I often get questions about why one stock is an earnings winner and the other is not. What the reason is that makes an earnings winner is a winner? How to find earnings winner before the big gains to profit of them?
First let me be clear about what an earnings winner is. Logically a company has to report earnings to become a possible earnings winner. This can be quarterly earnings or yearly earnings.
So when a company reports good earnings it will become an earnings winner? No it doesn’t have to be. A company reporting goods earnings that are in line with the expectations of the market is doing nothing unexpected that will push the price higher.
OK, a company reporting better than expected earnings is an earnings winner? Again this still doesn’t always have to be. Off course there will be a good chance that the stock will rise when the company reports better earnings than traders have been expecting. This means the company was able to get more sales or revenue than everybody has thought. And probably the price of the stock is lower than what the company would be worth because it is doing better business than people expected.
Even when a company reports earnings that are better than expected this doesn’t mean that traders are going to jump in on the stock to buy more of it and push the price up. Maybe the industry of the company is not really hot at the moment. Or not that many traders have that company on their watch and don’t even notice the earnings report.
There could also be a statement in the earnings report that will cause traders to be cautious to buy the stock. The company could be warning for the coming period that the sales could drop or there will be changes in the market that can affect them.
OK, an earnings winner does not have to be a company that reports good earnings, or even better than expected earnings. What exactly is the word “winner” referring to in the term “earnings winner”?
Winner simply means that a stock is gaining a big % on the news of their earnings. Reporting earnings is simply the catalyst that helps the stock get noticed. Regardless of how their earnings were.
Fair enough. The fact that a company reported earnings is the catalyst that can push the stock and not the fact whether the earnings were good, or even better than the market expected.
But wait, when the catalyst is only the earnings reporting news. Does this mean that a company reporting bad earnings can become an earnings winner as well?
Although unlikely, it still can. As long as there is more long biased interest in the stock when it has reported earnings, it can become an earnings winner. This could be driven by anything regardless of the earnings.
The same reasons as mentioned earlier on why a company reporting good earnings doesn’t have to become a winner can be used to in this case. Maybe the company has made some interesting announcements in their earnings report that gets trader’s interest to buy the stock. They can announce some upcoming developments, new products, new markets, new chances. Maybe there was a specific reason why the earnings were bad this period that will not affect the earnings for next periods.
How to find earnings winners
Now we know what an earning winner is, but how can we find them so we can profit of them? There are two ways of spotting earnings winners.
The first is the easiest way as this is incorporated in the daily procedure of building my watchlist. Find the biggest %-gainers of the current day. There are lot of ways to find them, I prefer both FinViz and Yahoo Finance.
When you’ve compiled a list with the biggest winners with charts that you like you’ll start to do some research on why the stock is up that much. There are several things that may have caused the big gain of the day, one of them are earnings reports. You’ll simply find the news article regarding the earnings on FinViz or Yahoo Finance when you search for the ticker.
This is the easiest way to find earnings winners because it is included in my daily routine. The downside of this method is that the stock already could have had it’s big spike and it won’t run the next days. So you’ve missed the opportunity to profit from the earnings.
We’ll have to do the research for possible earnings winner ahead of the report coming out. There are several sites that have an earnings calender where you can find what stocks are reporting earnings on what date. You can now make a list of companies that will be reporting earnings the next day.
Pull up the charts of those stocks and see find the charts that you are comfortable with. Stocks that are trading just under solid resistant where the earnings report can become the catalyst to help it break out.
Also I’d like to check the biggest %-gainers after the first hour of trading to see if there are earnings winner in the opening that I might have missed because I didn’t like the chart at first. They might become a nice intra-day trade when to price action seems right.
The two site I mainly use to find what companies are reporting earnings on what days:
I never hold a stock into earnings. You never know what they will be reporting and more importantly you’ll never know how the market is going to react to the earnings. Don’t gamble and lose your money. It’s better to wait and see the price action and chart pattern to decide your trade than to hope for a gap up or a quick mornings spike.
Hope is not a strategy
Lessons on how to trade earnings winners
I’ve written down some key lessons I keep in mind when trading earning winners.
- Focus on the chart pattern instead of the stock price
- Focus on resistance levels for technical break outs
- I prefer buying technical breakouts to new highs
- I don’t like shorting earnings winners as there can be so much momentum in these stocks
- Don’t underestimate earnings winners they can run much more than expected
- Especially when shorts get squeezed out of their positions
- Earnings reports give a lot of information about the company and their future plans
- Don’t hold a stock into earnings, you never know what the reaction is going to be
Example charts of earnings winners
Check the following charts of recent earnings winners. You can see that they all spiked really big on the first day of the earnings report coming out and that they all broke through earlier resistance.