnings season and 1.6 percentage points below the historical average of 62%. 

Looking at earnings beat rates by sector, Technology had the strongest reading at 68.2%, followed by Consumer Discretionary (65.7%), Industrials (65%) and Health Care (61.5%).  Telecom had the weakest beat rate at just 33%, while Utilities had the second weakest reading at 40%.  Energy, Materials, Financials and Consumer Staples all had readings weaker than the overall beat rate.

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Oil Breakout

Prior to today, oil had been trading in a pretty tight range between the low $90s and low $100s since the middle of last November.  As shown below, oil broke out of that range today as it surged past $105 to finish the day at $106.25. 

Now that oil has made a short-term breakout, its next stop is its 2011 high of $113.93.  If it takes out that level, traders will have their eyes set on the commodity's all-time closing high of $145.29 made back in mid-2008.

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Dow Transports Diverge From Industrials

Dow Theorists look for the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average to confirm each other.  That means that when one index makes a new high, the other should be making a new high as well.  When there is divergence between the two, as there is now, it could signal a trend reversal for the market. 

As shown below, the Dow Jones Industrial Average has been making new highs in recent weeks, while the Transports index has been struggling.  The Transports index is having a tough time even holding onto its 50-day moving average, while the DJIA remains overbought.  Time will tell how this plays out, but rest assured that we'll be hearing more and more about this negative divergence in the coming days.

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Historical Market Performance on Leap Days

Next Wednesday the 29th is a leap day.  For you market historians out there, below we highlight the Dow's performance on leap days since 1900. 

There have been 21 leap days in which the market was open since 1900.  As shown below, it hasn't historically been a great day.  The average performance of the Dow on leap days has been -0.05% with a median return of -0.22%.  The Dow has only been positive on 7 of the 21 leap days (33%). 

There have been three leap days that fell on a Wednesday (which is the day leap day is on this year) since 1900, and the index has risen once and fallen twice.  The last leap day was February 29th, 2008, and that day the Dow had a big fall of 2.51%.

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More Bears Than Bulls

Last Friday we asked readers whether they thought the S&P 500 would be higher or lower one month from now.  As shown below, 55% of respondents said lower, while 45% said higher.  So even though the index is currently just a couple of points off of its bull market highs, there certainly doesn't appear to be excessively bullish sentiment out there.

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Get Bespoke's Top Market Ideas

Each Friday, Bespoke subscribers receive our Week in Review newsletter.  This report provides Bespoke's current market thoughts through commentary and the unique graphs and charts that our clients have come to love.  If you're looking to get a better grasp of the market, become a Bespoke subscriber today and download our Week in Review newsletter.

In this week's newsletter:

• The Lin market -- how far can this rally go?
• 35 days without a -1% move.  A bullish or bearish sign?
• Apple $500 -- a new asset class? 
• Apple's valuation versus key indices and competitors.
• Economic indicator scorecard -- this week's beats and misses. 
• How are other economies doing?
• Strong jobs numbers and strong housing numbers -- can it last?
• Is inflation creeping back up?
• The technical outlook for gold and oil.
• Earnings season coming to an end.
• Breakout stocks to get long now.
• What is the "Smart Money Indicator" telling us?
• Historical market performance during President's Day week.
• Holdings for Bespoke's Model Stock Portfolio.

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S&P 500 Higher or Lower

The S&P 500 closed out the week just a couple points below its bull market high of 1,363.61 on April 29th, 2011.  So which way will the market go from here?  Please take part in our poll below that asks whether the S&P 500 will be higher or lower than its current level one month from now.  We'll report back with the results on Monday.

Will the S&P 500 be higher or lower than its current level one month from now?
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Free polls from Pollhost.com

 

50 Best Performing Stocks Year to Date

The year is not even two months old and the average stock in the Russell 3,000 is already up 13.55% year to date.  Below is a chart showing the average YTD percentage change of stocks in each sector.  As shown, the average Technology stock is up 17.25% so far in 2012, which leads the way for all sectors.  Materials ranks second with an average gain of 16.81%, followed by Consumer Discretionary (15.24%), Industrials (14.68%) and Energy (14.46%).

One sector stands out significantly for its underperformance this year -- Utilities.  As shown, the average Utilities stock in the Russell 3,000 is actually down 1.55% in 2012.  Anyone that has a large Utilities weighting in their portfolio has likely underperformed the market recently.

For those interested, below is a list of the 50 best performing Russell 3,000 stocks year to date.  As shown, recent IPO FriendFinder Networks (FFN) is up the most in 2012 with a gain of 210.67%.  Five other stocks in the index are up more than 100% in 2012 -- Corinthian Colleges (COCO), Smith Micro (SMSI), Cobalt International (CIE), Eagle Bulk Shipping (EGLE) and Hovnanian Enterprises (HOV).  Netflix (NFLX) and Sears Holdings (SHLD) are probably the most noteworthy stocks on the list as well as the most surprising given their underperformance in 2011.

With such strong momentum behind them at the moment, it's worth taking a look through these names over the long weekend to see if any opportunities exist.

