Earnings estimates are a bit of a game for companies and Wall Street analysts. Analysts base their expectations on the guidance given to them by CEOs. These executives purposefully don't raise the bar too high so they can beat expectations and be heroes. Wall Street typically doesn't want companies to miss - especially when it has "Buy" ratings on the stocks - because that makes the analysts look bad. It also makes the companies look bad, and the analysts want the CEOs to be happy with them so they'll consider the analysts' firms for their investment banking needs. If you're an analyst and you publish sky-high estimates that a company misses and then write a negative report because the company failed to meet your expectations, good luck getting that company to use your firm on its next bond offering or acquisition. Despite this well-orchestrated dance, stocks can and often do move significantly when companies beat earnings expectations and fall hard when they miss. Cisco Systems (Nasdaq: CSCO) is an example of a company whose management knows how to play the game and win. It has beaten analyst expectations in each of the past nine quarters. And the stock has benefited, as it averages a 6% one-day jump on those days it beats earnings. Over the next few weeks, we'll see many stocks react to earnings reports. Third quarter earnings season starts on October 21. Expectations aren't high. S&P 500 companies are forecast to see a 21% drop in earnings for the quarter. It is the largest decline since the Great Recession in 2009. With the outlook so poor, that could lead to very large moves in stocks that issue upside surprises. It's important to understand the factors that could move your stocks in the next few weeks. Third quarter earnings will most definitely be one of them. Buckle your seat belts. The next few weeks should be a wild ride. This rare decline presents once-in-a-lifetime opportunities for investors who play their cards right. If you want to beat the earnings game, consider signing up for my free Blockbuster Earnings Season Kickoff event on October 21 at 1 p.m. ET. I'll arm my viewers with the insight needed to avoid the market's disappointments... And cash in on its biggest wins. >>Click here now to register.<< Good investing, Marc |
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