The One Thing That Will Send the S&P to 1600 - Investment Ideas

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The other day on the Kudlow Report on CNBC, I expressed concern that the lack of future QE (quantitative easing) was taking the wind out of the market's sales. Markets have become addicted (mostly psychologically) to the FED buying up US treasury bonds and keeping rates low.

I also noted that a stronger dollar may hurt some of the earnings of multinational companies that make a good portion of their money overseas then convert those earnings into dollars; the stronger the dollar, the weaker the conversion.

But are we really worse off without QE? We all agreed that weaning the markets off of the FED's bottle may be a little painful at first, but is a stronger dollar and lower commodity prices all that bad? For some of the companies in the S&P 500, yes, but at the end of the day, there is only one thing that really matters: earnings. If there is any catalyst that will take the S&P up another 15% over the next year or two, it will have to be earnings.


The Only Truth

We live in a world where information flows at the speed of light. Within seconds, millions of people are made aware of breaking news in every nook and cranny around the world. Heck, people even tweet and blog about public bathrooms that aren't clean.

All this communication makes us investors a bit edgy. Most professionals refer to the stock market as being "headline driven". This goes deeper than just buying on good news or selling on bad news, it's that most of us don't really understand the ramifications of the headlines that we are reacting to! Even I am guilty.

Think about this...

There are stocks out there that are making money, growing earnings with momentum and are even in popular sectors, yet they are being ignored because investors may not fully understand their business, never heard of them or, better yet, are not even sure how a headline such as "No More QE" will affect that company. But instead of taking the time to dig deeper and find the truth, many just sell (or ignore) it and move on.


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I mean, why not? There are thousands of stocks out there and you could always just buy Apple, which is what everyone else is doing.

The reality is that earnings are the truth; earnings results and the commentary that comes along with them is the end all, be all of a company's fiscal health, period. After all the hype, headlines, pundits, comments, blogs, tweets, Twits, trends, Facebook likes, Google searches and cool commercials, it all comes down to how much money the company is making and whether it will continue.


Finding the Truth

Beyond the headlines and stocks that everyone talks about, there are hundreds of good stocks out there that have strong earnings trends. Unfortunately, the only people who are close to these lesser-known companies are the analysts who follow them. Analysts work day and night doing what their name implies, analyzing the earnings trends of companies. Not all analysts are perfect and, yes, they do make mistakes. But if you track their progress and then look at 10 of them who are covering just one stock and begin to aggregate their opinions, well now you are getting somewhere.

If you want to branch out and get away from the same stocks that are always in the news and headlines, you need to dig deeper and start studying some of the analysts' best alternative picks in each sector. Of course this is time consuming, but if you gather good intelligence, you will be more likely to discover a diamond as opposed to a lump of coal. Another problem is that some of their data costs money; you may or may not get this research from your broker, but it doesn't hurt to ask.

For those of you who want some help, you are welcome to check out my Whisper Trader earnings service. Through a complex Zacks algorithm, it sorts through analyst opinions, past trends and EPS estimates to predict positive earnings surprises before reports are released. It calls such surprises with an unheard of 8 out of 10 accuracy.

Last earnings season, I used this strategy to find stocks with a 77% win rate.

Many of the companies it targets are not the most well known, but then again you might not want them to be. I'd much rather stumble upon a gem without several thousand people looking over my shoulder.

For that reason, admission to Whisper Trader is restricted and access closes for new investors Saturday, April 7. So I invite you to look into it right now:

Learn more about Zacks Whisper Trader >>

Good Trading,

Jared

Jared Levy is a Zacks Rank stock strategist with special expertise in earnings. He provides private recommendations and commentary for the groundbreaking Zacks Whisper Trader.


 
To read this article on Zacks.com click here.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: WTW

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