 

Getting Close to Bull Market Highs

The bull market for the S&P 500 that started in March 2009 has been on hold for nearly ten months now.  It has now been 294 days since the index made its bull market closing high of 1,363.61 on April 29th, 2009.  The index never declined the required 20% on a closing basis for an official bear market to start, so the pullback that occurred following the 4/29/11 closing high is still just a bull market correction. 

The S&P 500 closed today at just over 1,361, putting it less than three points away (17 basis points) from closing at a new bull market high.  So how has the index gotten to where it is today from where it was last April 29th?  Below is a chart showing sector performance over this time period.  As shown, half of the sectors are up and half are down since April 29th.  While Technology has led the way on the upside out of the ten sectors with a gain of 8.41%, the Financial sector has acted as the biggest drag on the index with a decline of 9.74%.  These are the two biggest sectors in the market, and they have clearly counteracted each other over the last ten months.

The Consumer Discretionary sector has seen the second largest gains since 4/29 at +6.02%, followed by Utilities (5.35%), Consumer Staples (4.55%) and Health Care (2.66%).  Energy has been the second worst performing sector behind Financials since 4/29 with a loss of 7.19%.  Materials is a close third at -7.13%, while Telecom and Industrials are both down around 4%.

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Guidance Gets Better As Earnings Season Enters the 9th Inning

Last week at this time, the spread this earnings season between the percentage of companies raising guidance minus the percentage of companies lowering guidance was at -3.3 percentage points.  The week before that, the spread was at -4.2 percentage points.  As shown below, the spread has increased to -2.6 this week, meaning more companies raised guidance than lowered over the last five trading days. 

Earnings season ends on Tuesday with Wal-Mart's report, so it's highly unlikely that the reading will turn positive by then, but at least guidance has gotten better as earnings season has progressed. 

Below is a chart showing the guidance spreads this earnings season for the ten major sectors.  As shown, just one sector -- Industrials -- has seen more companies raise guidance than lower guidance.  Technology and Telecom are the only two other sectors that have a spread that is better than the -2.6 reading for the entire market. 

For whatever reason, stocks in the two consumer sectors have been lowering guidance much more often than they have been raising guidance this season.  The Consumer Staples sector has had the worst guidance spread at -8.47 percentage points.  Consumer Discretionary has been the second worst sector at -6.38.

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New Daily Triple Plays Report

Over at Bespoke Premium, we have just released a new report that will be published daily covering earnings "triple plays."  As noted on Investopedia, a "triple play" is "a stock that simultaneously beats analyst expectations for revenue and earnings and also raises earnings guidance for future quarters.  The term triple play was first popularized by Bespoke Investment Group in the mid-2000s and is seen as a highly positive sign for the stock."

In our Daily Triple Plays report, we provide a list of all of the stocks that have reported triple plays over the last 40 days, and we also provide price charts of all of the new triple play stocks that are added to the list each day.  Please click on the thumbnail image below to view a sample of the report.  To begin receiving the report on a daily basis, become a Bespoke Premium member today.

Spin Offs Back In Style

It seems as though throughout the history of Wall Street, there has been a continuous cycle where companies merge to form ‘synergies,’ and then years later spin off assets to ‘unlock’ value.  In the late 1990s, the merger of Salomon Smith Barney and Citigroup was lauded as a monumental merger whose synergies would lead to huge cost savings and cross selling that would benefit shareholders of the combined company.  We all know what happened in the ensuing years following that merger.  Citigroup, as the combined company is now a shell of its former self in terms of divisions and market cap.

These days the market seems to be in the unlocking phase where several companies are spinning off units in an effort to boost share prices.  In the last quarter of 2011 alone, there were eight spinoffs of $100 million or more.

So what's the best way to play corporate spin offs?  Should investors buy the child company, the parent, or avoid both?  To help answer this question we performed an analysis of all completed spin offs going back to 2001, and calculated the performance of the parent and child stocks in the ensuing weeks and months.  Clients wishing to view the analysis can click on the link below.  If you are not yet a Bespoke Premium client sign up today!  You'll be glad you did.

Spin Offs Back in Style

Best and Worst Performing S&P 500 Stocks on Earnings

So far this earnings season, 60% of the companies that have reported have beaten earnings estimates.  Looking at just the S&P 500 stocks that have reported, 63% have beaten estimates. 

The average S&P 500 stock that has reported has gained 0.55% on its report day this season.  (For companies that report after the close, we use the next day's change.)  Below are the 30 best and 30 worst performing S&P 500 stocks on their report days.  As shown, Netflix (NFLX) has been the best performing stock in the S&P 500 on its report day this earnings season.  The stock gained 22.06% following its report on January 25th.  Computer Sciences (CSC) ranks second with a gain of 18.54%, followed by Textron (TXT), Genworth Financials (GNW), Whirlpool (WHR) and Cerner (CERN).

E*TRADE (ETFC) has been the biggest loser in the S&P 500 this earnings season with a decline of 14.64% on its report day.  TripAdvisor (TRIP) comes in a close second with a one-day decline of 14.56%.  Supervalu (SVU) has been the third worst at -12.51%, followed by Masco (MAS), SanDisk (SNDK), Edwards Lifesciences (EW) and Corning (GLW).

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