The earnings season is coming to an end, and it has surprised many people. Companies expected to disappoint, such as Tesla, Apple, and Facebook, surprised everyone with massive jumps in their stock prices.
I identify myself as a swing trader, engaging in trades that span from a single day to a slightly longer duration. While my blogs show that I may not possess a higher level of education, I firmly believe that the financial markets are inclusive and offer opportunities for all.
I like to cut through the nonsense, and there’s plenty of it. The market is full of people who use complicated words, acronyms, and data points to share their ideas in a way that leaves someone like me feeling bewildered; these ideas and predictions almost always turn out to be rubbish. These individuals will stand on CNBC and state with conviction that Apple’s iPhone sales will be a disaster, sending the stock down 50% and pulling the whole market down with it. When it doesn’t happen, they are soon forgotten.
I have often felt imposter syndrome listening to these people, but scratch slightly at the surface, and you can tell they don’t know the basics of trading and investing. A great example is the CNBC commentator who doesn’t know what the company he is promoting does:
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I make profits, maybe not as much as Warren Buffet or Bill Ackman, but I make enough to get by and enjoy what I do. The only person you should compete with is you; you should have the confidence and discipline to stay in your lane.
I always follow a simple strategy when assessing trades. Although I’ve often deviated from it with negative effects, I pull myself back to basics each time, and profits return.
My strategy is to buy and trade strong companies in strong sectors in strong markets. These companies have a product or service that people want, and their fundamentals are improving quarter after quarter, year after year. Then, I assess the technicals to find a good position on the chart for entering my trade. Simple? Many get it wrong.
Right now, I have a watchlist of companies and know where I want to buy them. A long-term investor wouldn’t care about macroeconomic conditions and would buy through any economic downturn. But I am a swing trader, so I want to know what the economy may do in the near future.
A trader should assess a company’s performance by analysing its earnings reports, which US companies must publish each quarter. Investor sentiment was mixed, leading into the recent earnings season. There was a blend of optimism and caution; we want companies to do well but not too well due to the risk of persistent inflation and rising interest rates.
Additionally, there was uncertainty regarding the broader economic outlook, particularly concerning potential recessions in major economies. This made investors cautious, especially in sectors susceptible to economic cycles.
Investors were also focused on companies’ guidance and how they were managing supply chain challenges, input costs, and consumer demand. Although solid performance in prior quarters raised expectations for continued growth, there was also a fear of disappointment. Moreover, investor sentiment varied across sectors, with technology and consumer discretionary sectors facing scrutiny due to concerns over rising costs and shifting consumer behaviour.
I am closely watching the stocks on my watchlist. These companies are mostly discretionary in nature, relying on a booming economy and the consumer. I am interested in these companies due to the investor sentiment that changes daily, providing volatility. These are still strong companies in strong sectors with excellent products and services.
I bought Apple stock on April 16th at $172 per share. Recently, many negatives have been surrounding the decline in iPhone sales, which has scared many investors away. Some “expert” analysts on YouTube share data about how the company is finished, and we should all be shorting the stock.
However, we should take a step back and be rational. This is Apple, a company that has proven throughout history to adapt and excel in any situation by an excellent management team releasing innovative products and delivering shareholder value. I have confidence that the management team will use any opportunity to continue providing quality. Is this time different? Despite all this negativity, I used it as an opportunity to buy stock and was rewarded with a 10% move on their earnings release.
Apple’s recent earnings report highlighted the following points:
1. Revenue and profit were strong, driven by core products and services.
2. Despite potential softness in some markets, iPhone sales remained strong.
3. The services segment, including the App Store, Apple Music, and Apple TV+, continued to grow.
4. The wearables segment, including products like the Apple Watch and AirPods, contributed to overall growth.
5. Geographic performance varied across regions.
6. Apple acknowledged ongoing supply chain issues but has been managing them effectively.
Basically, things have slowed, as expected, but not as badly as feared.
Apple’s outlook for future quarters still indicated caution due to uncertainties in consumer demand and potential economic headwinds but remains optimistic about long-term prospects.
Does the absence of my discounted cashflow model or calculation of how many phones are due to be sold in a small village in China multiplied by how many vacations the CEO has taken this year make me a lazy trader?
I regretted not entering the stock when it pulled back in October 2023, and now I have been given another chance today—one I have taken and am happy to hold.
Tesla
In Tesla’s recent earnings call, they shared the following updates:
Revenue and Profit: Tesla reported strong financial results exceeding expectations despite difficult market conditions.
Vehicle Deliveries: Tesla highlighted impressive delivery numbers, indicating a robust demand for electric vehicles.
Production Issues: Tesla acknowledged ongoing supply chain disruptions and production bottlenecks and emphasised their efforts to mitigate them.
New Factories: Updates were provided on the progress of the Gigafactory Texas and Gigafactory Berlin, which are expected to significantly boost production capacity.
Product Roadmap: Tesla discussed its roadmap and commitment to innovation and new product development.
Energy Business: Tesla’s energy business grew, although it remains a smaller part of its overall operations.
Autonomy: Tesla highlighted advancements in its autonomous driving technology and the potential for future revenue streams from its Full Self-Driving (FSD) software.
Outlook: The company expressed confidence in its long-term growth prospects but maintained caution regarding near-term challenges.
