These Two Stocks Show Earnings Are Working
July turned out to be another phenomenal month for the stock market this year. All of the major indices rallied substantially higher.
The S&P 500 and Dow closed up 3.1% and 3.4%, respectively, while the NASDAQ soared 4.1% higher.
So, the third quarter certainly kicked off on a positive note!
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At least, until yesterday.
Tuesday evening news broke that Finch Ratings lowered its credit rating for the U.S. Treasury securities. Specifically, they downgraded it from an AAA to an AA+.
Finch cited worsening financial conditions and governance in the U.S. and fiscal deterioration over the next three years. They also pointed to an erosion of governance in the past two decades that “has manifested in repeated debt limit standoffs and last-minute resolutions.”
The broader market slipped lower following the downgrade, with the S&P 500 and Dow ending the day down about 1.4% and 1%, respectively, while the NASDAQ dropped 2.2%.
As I shared Tuesday, the fact is that August has historically been a seasonally weak month for the stock market, as both Europe and Wall Street executives tend to take extended holidays. Trading volume is notoriously light in August, which leaves the market susceptible to wild swings and manipulation.
I expect the stock market to consolidate some in the upcoming weeks.
But there is some good news!
The second-quarter earnings season is well underway, and earnings are coming in better than expected. We’re now about halfway through earnings season, and according to FactSet, 80% of S&P 500 companies topping analysts’ earnings estimates and 64% beating sales forecasts. The average earnings surprise is 5.9%, while the average sales surprise is 1.5%.
Also important: Earnings are still working.
So, in today’s Market 360, I’ll share two examples of what happens when companies post strong earnings… and how to invest confidently.
Earnings Propel Stocks Higher
Let’s start with one of my Breakthrough Stocks recommendations: Extreme Networks, Inc. (EXTR).
The company posted results for its fourth quarter and fiscal year 2023 on Wednesday morning.
During the fourth quarter, revenue rose 31% year-over-year to $363.9 million and earnings jumped 120% year-over-year to $0.33 per share. This beat the consensus estimate which called for earnings of $0.31 per share on $343.53 million in revenue.
Furthermore, for fiscal year 2023, Extreme Networks reported earnings of $1.09 per share and revenue of $1.3 billion. That translated to 41.6% annual earnings growth and 18% annual revenue growth. This beat analysts’ expectations for full-year earnings of $1.08 per share and revenue of $1.29 billion.
Company management commented, “This marks our second consecutive year of double-digit growth. We’re outgrowing our competitors, gaining share, and winning new logos, which helped drive more than 30% growth in the value of deals over $1 million.”
Looking forward to fiscal year 2024, Extreme Networks remains positive that it will be another great year for the company.
Shares of EXTR closed up 8.5% amidst the market meltdown yesterday on its earnings results.
Today, another Breakthrough Stocks company I recommend, Hudson Technologies, Inc. (HDSN), surged more than 23% following its quarterly announcement. Second-quarter revenue dipped 13% year-over-year to $90.5 million, shy of estimates for $93.3 million.
However, earnings came in at $19.2 million, or $0.41 per share, compared to $39.8 million, or $0.84 per share, in the second quarter of 2022. Analysts expected earnings of $0.36 per share, so Hudson Technologies posted a 13.9% earnings surprise.
Company management also noted:
Looking at the regulatory landscape, in July, the EPA issued its final rule confirming the mandated 40% baseline reduction in HFCs beginning in 2024. We believe the current phasedown schedule represents a tremendous opportunity for our business as the supply of virgin HFCs becomes limited and our reclaimed refrigerants will be needed to meet demand from the large installed base of HFC equipment.
Invest Confidently
More than half of the S&P 500’s 11 sectors have achieved positive year-over-year earnings growth. So, a lot of the cash that’s been sitting on the sidelines is finally pouring back into the stock market.
Not only are artificial intelligence (AI) and technology stocks benefiting from this influx of cash, but money is also starting to chase these other sectors with positive earnings growth.
Bottom line: The breadth and power of the overall stock market has improved steadily – and there are now more sectors that we can invest in confidently.
As such, I have been adjusting my Breakthrough Stocks Buy List accordingly, which is why I am introducing two new Buy List companies to my Breakthrough Stocks subscribers in Friday’s Monthly Issue for August that I expect to be rewarded in the coming weeks.
If you missed out on EXTR’s and HDSN’s big post-earnings rallies, then be sure to sign up for Breakthrough Stocks before I release my two new recommendations in tomorrow’s Breakthrough Stocks Monthly Issue so you can act on my buy advice before they catch Wall Street’s attention and surge higher.
(If you’re already a Breakthrough Stocks subscriber, click here to log in now.)
Sincerely,
Louis Navellier
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Extreme Networks, Inc. (EXTR) and Hudson Technologies, Inc. (HDSN)
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