Trade Alert: Earnings, 11/1/2023

Three bullish and three bearish trades on stocks reporting after the close today or before the open tomorrow.

Revising Our Approach To Earnings Trades

In case you missed it, in our last post we wrote about revising our approach to researching earnings trades.

This is the key part of it:

Quantifying Our Disparate Metrics

So now we have nine different metrics to look at, which we’re gathering from six different sources, and we have dozens of companies reporting per day in some cases (the graphic below just shows the “most anticipated” earnings releases).

How to boil all this info down? Look at each metric for each stock, and assign a value to it based on how bullish or bearish it is. Take the Chartmill Valuation Rating, for example. If a stock gets a 5, we’ll give that a 0 value (neutral). If it gets 6 or higher, we’ll give it a 1 to indicate that the indicator is bullish. If it gets a 4 or lower, we’ll give it a -1. If it gets a 10 or a 0, we can give it a 2 or a -2, respectively. Then we add those numbers up for all the metrics and come up with a composite score.

So that’s what we’ll be doing today.

Our Nine Metrics

These are the nine metrics we’re looking at now for earnings trades:

• LikeFolio’s earnings score based on social data. The higher the number, the more bullish, the lower (more negative) the number, the more bearish.

• Portfolio Armor’s gauge of options market sentiment.

• Chartmill’s Setup rating. On a scale of 0-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• Chartmill’s Valuation rating. On a scale of 0-10, this is a measure of fundamental valuation incorporating common rations like P/E, PEG, EBITDA/Enterprise Value, etc. For bullish trades, the higher the better the Valuation rating the better; for bearish trades, the reverse.

• Zacks Earnings ESP (Expected Surprise Prediction). This is a ratio of the most accurate analyst’s earnings estimate versus the consensus estimate.

• The Piotroski F-Score. A measure of financial strength on a scale from 0-9, with 9 being best.

• Recent insider transactions.

• RSI (Relative Strength Index). A technical measure of whether a stock is overbought or oversold. We’re looking for RSI levels below 70 for bullish trades and above 30 for bearish ones.

• Short Interest (noted when 10% or higher).

The Stocks We’re Bullish On

The number in parentheses represents our composite score for a stock, based on all the metrics: higher = more bullish, and lower (more negative) = more bearish.

Bullish Stock #1 (7)

1. Social data: +56.

2. PA Options sentiment: Neutral.

3. Setup rating: 8

4. Valuation rating: 6

5. F-Score: 5

6. Recent insider transaction(s): Open market purchase last December.

7. Zacks ESP: 1.67%

8. RSI: 56

9. Short Interest: 13.4%

Bullish Stock #2 (7)

1. Social data: +26.

2. PA Options sentiment: Very Bullish.

3. Setup rating: 5

4. Valuation rating: 6

5. F-Score: 6

6. Recent insider transaction(s): relatively small open market sales as recently as June.

7. Zacks ESP: 3.71%

8. RSI: 34

9. Short Interest: 13.27%

Bullish Stock #3 (6)

1. Social data: +23.

2. PA Options sentiment: Bullish.

3. Setup rating: 8

4. Valuation rating: 2

5. F-Score: 8

6. Recent insider transaction(s): Open market purchase in September at slightly higher than current prices, preceded by open market sales earlier in the year.

7. Zacks ESP: 6.33%

8. RSI: 37

9. Short Interest: 13.35%

The Stocks We’re Bearish On

Bearish Stock #1 (-1)

1. Social data: -23.

2. PA Options sentiment: Very Bearish.

3. Setup rating: 6

4. Valuation rating: 2

5. F-Score: 5

6. Recent insider transaction(s): Open market purchases as recently as October.

7. Zacks ESP: 0% (Neutral)

8. RSI: 51

9. Short Interest: 20%

Bearish Stock #2 (-3)

1. Social data: -46.

2. PA Options sentiment: Very Bearish.

3. Setup rating: 3

4. Valuation rating: 3

5. F-Score: 4

6. Recent insider transaction(s): None.

7. Zacks ESP: 11.01%

8. RSI: 48

9. Short Interest: 25.85%

Bearish Stock #3 (-3)

1. Social data: +26.

2. PA Options sentiment: Bearish.

3. Setup rating: 3

4. Valuation rating: 3

5. F-Score: 5

6. Recent insider transaction(s): Large open market sales in October.

7. Zacks ESP: NA

8. RSI: 58

Details below.