Earnings season is almost behind us, with over 84% of S&P 500 companies having reported already. Many notable companies have been missing estimates and lowering guidance that has caused damage to their respective stocks. However, there have been a handful of winners lately whose stocks have jumped violently on positive reports. These stocks were sold down so much in anticipation of a bad report, that the positive surprise was met with aggressive buying.
The market typically knows something you don't. When indices are under severe selling pressure and a stock doesn't go down, that stock is showing its hand. Relative strength in market weakness will give clues to which stocks will win over the long run.
Over the last couple of weeks, I've noticed four stocks that have reacted strongly to earnings. These stocks showed strength leading up to earnings and jumped big after their reports.
Priceline (NASDAQ:PCLN) is a Zacks Rank #2 (Buy) that is a popular online travel agency (OTA) and reservation service provider. The company operates multiple reservation sites such as Booking.com, Agoda.com, OpenTable and others. Priceline competes with other OTAs within the internet commerce sector, an industry that's ranked 157 out of 265 (bottom 41%) in the Zacks Industry Rank.
Priceline has a market cap of $61.5 billion with a forward PE of 19. The stock sports Zacks Style Scores of "B" in growth, expecting EPS growth of 18%.
The company reported earnings on February 17th, with the Q4 bottom line coming in at $12.63 versus the $11.83 expected, and revenues at $2.00 billion versus $1.98 billion expected. Guidance for Q1 came in at $9.00-9.60 versus the $9.83 expected, and revenues are seen up 9-16% year over year.
Priceline's report beat the expected bottom line number as it typically does. However, revenues were only a slight beat, and Q1 guidance was below the expected number. The price action showed that investors didn't care too much about the latter, as the stock shot up over 10% on the news.
Looking at the chart below, we see Priceline is an extremely volatile stock. Recent market pressure and fears about the Zika virus pushed this stock under the $1,000 mark in early February. However, two prior earnings reports from Expedia (NASDAQ:EXPE) and Trip Advisor (NASDAQ:TRIP) gave the stock a bid as the market was still drifting down. This gave investors a clue into where Priceline earnings and stock might be going.
The plan here shouldn't be to chase the stock higher after a 10% move higher. Patience is key and should be utilized by waiting for a market pullback and a pullback in the stock. While that $1,000 price might be unrealistic, the $1,100 pre-earnings level should be a good entry to shoot for.
Edwards Lifesciences (NYSE:EW) is a Zacks Rank #1 (Strong Buy) that provides products and technologies to treat late-stage cardiovascular disease. The California-based company's products include tissue replacement heart valves, heart valve repair products, hemodynamic monitoring devices, angioscopy equipment, oxygenators, and pharmaceuticals. It is in an industry that's ranked 62 out of 265 (Top 23%) in the Zacks Industry Rank.
Edwards has a market cap of $19 billion and a forward PE of 33.
The company reported earnings on February 2nd, with Q4 coming in at $0.63 versus $0.59 expected and revenues at $671 million versus the $643 million expected. It also guided higher with Q1 seen at $0.64-0.70 versus $0.56 expected, as well as raised fiscal-year 2016 to $2.57-2.67 versus the $2.39 expected.
The initial reaction to earnings was positive and the stock is now over 10% from its pre-earnings price. Looking at the estimate revisions in the chart below, we see momentum behind these revisions. Any pullback will be an opportunity for a long-term entry.
Hawaiian Holdings (NASDAQ:HA) is a Zacks Rank #1 (Strong Buy) that is an airline based out of Hawaiian and engages primarily in the scheduled transportation of passengers, cargo and mail. It is in an industry that's ranked 611 out of 265 (Top 4%) in the Zacks Industry Rank.
Hawaiian has a market cap of $2 billion with a forward PE of 8. The stock sports Zacks Style Scores of "B" in momentum and "A" in value and growth.
The company had reported earnings on January 26th and the initial reaction was positive. After a pullback to the pre-earnings price, the stock went on a 25% run up to $39.50 a share.
CEO Mark Dunkerley went into detail on the conference call:
The low cost of fuel, robust demand in all of our major geographies, manageable industry capacity growth between the US mainland and Hawaii in the second half of the year, and the wonderful customer service delivered by my colleagues on the ground and in the air have combined for a record setting 2015. The strong financial results validate the decision we made to grow rapidly in the last five years. The cash flow we generated in 2015 was used to pay down a portion of the debt we took on to finance our growth and for the further strengthening of our balance sheet. Looking forward, our outlook is for these positive trends to continue and the headwind of a strong US dollar in our international markets to decelerate, giving us a measure of confidence that 2016 will be an even better year for our business."
The positive momentum should be considered on any market pullback and be taken as an opportunity to get in the stock.
Tyson Foods (NYSE:TSN) is a Zacks Rank #1 (Strong Buy) that is the world's largest fully-integrated producer, processor and marketer of chicken and poultry-based food products. It is in an industry that's ranked 4 out of 265 (Top 2%) in the Zacks Industry Rank.
Tyson has a market cap of $22 billion and a forward PE of 16. The stock sports Zacks Style Scores of "B" in value and "A" in momentum and growth.
The company reported earnings on February 5th, with Q4 coming in at $1.15 versus $0.87 expected. It also guided higher with fiscal-year 2016 seen at $3.85 versus the $3.64 expected. It also announced a $50 million buyback, 13% of the market cap at the time.
The reaction was very positive as the stock has ripped over 20% since. Any significant pullback should be viewed as an opportunity to join the momentum.
All these companies reviewed have shown strength at a time when the market has been weak. While companies reporting weak earnings have been punished, these stocks have been rewarded after showing strength in fundamentals. Any market pullback should be viewed as an opportunity to enter the stocks for a long-term investment.