Tesla benefits hugely from low-interest rates and is a strong consumer. Going into earnings, we were told no one was buying EVs, and the dream was over.
Tesla’s recent earnings reveal key insights into consumer preferences. Consumers actually show a stronger interest in electric vehicles than originally thought. The demand for Tesla’s cars, including premium models, indicates a willingness to invest in quality and brand prestige.
There’s a clear interest in sustainable products, aligning with a broader trend towards eco-friendly choices. Tesla’s focus on autonomous driving and innovative features highlights that consumers are keen on new technologies that improve safety and enhance the driving experience.
Tesla’s success also extends to its energy business. Growing demand for solar and battery products suggests consumers are increasingly interested in renewable energy solutions. Consumers prioritise sustainability and innovation despite economic uncertainties, clearly preferring quality and forward-thinking products.
Overall, another surprise was that the stock rose over 40% in the following days. I believe Tesla is collecting data for self-driving, and every car company must purchase from Tesla one day. I am not bothered by insignificant bumps in the road, such as the April delivery numbers in China or a recall (software update). Tesla will dominate Full Self-Driving, and Tesla’s aspirations for a Robo-Taxi service are not only exciting but also have the potential to transform transportation globally.
Other major consumer-focused companies caught my attention and offered nuanced insights into how consumers are navigating the current economic landscape:
Walmart
Walmart’s recent earnings were generally positive, showcasing solid financial performance and revealing resilience in consumer spending. The retail giant reported strong sales, particularly in its grocery segment, indicating that customers prioritise essentials amid rising inflation.
While Walmart faced some challenges with discretionary spending, its overall results highlighted its ability to adapt to changing consumer preferences and economic conditions.
PepsiCo
As with Walmart, PepsiCo’s earnings highlighted consumer resilience in the food and beverage sectors. The company experienced robust sales across its snack and beverage lines, with a notable rebound in out-of-home consumption as pandemic restrictions eased. PepsiCo maintained strong margins despite rising input costs, suggesting consumers are willing to pay more for their favourite brands.
Unilever
Unilever faced a mixed bag in its latest earnings report. The company’s sales reflected solid demand for essential personal care and household products, but there was a noticeable drop in discretionary spending. Inflationary pressures impacted Unilever’s profitability, but the company mitigated some of these effects through strategic price adjustments and cost-saving measures.
Amazon
Amazon’s earnings showcased strong demand for its e-commerce platform and cloud services. The company highlighted that consumers prioritise essentials, with a noticeable shift away from non-essential goods. Despite concerns about slowing consumer spending, Amazon’s cloud business remained robust, highlighting stable corporate demand for digital services, even amid economic uncertainties.
Procter & Gamble
Procter & Gamble’s earnings report highlighted continued demand for essential household and personal care products. The company faced inflationary headwinds but managed to maintain profitability through a mix of price increases and cost controls. P&G’s performance suggests consumers prioritise trusted brands and essential goods, even when navigating economic pressures.
Overall, these earnings reports suggest that consumers are focused on value and essentials while being cautious with discretionary spending. Companies are adapting by focusing on operational efficiency and aligning their offerings with shifting consumer needs, reflecting a careful but adaptable approach to the evolving economic landscape.
Advertising
Meta & Alphabet
Advertising companies can offer valuable insights into the economy and consumer behaviour, making them one of my favourite indicators of economic health. Their spending patterns can reflect business confidence, with budgets typically increasing during periods of growth and decreasing during downturns. Moreover, advertising trends may indicate consumer preferences and industry changes, making these companies useful for gauging overall economic health.
We saw Moderate Growth returning, and many advertising companies reported growth in ad spending, indicating that businesses are cautiously optimistic about the economy. The sector’s performance suggests that companies are still investing in marketing, albeit more selectively. Google reported gains in YouTube marketing spend, which is the first to decline when businesses are cautious or worried about economic conditions.
Most large companies have delivered their Q2 2024 earning reports and have expressed optimism for the near future despite ongoing concerns about inflation, supply chain disruptions, and potential economic slowdowns. However, there have been notable variations in outlook across different sectors.
Companies in technology and consumer staples have generally been more optimistic, driven by stable demand for their products and services. On the other hand, discretionary companies have been more cautious due to concerns about reduced consumer spending on non-essential items.
Inflation remains a crucial worry for many companies, and there is concern that continued inflationary pressures could erode profitability and dampen consumer spending. Additionally, supply chain disruptions concern many companies, impacting production and delivery times.
Companies closely monitor changes in consumer behaviour, such as shifts towards value-oriented products or changes in spending priorities. This has led to a cautious outlook as companies anticipate potential shifts in demand.
Despite these challenges in the near term, many companies remain focused on investing in innovation, sustainability, and digital transformation to position themselves for future growth. Overall, while the economic environment is challenging, many companies have cautious optimism about their ability to adapt and thrive.
I firmly believe that the companies we discuss today will experience considerable stock price growth in the coming months and years. The current economic landscape is marked by higher inflation and interest rates, yet the economy seems to be doing well.
Despite this, some analysts and commentators persist in spreading doom and gloom, hoping to make a name for themselves like Michael Burry. These influencers, such as Peter Schiff, have been peddling the same nonsense for years. If you listen to them, you may lose money and miss good opportunities. My advice is to focus on finding solid companies, ignore the Fear, Uncertainty and Doubts (FUD), and develop a sound strategy to profit from the market.
