The Untold Truth Of Why Stocks Crashed This Earnings Season

seekingalpha2022-03-12

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HuatGirl
·2022-03-14
Still holding on to APPLE....
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AlexTeddySG
·2022-03-13
With all due respect to the efforts, I feel you havepessimistic approach. But thanks for the article.Yeah, like most analysts, you feel all tech things will go down the drain in 2022. I beg to rethink. All tech except strong foundations will do go downthe drain. AAPL, semi-conductors will still be positive. Market will bounch 10-15% in 2023 and it will have strong impact on these solid tech. Lets see how it goes. $Apple(AAPL)$$Alphabet(GOOG)$
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nsk
·2022-03-12
Okay
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Facebook (FB): -26%; Paypal (PYPL): -25%; Netflix (NFLX): -22%; Asana (ASAN): -22%; Roku (ROKU): -22%; Affirm (AFRM): -21%; Zscaler (ZS): -16%; Shopify ...</p>\n\n<a href=\"https://seekingalpha.com/article/4494958-the-untold-truth-of-why-stocks-crashed-this-earnings-season\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4525","symbol_name":"远程办公概念","start_time":0,"source_url":"https://seekingalpha.com/article/4494958-the-untold-truth-of-why-stocks-crashed-this-earnings-season","article_id":"2218242761","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2218242761","pubTimestamp":1647093600,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"D-Keine/E+ via Getty ImagesGoodRx (GDRX): -39%; Facebook (FB): -26%; Paypal (PYPL): -25%; Netflix (N","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4525":"远程办公概念","BK4566":"资本集团","M":"梅西百货","BK4535":"淡马锡持仓","BK4524":"宅经济概念","BK4508":"社交媒体","AAPL":"苹果","BK4501":"段永平概念","BK4527":"明星科技股","BK4543":"AI","BK4579":"人工智能","FL":"富乐客","BNTX":"BioNTech SE","BK4550":"红杉资本持仓","F":"福特汽车","BK4141":"半导体产品","QNETCN":"纳斯达克中美互联网老虎指数","ZS":"Zscaler Inc.","BK4503":"景林资产持仓","BK4574":"无人驾驶","BK4551":"寇图资本持仓","BK4573":"虚拟现实","BK4505":"高瓴资本持仓","TOL":"托尔兄弟","BK4103":"百货商店","BK4512":"苹果概念","BK4560":"网络安全概念","ZM":"Zoom","BK4549":"软银资本持仓","BK4088":"住宅建筑","BK4099":"汽车制造商","ROKU":"Roku Inc","SHOP":"Shopify Inc","BK4170":"电脑硬件、储存设备及电脑周边","BK4529":"IDC概念","ASAN":"阿莎娜","GDRX":"GoodRx Holdings, Inc.","BK4528":"SaaS概念","BK4106":"数据处理与外包服务","BK4023":"应用软件","BK4515":"5G概念","NFLX":"奈飞","BK4532":"文艺复兴科技持仓","BK4553":"喜马拉雅资本持仓","AFRM":"Affirm Holdings, Inc.","BK4534":"瑞士信贷持仓","BK4507":"流媒体概念","PYPL":"PayPal","BK4576":"AR","BK4555":"新能源车"},"translate_title":"这个财报季股市暴跌的不为人知的真相","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AFRM":1,"ZS":1,"TOL":1,"SHOP":1,"ROKU":1,"PYPL":1,"NFLX":1,"M":1,"GDRX":1,"FL":1,"F":1,"AAPL":1,"ASAN":1,"ZM":0.9,"BNTX":0.9,"QNETCN":0.6},"content_text":"D-Keine/E+ via Getty ImagesGoodRx (GDRX): -39%; 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These are not penny stocks, as the volatility would assume. In contrast, these are one-day crashes of multi-billion companies on earnings day. I could have made this list way longer. I don't know about you, but I have never witnessed such a volatile earnings season as the fourth quarter of 2021. Interestingly, most of these companies seem to have reported strong Q4 earnings. Indeed, data shows 75.8% of all S&P 500 companies beat EPS estimates, significantly higher than the 72.0% historical average. So why did so many stocks plunge during earnings season, despite having beaten estimates? And what does this imply for future returns of these and many other stocks in the market? In this article, I will provide an answer to these questions which I believe has not received enough attention in the market. The content provided in this write-up is not only valuable to get a better understanding of today's unusual market environment, but is also an important lesson for your future investment journey.