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After all the "big headline" companies report earnings - which happened last week - a lot of investors make the mistake of thinking that the earnings season, and the profit opportunities that come with it, are over. Nothing could be further from the truth.
Sure, Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NASDAQ: AMZN), and Microsoft Corp. (NASDAQ: MSFT) have impressed investors with their better-than-expected results. It's moved the market around a little. But I'm more excited about what's coming next...
Ignoring the next few weeks of earnings announcements would be like walking out of a baseball game when the score is tied and the bases are loaded. The opportunity for some "Grand Slam Trades" is much higher now.
See, most of those headline companies had everyone's attention already. It's hard for those companies to really deliver an earnings surprise. Media, analysts, and even investors have seen almost every aspect of their earnings games; they typically know what to expect.
Take Microsoft, for example. The company beat analyst expectations - akin to the "scouting report" for the stock - but Microsoft stock is trading at the same level now as it was right before the earnings report. The market already knew what was likely to happen. As a result, Microsoft only gets a single out of a great "at bat."
In the coming weeks, we're going to see more companies report from the small- and mid-cap areas of the market. Don't let these companies' lack of headline-grabbing news make you think they can't deliver big earnings - or big profits for you.
3 Stocks to Trade for "Grand Slam" Earnings Profits
Earnings Play No. 1: JD.Com Inc. (NASDAQ: JD)
Earnings Date: Aug. 11, 2020
JD.com is one of the largest Chinese e-commerce companies, right up there with Alibaba Group Holding Ltd. (NYSE: BABA). Many people don't know that the company boasts the largest drone delivery system in the world.
The company missed earnings expectations last quarter due to the pandemic. Despite that, the company guided this quarter's results higher.
Now it's back on track. The return of growth to the Chinese markets after the first wave of the COVID-19 pandemic helped this online retailer move 30% higher since its last earnings report.
On the technical side, its shares are in a long-term bull market trend. JD is trading above its 50-day moving average, and it's a relative strength leader in the Nasdaq 100 Index.
The recent pullback in price suggests the market is lowering expectations for the stock. I think we're going to see a better quarter than the last, which should be good for a rally to $75 or higher.
I'm eyeing the Oct. 16, 2020 JD $70 calls, which are trading for $3.70.
Earnings Play No. 2: Farfetch Ltd. (NYSE: FTCH)
Earnings Date: Aug. 13, 2020
Sometimes it's better for a batter to be patient and wait for just the right pitch to knock it out of the park. (Sorry - I wasn't quite done with baseball comparisons.) In this case, we're the batter - waiting for just the right pitch, aka price, to swing at Farfetch.
Shares of FTCH are trading more than 70% higher since their last earnings report. What's impressive is that the move comes after the company missed earnings estimates and provided no guidance for this quarter's results.
This means that the 70% run on the stock is based on complete speculation. Digging into the numbers, what's driving that speculation is how FTCH has done a good job growing revenue and beating earnings in past quarters, so last quarter's "swing and a miss" was likely a result of the environment.
The stock is trading well above its bullish 50-day moving average and recently bounced from its shorter 20-day moving average - what I refer to as the "Trader's Trendline." The lofty prices mean that we may see some profit-taking soon.
I'm being patient with this company and waiting for the right price. For that reason, I recommend that you look at grabbing FTCH after earnings using a limit price of $24.
If you'd like to leverage the expected move, the Oct. 16, 2020 FTCH $25 calls should trade below $3.90 on a pullback to my target price. That's the Good-Til-Canceled limit price I would use to buy the call option for a rebound after earnings.
Earnings Play No. 3: II-VI Inc. (NASDAQ: IIVI)
Earnings Date: Aug. 13, 2020
This stock has been on my radar since being mentioned during our daily livestream session. The company is included in the semiconductor sector. It does some very technical work. To oversimplify, it produces materials for photonic and laser applications in the industry.
The company smashed it out of the park last quarter after beating both earnings and revenue estimates. Since then, the stock has only gone up 12% compared to the semiconductor sector's move of 26%. And it raised its guidance last quarter - but still shares only saw a 12% increase.
I love that the stock is only getting coverage from two analysts. This means that the stock hasn't been scouted by the major league analysts and is likely undervalued. This makes another earnings beat much more powerful.
Shares of II-VI have been tracking their 20-day "Trader's Trendline" for the last month and are above their bullish 50-day moving average. The stock is also trading deep in a long-term bullish trend as it is breaking to new all-time highs.
Given the underperformance, you'd be wise to grab this stock before its earnings report on Aug. 13. Those that want to leverage a potential home run from II-VI should check out the Oct. 16, 2020 IIVI $55 calls that are trading around $4.
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Straight-Up Profits. He also contributes to Money Morning as the Quant Analysis Specialist.