• Why do earnings matter to investors and not just to corporations? - Corporate earnings are the profits from a company, usually calculated over a quarter or a fiscal year.  When viewed in summation on the market, they are one of the ultimate barometers of where the economy or market stands. In general, those organizations who can earn consistently provide a better opportunity for a stable workforce and thus sustainable personal earnings and investment opportunities.  Evidence shows that price does not have consistent moves higher without sound fundamentals.

• How to think about valuations – While stretched valuations may provide a timing gauge for entry points on a particular security, they aren’t perfect.  Newer, growth like industries often see their valuations accelerate to levels often not witnessed within their space while more mature business segments revert to their means or, sometimes, below their means.   While stretched valuations can provide a warning that near term strength may be overdone, they also can stay elevated longer than anticipated.
• Why are expectations & guidance important? - Often perceived as the ultimate reason for a stock price’s reaction during earnings season comes from variances with reported numbers vs what the street expected.  These market moves can also be exacerbated by forward guidance provided by management.  With a securities’ current price reflecting those expectations, any drastic change in assumptions normally quickly becomes reflected in the new, adjusted price.

Growth Expectations Per Sector for 2^nd Quarter Earnings

Source: Refinitiv and Strategas Securities. Data as of July 23, 2024.

Note: Green shading indicates current estimate higher than April 1^st estimate.

While it is human nature to react to extreme events – either positively or negatively, we would always stress the need for a sound, long term financial plan.  But for many investors, the draw to the quick buck can be overpowering.  When it comes to publicly traded securities, it is true that some have found success with meme stocks, day trading, or finding the next creator of the iPhone before everyone else.  However, we believe most advisors would agree that companies with sound fundamentals provide better opportunities for positive, long-term growth.

In short, we suggest talking to your advisor while keeping in mind that earnings are measured, not only against prior earnings results but also against expectations.  So as macro and economic growth leads to the direction and magnitude of earnings, the direction of price is driven by the direction of those underlying earnings.  For best results within a portfolio, we believe it best to invest in stable earners with companies providing growth opportunities.

Earnings Focused Investment Opportunities at Strategas Asset Management

As we begin the second quarter reporting season, we at Strategas Asset Management are scrutinizing earnings’ call transcripts for answers to the following questions: 1) is the enthusiasm for investments in artificial intelligence still robust? 2) how deep are the cracks forming for consumer spending, especially at the low-end? 3) how likely is it that companies can continue to grow profit margins? and, 4) are the changing prospects for the election resulting in changes in business strategy?

Keeping the above in mind we believe we have strategies positioned to capture positive earnings results.

Available to Advisors and Professional Wealth Mangers:

The Strategas Large-Cap Earnings Momentum strategy seeks to invest in companies that exhibit both strong upward earnings revisions and attractive valuations relative to their companies’ respective sector.  Built on the in-depth analysis from Nicholas Bohnsack and Ryan Grabinski, the portfolio currently holds securities that are undervalued relative to the benchmark (S&P 500) while also exhibiting higher dividend and free cash flow yield on average.

Available to all investors:

The Strategas Macro Momentum Opportunities ETF (Ticker SAMT) is an actively managed ETF which invests in 3-5 macro themes at one time.  Derived directly from our research, each theme selected within SAMT are believed to be the most impactful ones in the market.  A key element driving theme selection comes from the securities’ ability to present earnings greater than those not considered to be part of the underlying thesis.  For example, we currently have Artificial Intelligence (AI) within the portfolio which has been at the forefront of productivity and earnings growth as evident by NVidia’s financial results for the better part of the past year.

An indirect way to look for an earnings impact on your portfolio is via our Strategas Global Policy Opportunities ETF (SAGP).  SAGP was crafted with the goal of identifying US large-cap, US small and mid-cap, and non-US large-cap companies that we feel are best positioned for an earnings benefit from policy changes.  Strategas believes that corporate lobbying can produce positive benefits through successful policy outcomes. The operational and competitive advantages gained by lobbying may often lead to tangible improvement in company fundamentals.

For additional information on Strategas Asset Management, how to access our research or our other investment solutions please visit our website: https://www.strategasasset.com/ or reach out to a member of our distribution team:

Jon Matta, jmatta@strategasasset.com / (216) 702-4048.

Jim Martin, jmartin@strategasasset.com / (704) 995-3655

Patrick Rista, prista@strategasasset.com / (646) 292-7984.