It’s earnings season, and that means plenty of opportunities to make or lose money based on whether companies beat or miss expectations and how investors react to future guidance.
Normally, this is a good time to profit from solid research and preparation. Companies doing well tend to rise, and those that fall short tend to get taken to the woodshed. But something strange is happening this time around. It’s sort of like that alternative Bizarro World that Jerry Seinfeld referenced in the famous “man hands” episode.
Things are strangely the opposite of what they might seem. (Or, if you’re more up to speed on current television, we’re in the “upside down” world of Stranger Things.)
To be sure, there are companies that have missed earnings and seen their stocks get hit, like normal. But more and more, I see the opposite of what the fundamentals might imply.
Take Mastercard Inc. (NYSE: MA). The company exceeded both top- and bottom-line expectations. Business is booming globally. Management is solid and investing aggressively in its future.
The results were met with a thud.
The stock initially popped on its earnings report – only to sell off from there. By midday after the earnings report, the stock was in the red on high volume. Bizarre.
Mastercard is just one of many examples. At our Irrational Economic Summit in October, I highlighted Gilead Sciences Inc. (Nasdaq: GILD) as a stock to play from the long side for the next several earnings releases. The company reported shrinking sales and faces a tough Hepatitis C business. However, the recent acquisition of Kite Pharmaceuticals is a game-changer for the future of cancer therapies, Gilead is already a massive cash flow generator, and it has plenty of room to jack up the dividend.
And, still, the earnings release was also met with crickets, and the stock has drifted lower. Even more bizarre.
At IES I also warned that when, not if, Netflix Inc. (Nasdaq: NFLX) releases a whiff of bad news, the stock is in for a $20 to $40 decline from recent levels. However, Netflix reported subscriber growth that blew away estimates both domestically and internationally. This is the metric that investors have been focused on.