\n Taking a Step Back: Market Volatility Explained The fair value of a company is based on all future cash flows discounted to today. Investors who can keep remembering this rule during extremely volatile periods (both on the up- and downside) will generate much better returns than those who forget about it. Let me explain this further. The DCF valuation method says that the valuation of a company is based on all future cash flows discounted to today. Importantly, more than half of this \"fair value\" is based on cash flows more than 10 years away from now, which are very hard to accurately predict. Due to this uncertainty about cash flows in the distant future, analysts and investors focus highly on short-term earnings. That's despite the fact that first year's free cash flows actually represents <5% of the average company's fair value. When companies report strong earnings/guidance, market participants tend to overreact on the upside. They push the stock higher without thinking about the sustainability of this strength in the future, which is far more important. When companies reports disappointing earnings/guidance, market participants drop the shares no matter what. They forget to think about what drove the earnings miss and find it hard to visualize an improvement in the future. Or to put it in the words of billionaire entrepreneur Peter Thiel: Growth rates get overvalued, while durability gets undervalued. Sentiment-based earnings volatility creates this very interesting trend which can push the stock price (red) significantly above/below the intrinsic value (blue) of the company: Insider OpportunitiesFOMO will cause many retail investors to jump into a stock when its sentiment is sky high. They think \"the company is growing extremely rapidly and the stock price has only been going up, I should jump in as well\" without considering the valuation nor the sustainability of the growth rate. They buy high and sell low when it appears that this growth rate was not durable. The smart investor does the opposite: Thinking one step ahead of the market. He acknowledges when valuations are getting too high as strong earnings push sentiment to extremely greedy levels. He buys stocks which deserve little respect from Mr. Market for unjustified reasons and are set to positively surprise the market in the coming 6-12 months. I sincerely hope that after reading this article, you will join me in the second group of investors. What Really Happened Last Earnings Season Sentiment-based volatility has been occurring day-in, day-out since the existence of the stock market. However, the past two years has been an extreme outlier.\n In 2021 we experienced an unprecedented economic recovery from the COVID-19 pandemic as central banks pushed trillions of dollars in the monetary system. Earnings went through the roof and investors became extremely bullish. Unfortunately, most investors forgot to think about the bigger picture here. This financial strength was not durable. The recent sell-off build-up Since late 2020, I started to warn investors about the unsustainability of the strong earnings reports at high-flying tech stocks. In September 2021, I went a step further by calling out significant risks for the entire market in my article \"Zoom's Steep Earnings Sell-Off Should Change Your View On The Market.\" I urged you to reconsider all of your positions based on \"normalized\" earnings when the tailwinds of trillions of stimuli would fade out:  Some of you will disagree with me if I tell you that many stocks in the market will face the same fate as Zoom did in 2021. Yes, Zoom is an extreme beneficiary of the COVID-19 pandemic. But hear me out... More than half of all stocks in the market are COVID-19 beneficiaries. That's a bold statement, isn't it? Let me explain... The COVID-19 pandemic let to unprecedented fiscal stimuli to boost the economic recovery, such as stimuli checks, infrastructure investments and zero interest rates. While the COVID-19 tailwind for tech stocks has been mostly fading away due to the reopening, the stimuli tailwind for many other companies are still unfolding today. Indeed, last quarter's S&P 500 earnings grew by a staggering 95% YoY and 86% of the constituents beat EPS estimates (the highest number on record). The problem is that many investors are making the same investment mistakes today as Zoom investors did at the end of 2020. As a consequence of their greedy behavior, they are extrapolating the recent strong numbers to their future expectations. ... So how should you approach the market going forward? Make sure you don't get misled by strong market sentiment when great earnings are getting reported. Always maintain a conservative mindset about how the company's financials might look like in 3-5 years, when COVID-19 disruptions have eased.  