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Morning Commentary

Earnings Propelling Stocks
By Charles Payne, CEO & Principal Analyst
5/8/2017 9:00 AM

After hesitation at the open on Friday, the market gained steam, sending two of the three major indices to all-time highs:

S&P 500

  • 13th new all-time high since inauguration
  • 22nd new all-time high since Election Day

NASDAQ

  • 22nd new all-time high since inauguration
  • 36th new all-time high since Election Day

The number of new highs is the critical story everyone needs to heed. However, I am frustrated with would-be investors who are always telling me that they want to wait for a pullback or the crash to “jump in.” This isn’t surfing.

I preach investing in Great Companies that are executing, expanding margins, taking market share, and executing product pipelines on financial expectations. Sure, these stocks get ahead of themselves; from time to time, they do get hit when the market crashes.

Here’s the rub- you are not going to buy the dip and run for the hills during a crash. You will need to consider the exact opposite way of thinking; invest in companies that are breaking out to new all-time high points.

For instance, the top two winners in the market on Friday were names I have pounded the table over the years on Fox Business and to my subscribers. More recently, they have come on like gangbusters-they became screaming buys on the same day.

(MELI) MercadoLibre (Free Markets in Spanish) closed at $199 on February 23, and then popped to $208 the next day – Friday, it closed at $275.

(OLED) Universal Display closed at $67 on February 23, and then popped to $81 the next day –Friday, the stock closed at $111.00.

The bottom line is that you wouldn’t have bought the stock. The truth is that they are probably still worth owning.  The moral of the story is stop selling yourself short without any exposure to the greatest money-making machine ever.

As for the market being overvalued, there is no doubt several metrics suggest it’s gotten ahead of itself with the S&P 500 forward price-to earnings (P/E) ratio now at 17.6, well above the 5-year average of 15.1. It is nowhere near levels that have preceded major market crashes. Moreover, this has been a heck of an earnings season.

S&P 500 First Quarter 2017 (1Q017) Earnings Scoreboard (according to FactSet)

  • 83% Companies reported
  • 66% Companies beat consensus on sales
  • 75% Companies beat consensus on earnings
  • 7% Companies reported earnings results in-line
  • 18% Companies missed on earnings

Earnings are up 13.5% from a year ago, the best quarterly performance since 3Q11 (was 16.7%).  This is a huge quarter. While guidance is mixed, 58 companies offered negative guidance versus 25 positive; the overall tone on conference calls and press releases are filled with more-than-cautious optimism.

Today’s Session

The French election results were baked into the cake, but the reality that there will be no major breakout of the Euro or EU is a positive tailwind for the market.  

This morning KATE got a bid from COH, but there are going to be a lot more deals.

I gave you KATE last week- here are the top acquisition candidates right now:

  • ESRX
  • QCOM
  • ZTS

Also PRTY and WFM.


 

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