Earnings Momentum in Industry Leaders Should Bode Well for Shareholders

With a large number of companies reporting this week, hundreds of firms have been updating their shareholders. A lot of attention has gone into mega-cap names, particularly in the tech space. But any company in any sector that’s a leader and showing earnings growth right now could be an attractive investment.

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  • That’s doubly true for any company that’s been growing over the past few quarters and has gotten some momentum going.

    One such non-tech name is McDonald’s (MCD). The company beat second quarter earnings handily, by nearly $400 million. And earnings trounced expectations, coming in at $2.37 per share against estimates of $2.12.

    Nevertheless, despite those strong numbers, shares sold off. Part of that may have something to do with the company’s valuation – today’s buyers are looking at 35 times earnings for a fast food chain. But the company’s push to keep its menu innovative has led to some impressive results, like 39 percent earnings growth over the past year, and a tech-like 26 percent profit margin.

    Action to take: Investors may like shares here, which yield 2.1 percent. The company has historically been raising its dividend annually, and has the growing cash flow to keep doing so. Dividend growth stocks can take care of themselves for big profits in time.

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  • For traders, shares are still in an uptrend, even with an earnings-day selloff. The October $250 calls, last going for about $3.95, are an inexpensive way to bet on the uptrend to continue in the coming weeks.

     

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