The Q4 earnings sell-off Looking back at this article, this advice couldn't have been more accurate. While Q4 2021 earnings were still strong, companies' guidance was mostly disappointing as economic activity is returning to normalcy. In fact, the chart below indicates that guidance has been the weakest since Q1 2016. This led to a massive amount of earning sell-offs last quarter.\n   Morgan StanleyOvervalued hyper-growth stocks have faced the most pain so far. As explained in my December 2021 article \"The Epic 2021 Bubble Already Collapsed, We Just Entered Phase 2,\" many valuations reached extremely unsustainable levels and were destined to turn sharply lower. Each little disappointment in their earnings reports were seen as a good reason to sell off the stock. As you can observe below, the stocks discussed in my article are down drastically. Unfortunately, many of them face more downside risks as upcoming disappointing earnings will continue to drag down valuations which are still elevated. Data by YChartsAs anticipated, not only growth stocks but also many so-called \"value\" stocks started to show their first cracks. In particular highly cyclical stocks went down drastically as it appears that their recent strong financials are unsustainable. At the surface, stocks like Foot Locker (FL), Macy's (M), Ford Motor (F), Toll Brothers (TOL) and JPMorgan (JPM.PK) looked cheap at their top at a P/E of respectively 10x, 14x, 5x, 11x, 10x. Even more, they looked like bargains if you took into account their fantastic growth rates over the past year. Nonetheless, these stocks are down by 23% to 53% from their highs. Why? Economic conditions are worsening and their earnings could be cut in halve or even go negative in no time. As such, their P/E ratios are irrelevant. You could categorize them as \"value traps.\" What Will Happen Next To Stocks In 2022 And Beyond? While unfortunately I don't have a crystal ball, I do expect a significant divergence to occur in the market over the coming quarters. First, I believe the market has recently become overly pessimistic and fearful regarding many stocks, particularly in the small-cap sector. As discussed in my most recent article \"Bottom Predictor Urges You To Buy The Current Dip,\" extreme fear like last month is a perfect opportunity for you to pick up higher-risk stocks which got unjustifiably sold off. There might be more pain ahead for them in the coming weeks. However, stocks with great prospects and attractive valuations after their recent sell-off have the potential to generate you tremendous returns in the mid-to-long term from today's levels. Second, I believe a large part of the market will continue facing weak returns as economic conditions weaken. In particular, growth stocks with bublicious valuations and economically-sensitive value traps are likely to continue facing pressure going forward. In addition, I have a very unpopular opinion about big tech. After years of dominance, I believe they will face unsatisfying returns going forward. I'm particularly bearish about Apple (AAPL) and Nvidia (NVDA), two companies who have outrageously benefited from last year's economic strength. Their valuations are not ready for the upcoming economic slowdown.\n I also want to urge you to be cautious with the recent rally in energy and commodities. Greediness never works out well. Interestingly, the recent insider activity is confirming our believe that there are both risks and opportunities in the market today. Insider buying activity has picked up tremendously during the recent correction. However the number of insider purchases still remains significantly lower than insider sales. The insider purchase/sale ratio stands at 0.55x compared to a peak of 0.8x-1.6x during other corrections over the past years. Insider Opportunities with data from Finance Yahoo, GuruFocus and SEC filingsAt Insider Opportunities we built up our cash position over the course of 2021. We are now deploying this cash position to unjustifiably sold-off stocks with strong insider buying activity. Through our unique insider strategy, we are confident that our returns will be strong in the mid-to-long term from today's levels. Investor Takeaway Last quarter, we experienced an enormous amount of stock crashes on earnings day. This can be