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3 Earnings Season Winners

Every earnings season brings winners and losers, with stocks moving 5% to 10% in either direction. Here are three earnings season winners to consider.

When I started at Cabot back in June 1999, earnings season was much lower key—reports could cause a stock to rise or fall a little bit if earnings and the outlook really outdid (or missed) expectations.

But that was before Regulation FD went into effect, which mandates that all publicly traded companies must disclose material information to all investors at the same time. Before FD, earnings season winners and losers weren’t really a thing.

Money managers would often get hints from management about how the quarter was going, so “surprises” were usually only surprises compared to official analyst estimates; money managers weren’t caught very off guard very often. Now, though, earnings season is a free-for-all, with stocks (especially the volatile growth stocks that I specialize in) often moving 5%, 10% or more following their reports.

But despite the chance that a couple of months’ worth of gains might evaporate overnight, I’ve been looking forward to the current earnings season. That’s because, after a long run in many of the growth stocks I follow, many weren’t offering great-looking entry points. It’s hard to plow a bunch of new money into a stock that’s been rising for six months without a meaningful pullback. I reasoned that earnings season could offer new low-risk entry points.

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And many of the stocks that gap up strongly on earnings will morph into new leaders (earnings season winners, we’ll call them), rising strongly even after the earnings rally and kicking off sustained advances.

Encouragingly, I have seen some leadership emerge during the past couple of weeks. Of course, a gap higher on earnings doesn’t automatically equal a great buy point—you need to consider the company’s fundamentals and the stock’s action after the earnings surge and how it was trading before the gap.

And there’s one particular young company that’s high on my Watch List that soared out of a huge base two weeks ago.

I don’t want to give that earnings season winner away for free—Cabot Growth Investor subscribers know what it is and I’m still watching it closely as it digests its gains. If it acts well, I may add it to the Model Portfolio, which is up a nice 33% this year and has more than doubled the S&P 500’s return since I took over in 2007.

But there are other stocks that look good right now; here are three recent earnings season winners and my take on them.

Earnings Season Winners

The first and most obvious earnings season winner is Amazon (AMZN), which soared 13% last Friday on more than five times average trading volume.

What I like: I learned long ago never to underestimate a big, liquid growth stock that gaps up more than 10% to new highs following earnings, which is just what Amazon did. I also like that the stock has so far held and even built on those gains, and the stock’s relative performance (RP) line—which compares the stock’s action to the S&P 500—also hit a new high. And, of course, the fact that revenue growth accelerated sharply and earnings crushed estimates (and caused analysts to hike their numbers) is a plus.

Any potential problems? Only that AMZN is well loved, and before the gap, the stock looked very iffy, building what could have been an intermediate-term top. It’s also not the most volatile stock (percentage-wise), so I wouldn’t expect a mega-run from here.

My take: There are never sure things, but the power and size of the gap and the action since, combined with the overall bull market, tells me AMZN has a good chance of heading higher and notching solid (though not spectacular) gains. It’s buyable around here (just buy fewer shares because of the high price) with a stop near 1,040.

The second stock to consider is Twitter (TWTR), which exploded 18.5% last Thursday on volume that was eight times average.

What I like: Like Amazon, TWTR is a big, liquid stock that surged on earnings—and importantly, soared again the following day (last Friday), when it rose another 7% on four times average volume, driving the stock to its highest level since October 2016. On its weekly chart, TWTR has been attempting to build a bottom for 20 months (since February 2016), so there could be a nice foundation to work off. And, fundamentally, I’ve always believed Twitter had a unique and potentially revolutionary service.

Any potential problems? In a word, management. Despite a unique product, they’ve struggled to attract users and grow the business. Maybe the market is sniffing out a return to growth, but in Q3, Twitter’s revenues actually shrank 4% and earnings were up just 11% while users rose 4%. Even next year, analysts see earnings up just 13%.

My take: TWTR’s earnings gap seems like a classic high risk/high reward situation—I don’t consider it a real leader, but in a bull market, these big bottoms can often lead to big moves. This might be a stock to consider starting in small (with a stop near 19) and buying more down the road if shares move higher.

The third earnings gapper is GrubHub (GRUB), which roared ahead 11% last Wednesday on four times its average volume.

What I like: The gap on earnings came after GRUB found solid support around the 50 area for a month, despite non-stop news about potential competition. And I really like that the stock ran up another few percent over the next couple of days to new highs. Fundamentally, the company is about four times the size of its nearest competitor in the online food ordering and delivery business, and it’s using that scale to grow rapidly—analysts are now looking for 30% earnings growth in 2018, and I think that could prove conservative.

Any potential problems? The fear of competition has routinely hit GRUB stock, at least temporarily. So, while I think investors are finally getting past those worries, it’s possible another announcement/acquisition by a big firm like Amazon could send GRUB into another correction.

My take: I think GRUB could morph into a leading glamour stock in this market, and with investor perception just beginning to change for the better, it could be near the start of a sustained run! I think the stock is buyable here or on dips of a couple of points, with a stop in the low 50s.

Where to Find Other Earnings Winners

As earnings season goes on, I’ll be looking for more powerful earnings reactions, many of which will actually mark solid buy points. If you want to join me in jumping on earnings season winners and the market’s top stocks, sign up for Cabot Growth Investor today—my system is built to maximize gains in bull markets (we’re doing that this year!) and protect subscribers during down markets (market timing has kept us out of all major bear markets—we were 90% in cash when Lehman went under!).

Join us today to make—and keep—bigger profits in this bull market.

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A growth stock and market timing expert, Michael Cintolo is Chief Investment Strategist of Cabot Wealth Network and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.