What I am looking for in the upcoming Q2 earnings reports
Portfolio: Beachman's latest scorecard for stocks on top of his watchlist
The Q2 earnings season is underway. Several of the largest US banks have reported mixed results and a muddy outlook for the economy and the consumer. The past 18 months have been filled with euphoria for mega cap stocks, tech stocks, semiconductor stocks, cryptocurrencies and a few other sector leaders. The SP500 has gained +45% and the Nasdaq100 has put on a hefty +79% over that timeframe.
Will this party last for longer? Is this a bubble that is about to burst?
That’s what we intend to find out by closely monitoring the upcoming Q2 earnings reports. We are looking for leading indicators from specific stocks and industry verticals and we will tune in to a handful of companies that are high on Beachman’s watch list.
We are trying to separate the future winners from potential losers.
Table of contents
Beachman’s stock picking approach
Beachman’s Q1 stock scorecard
Stocks on top of my watchlist
Specific Q2 leading signals to monitor
Conclusion
Beachman’s stock picking approach
I do not have a crystal ball to make accurate predictions, however I use fundamental analysis to increase my chances of picking the better stocks and avoiding the worst kind.
Every quarter, I analyze the earnings reports, past business performance, current business fundamentals and future business potential of about 50 stocks. I score them using my Beachman’s scoring algorithm and evaluate their performance trends over multiple quarters. We now have 11 quarters of historical data to consider, including the deeply, bearish 2022 as well as some of the most bullish times of 2021, 2023 and 2024. This exercise helps me identify stocks that I might want to add to my portfolio and those that I want to avoid.
Since I started publishing my quarterly scorecard in late 2021, I have confirmed multiple times that the…
…higher-scoring stocks consistently outperform the lower scoring stocks.
Here are some numbers to consider…
Using prices from the Fri, June 28th 2024:
Since end 2021, when the US Feds started raising interest rates, the highest scoring stocks have outperformed the lower scoring stocks by as much as +44.87%.
Since end 2022, those high scoring stocks have returned +34.85% more than the lower scoring stocks.
Let’s use more current pricing from Fri, July 12th 2024:
The highest scoring stocks outperformed the lower scoring stocks by +41.19% since end 2021.
But then you might say, “Hey that’s not fair. NVDA’s run up was a big portion of that outperformance”. Ok, then let’s take NVDA out of the equation.
The high scoring stocks (ex-NVDA) returned +38.25% more than the lower scoring stocks since end 2021.
It does not matter how you slice and dice the data, the stocks with a higher Beachman score always outshine the lower scoring stocks, irrespective of the prevalent market and macro conditions.
It is clear to me that this quarterly exercise has become extremely useful to my stock picking and investing approach because:
It is based on actual data and not hearsay or opinions.
It considers longer term backward and forward trends and does not get hyper-focused on just one quarter’s earnings report.
It enables me to position the portfolio into better stocks that are more likely to outperform going forward.
Now, let’s dig in further…
Beachman’s Q1 stock scorecard
Barring a handful of companies, for most of tech, the Q1 earnings season was not so good. The hyperscalers continued to benefit from heightened interest in AI. The rest of tech reported that buyers were still taking time to sign on the dotted line for new and more tech spend. Forward estimates for many companies were lowered or remained the same. Only 2-3 companies increased their full year guidance by > 2%.
Here is the complete scorecard for the Q1 earnings season. You can find this data in