When valuing a company, the two key variables are earnings (and earnings growth) and interest rates. I believe we're in a secular bull market because earnings growth is expanding, along with our economy, and the Fed has said historically-low interest rates will remain that way at least into 2023. Those two drivers are critical to my thinking. Back in March, it was difficult to concentrate on the bigger picture due to COVID-19. I get it. We didn't know much about the virus and how to protect ourselves from it. But as we see cases rising again around the globe, the core prospects of higher equity prices remain completely intact. Might we have to put the brakes on the economy one more time this winter as cases rise? Sure, but we're in a completely different position now than we were in March. Most experts will tell you that vaccines are right around the corner. Additionally, we have now successful therapies to treat the virus. We had none of that in March.
COVID-19 is a health care crisis. Make no mistake about that, so please don't misinterpret what I'm saying. But COVID-19 will not be a stock market driver longer-term. The panic surrounding it only provides us great trading and investing opportunities, if we'll keep an open mind. Many look at the gains that have been made since March and believe we cannot go higher. That will prove costly, in my opinion.
We're going higher. A lot higher.
Follow the earnings reports and stick with those companies that are beating estimates and raising forecasts. Oh, and also leading their peers higher. We want to own leading companies in leading industries. It's that simple and it's what leads our portfolio decisions at EarningsBeats.com. You cannot afford to ignore blowout results and positive market reactions to those reports. After the bell yesterday, two excellent quarterly reports really stick out:
QUALCOMM, Inc. (QCOM)
QCOM is up 14% in pre-market action this morning after delivering explosive quarterly results. Revenues came in at $6.50 billion vs. $5.94 billion. EPS was $1.45 vs. $1.18. But that wasn't all. They raised guidance substantially for both revenues and EPS. QCOM is one of our portfolio stocks at EarningsBeats.com and one look at the chart and you'll probably understand why:
There is one negative on this chart and that's the performance of QCOM's peers. Telecom equipment ($DJUSCT) has been an awful industry, but QCOM's leadership has been so strong that it's been able to crush the benchmark S&P 500. If you're ever going to make an exception to the leading stock in a leading industry group strategy, make sure it's a MASSIVE outperformer. QCOM fits the bill.
Upwork, Inc. (UPWK)
Last week, I told my business partner, John Hopkins, that the stock market was rewarding internet companies ($DJUSNS) more than most other groups this earnings season. As a group, the DJUSNS has risen approximately 13% since the beginning of October. I pointed out that another internet company would report this week and it was showing technical characteristics similar to both Pinterest (PINS) and Snap (SNAP) heading into its earnings report. John then decided to write about it in ChartWatchers last week in an article titled, "Two Companies in Internet Sector Report Blowout Numbers - Who Will Be Next". He offered that third internet stock to everyone in our EarningsBeats.com community. It only required a free subscription (no credit card required) to what's become a wildly popular newsletter, the EB Digest. So UPWK was the subject of my EB Digest article on Monday. Here was the chart of UPWK on Monday morning (through Friday's close):
After UPWK's blowout numbers after the bell yesterday (Revs: $96.8 mil vs. $90.4 mil, EPS: $.04 vs. ($.03)), Wall Street is rewarding the company quite handsomely. Check out this morning's quote:
It pays to do your homework. UPWK has risen from 18.44 at Monday's open to 25.66 in pre-market action this morning. That's three days and nearly a 40% return. Stop wasting time and effort trading companies that only drag your portfolio down. Stick with leading companies in leading industries. I suspect, in the more intermediate-term, UPWK will see higher prices.
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Happy trading!
Tom
