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With the Fed indicating a somewhat less hawkish stance, investors are at last breathing a little easy. Without the regular rate hikes, the stock market will start looking more attractive, which will bring back skittish investors, so everyone can make some money.
But just because rates are stabilizing, we shouldn’t assume markets will too. In fact, it’s possible to make money precisely because of the ups and downs in the market. Not everybody makes big gains buying and selling stocks, however. So some must be better at anticipating what the markets are about to do. We can increase our chances of success if we understand the basics.
Because if truth be told, nobody really knows what the broader markets will do. There are too many players out there and not everyone is being rational. The meme stock frenzy was good enough proof of that. If you’re in the market long enough however you may notice certain trends.
First of all, a company’s earnings report tends to have an effect on its share prices, one of the most significant effects. That’s because companies are here to make profits and when they make more profit than was expected (by management, or by the broker community), it’s an indication that management has done a good job of asset utilization. Therefore, operations are likely to be more efficient and returns are likely to be higher. As a result, investors are willing to pay more for the company’s shares. Conversely, when earnings fall short of expectations, investors anticipate less-than-desirable returns, which encourages them to offload the shares.
Additionally, a certain momentum is created when many investors buy or sell a company’s shares. The more the people that buy, the greater the demand and the higher the price goes. And similarly for selling pressure. Therefore, earnings events are big drivers of share prices.
While earnings may be visible to all investors, helping them make their choices, there are various other factors affecting the company that only brokers with the required expertise or field information would be able to figure out. Broker estimates are also predictive, they indicate the future performance of the company. Therefore, when brokers revise their estimates up or down, investors react immediately. This has a significant impact on share prices.
Other factors like accretive acquisitions or the takeover of a company at an attractive valuation also have an effect because prices are bid up to or close to the offer price. If you can buy the shares at a certain valuation and the next day it jumps, say 10% higher, that’s a quick and significant return on your investment.
Other positive news, involving say government support through subsidies (for example, to boost EV adoption), or the passing of the CHIPS Act (to boost domestic fabrication of semiconductors) could also have an impact on perceived value of shares.
This is hardly an exhaustive list and there could be many other reasons for rising prices. Still, the most consistent of all these is the earnings report and estimate revisions trend. If you can throw in a Zacks buy rank as well, your chances of success increase tremendously.
Manhattan Associates, Inc. (MANH - Free Report) for example, beat March quarter estimates by 23.1%, after which analysts raised their 2023 estimates by 17 cents (6.3%) and their 2024 estimates by 15 cents (4.8%). The company’s shares are already up 38.7% year to date, but the strong earnings report and growth prospects (12.1% revenue growth and 4.0% earnings growth in 2023, as well as 11.7% revenue growth and 14.2% earnings growth in 2024) may be expected to send them higher. Zacks has a #1 (Strong Buy) rating on the stock.
Mitsubishi Electric Corp. (MIELF - Free Report) is another stock looking good right now. The Zacks Rank #1 stock beat the earnings estimate by 350% in the last quarter, after which its 2023 estimate increased 70 cents (411.8%) while the 2024 estimate increased 79 cents (415.8%). Current estimates represent 16% earnings growth in 2024 (ending March) and 12.6% growth in 2025. Mitsubishi’s shares are up 26.8% and going by the numbers, there’s more to come.
Another stock that may be worth considering is ON Semiconductor (ON - Free Report) . The #2 (Buy) rated stock beat estimates by 9.2%. Its 2023 estimate has jumped 41 cents (9.3%) in the last seven days while the 2024 estimate has jumped 22 cents (4.3%). Analysts expect revenue and earnings to decline this year by a respective 2.8% and 9.4%. But next year, revenue is expected to grow 7.3% and earnings 10.7%. The shares are up 24.8% year to date with more to come.
The best thing about the growth rates that we’re seeing from these companies is that these expectations are despite the recession that we are expecting as a result of the Fed’s actions. Therefore, this may be a good time to buy some shares.