explained by the economic slowdown, which led to weak 2022 guidance across the board. The darlings of 2021 are becoming the losers of 2022. Last year has reminded us how strongly the market can overreact both on the upside and downside. It's extremely important to not just look for the winners of today, but think one step ahead of the market who the winners of the future will be. With a continued economic slowdown expected for the coming quarters, many stocks are not out of the woods yet. In particular, bublicious growth stocks and cyclical value traps are likely to face more weakness going forward. In contrast, there are many stocks with great prospects which have been unjustifiably dragged down in the extremely negative sentiment. This provides significant buying opportunities, but you have to look for them carefully. Following insider purchases can help tremendously with picking out the future winners and avoiding the losers.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9032040281,"gmtCreate":1647245637158,"gmtModify":1676534207308,"author":{"id":"4105527258434100","authorId":"4105527258434100","name":"HuatGirl","avatar":"https://community-static.tradeup.com/news/f4f221b60ade41caeefc225f39ab4105","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"4105527258434100","authorIdStr":"4105527258434100"},"htmlText":"Still holding on to APPLE....","listText":"Still holding on to APPLE....","text":"Still holding on to APPLE....","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9032040281","repostId":2218242761,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9036531543,"gmtCreate":1647137797971,"gmtModify":1676534197759,"author":{"id":"3571116462495160","authorId":"3571116462495160","name":"AlexTeddySG","avatar":"https://community-static.tradeup.com/news/fe3bd70688adbe645a97bfe4c0ae9c96","vip":1,"hat":"https://static.tigerbbs.com/f84d87792f02cf78e80ee34979fd31e5","crmLevel":7,"crmLevelSwitch":1,"idStr":"3571116462495160","authorIdStr":"3571116462495160"},"htmlText":"With all due respect to the efforts, I feel you havepessimistic approach. But thanks for the article.Yeah, like most analysts, you feel all tech things will go down the drain in 2022. I beg to rethink. All tech except strong foundations will do go downthe drain. AAPL, semi-conductors will still be positive. Market will bounch 10-15% in 2023 and it will have strong impact on these solid tech. Lets see how it goes. <a href=\"https://ttm.financial/S/AAPL\">$Apple(AAPL)$</a><a href=\"https://ttm.financial/S/GOOG\">$Alphabet(GOOG)$</a>","listText":"With all due respect to the efforts, I feel you havepessimistic approach. But thanks for the article.Yeah, like most analysts, you feel all tech things will go down the drain in 2022. I beg to rethink. All tech except strong foundations will do go downthe drain. AAPL, semi-conductors will still be positive. Market will bounch 10-15% in 2023 and it will have strong impact on these solid tech. Lets see how it goes. <a href=\"https://ttm.financial/S/AAPL\">$Apple(AAPL)$</a><a href=\"https://ttm.financial/S/GOOG\">$Alphabet(GOOG)$</a>","text":"With all due respect to the efforts, I feel you havepessimistic approach. But thanks for the article.Yeah, like most analysts, you feel all tech things will go down the drain in 2022. I beg to rethink. All tech except strong foundations will do go downthe drain. AAPL, semi-conductors will still be positive. Market will bounch 10-15% in 2023 and it will have strong impact on these solid tech. Lets see how it goes. $Apple(AAPL)$$Alphabet(GOOG)$","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":6,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9036531543","repostId":2218242761,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9036202028,"gmtCreate":1647093985190,"gmtModify":1676534194532,"author":{"id":"3566130979400930","authorId":"3566130979400930","name":"nsk","avatar":"https://static.tigerbbs.com/ca5161a1cfd9f69617bbe604d09aa849","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3566130979400930","authorIdStr":"3566130979400930"},"htmlText":"Okay","listText":"Okay","text":"Okay","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9036202028","repostId":2218242761,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":17,"commentSize":3,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false}}