Over Time, Earnings Matter, Not the Market’s Reaction to Earnings

Earnings season offers investors the opportunity to profit from market overreactions. That’s because a company can have a great quarter, but still see shares decline. Or vice versa. What matters most is to determine if the market is overreacting.

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  • If the market has overreacted to the downside, investors may be able to earn a quick profit as shares rebound. Or it can allow an investor to build a stake in great companies at a reasonable price.

    One such opportunity now is with industrial conglomerate Honeywell (HON). The company beat on earnings and showed strong revenue growth. Plus, Honeywell had strong guidance for 2024 as a whole.

    Honeywell shares are flat over the past year, as are the company’s earnings and revenues.

    However, the company expects earnings to rise 7-10 percent this year. And full year operating cash flow should end up on the higher end of the guidance range.

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  • Action to take: Long-term investors may like shares here, with the stock trading for under 20 times forward earnings. At current prices, Honeywell also pays a 2.1 percent dividend.

    For traders, shares look oversold following their post-earnings selloff and ready to move higher. The April $210 calls, last going for about $1.70, could see mid-to-high double-digit returns on a rebound in shares in the weeks ahead.


    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 company mentioned in this article.

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