Price Performance Year-to-Date
Image Source: Zacks Investment Research
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3 Soaring Stocks Set to Move Higher
With the Fed indicating a somewhat less hawkish stance, investors are at last breathing a little easy. Without the regular rate hikes, the stock market will start looking more attractive, which will bring back skittish investors, so everyone can make some money.
But just because rates are stabilizing, we shouldn’t assume markets will too. In fact, it’s possible to make money precisely because of the ups and downs in the market. Not everybody makes big gains buying and selling stocks, however. So some must be better at anticipating what the markets are about to do. We can increase our chances of success if we understand the basics.
Because if truth be told, nobody really knows what the broader markets will do. There are too many players out there and not everyone is being rational. The meme stock frenzy was good enough proof of that. If you’re in the market long enough however you may notice certain trends.
First of all, a company’s earnings report tends to have an effect on its share prices, one of the most significant effects. That’s because companies are here to make profits and when they make more profit than was expected (by management, or by the broker community), it’s an indication that management has done a good job of asset utilization. Therefore, operations are likely to be more efficient and returns are likely to be higher. As a result, investors are willing to pay more for the company’s shares. Conversely, when earnings fall short of expectations, investors anticipate less-than-desirable returns, which encourages them to offload the shares.
Additionally, a certain momentum is created when many investors buy or sell a company’s shares. The more the people that buy, the greater the demand and the higher the price goes. And similarly for selling pressure. Therefore, earnings events are big drivers of share prices.
While earnings may be visible to all investors, helping them make their choices, there are various other factors affecting the company that only brokers with the required expertise or field information would be able to figure out. Broker estimates are also predictive, they indicate the future performance of the company. Therefore, when brokers revise their estimates up or down, investors react immediately. This has a significant impact on share prices.
Other factors like accretive acquisitions or the takeover of a company at an attractive valuation also have an effect because prices are bid up to or close to the offer price. If you can buy the shares at a certain valuation and the next day it jumps, say 10% higher, that’s a quick and significant return on your investment.
Other positive news, involving say government support through subsidies (for example, to boost EV adoption), or the passing of the CHIPS Act (to boost domestic fabrication of semiconductors) could also have an impact on perceived value of shares.
This is hardly an exhaustive list and there could be many other reasons for rising prices. Still, the most consistent of all these is the earnings report and estimate revisions trend. If you can throw in a Zacks buy rank as well, your chances of success increase tremendously.
Manhattan Associates, Inc. (MANH - Free Report) for example, beat March quarter estimates by 23.1%, after which analysts raised their 2023 estimates by 17 cents (6.3%) and their 2024 estimates by 15 cents (4.8%). The company’s shares are already up 38.7% year to date, but the strong earnings report and growth prospects (12.1% revenue growth and 4.0% earnings growth in 2023, as well as 11.7% revenue growth and 14.2% earnings growth in 2024) may be expected to send them higher. Zacks has a #1 (Strong Buy) rating on the stock.
Mitsubishi Electric Corp. (MIELF - Free Report) is another stock looking good right now. The Zacks Rank #1 stock beat the earnings estimate by 350% in the last quarter, after which its 2023 estimate increased 70 cents (411.8%) while the 2024 estimate increased 79 cents (415.8%). Current estimates represent 16% earnings growth in 2024 (ending March) and 12.6% growth in 2025. Mitsubishi’s shares are up 26.8% and going by the numbers, there’s more to come.
Another stock that may be worth considering is ON Semiconductor (ON - Free Report) . The #2 (Buy) rated stock beat estimates by 9.2%. Its 2023 estimate has jumped 41 cents (9.3%) in the last seven days while the 2024 estimate has jumped 22 cents (4.3%). Analysts expect revenue and earnings to decline this year by a respective 2.8% and 9.4%. But next year, revenue is expected to grow 7.3% and earnings 10.7%. The shares are up 24.8% year to date with more to come.
The best thing about the growth rates that we’re seeing from these companies is that these expectations are despite the recession that we are expecting as a result of the Fed’s actions. Therefore, this may be a good time to buy some shares.
Price Performance Year-to-Date
Image Source: Zacks Investment Research