Buy the Earnings, Not the Earnings Report

Earnings season can create some big swings in share prices. And they can create some counterintuitive moves. Companies that beat earnings can sell off. Companies that miss on earnings can see shares rally. And then there come the moves from any forward guidance.

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  • Over time, earnings drive a company’s share price. So even if a company misses the mark for some reason in a given quarter, if its earnings are improving, shares will likely trend higher in time.

    The market punished Alphabet (GOOG), better known as Google, for its slowing cloud business. However, earnings grew by double-digits, the first time the company has done so since early 2022.

    Shares are now up nearly 40 percent in the past year, following Wednesday’s selloff. And shares are trading at about 20 times earnings.

    Best of all, Google has a strong balance sheet, with just under $100 billion in net cash backing out all its debt.

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  • Action to take: Google looks oversold following earnings and should see a recovery in the coming weeks going into the end of the year. Investors can likely see low-double-digit returns. At present, Google doesn’t pay a dividend.

    For traders, shares look like to trend higher in the coming weeks. The November 17 $135 call, last going for about $1.00, could see high double-digit returns on an oversold bounce from here.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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