The Mag Seven Are Suddenly the Drag 7. Is That an Opportunity for Us? Earnings season is in full swing. And if you've been a Power Trends reader for a while, you know this is my Super Bowl… only I get to celebrate four times in a year and not just one.
It also has a huge impact on my Quantum Edge system, sharpening the ratings with fresh data.
A significant chunk of the Quantum Score my system assigns to more than 6,000 stocks every day is a separate Fundamental Score. Sales and earnings growth, which are updated in earnings reports, are among the biggest data points of the fundamental ranking.
Other important metrics are also updated, like debt, profit margin, and cash flow. All of those updates also impact valuation.
Those Fundamental Scores change the most these four times a year when companies publicly disclose their financial results.
I already shared with you my top rules for earnings season, but now that we're starting to have some of the most influential companies in the market reporting, let's check in to see how things are going.
First, let's check the latest estimates for the Q2 earnings season from FactSet: - S&P 500 earnings are estimated to grow 9.7%. That would be the highest since Q4 2021.
- Eight of the 11 sectors are reporting year-over-year growth – led by the Communication Services, Health Care, Information Technology, and Financial sectors.
- Revenue is expected to grow 4.7%.
- And peeking ahead, analysts look for 7.4% here in the third quarter and then a stellar 17% pop for Q4.
That's good stuff and ultimately bullish for the market, but this week got off to a rocky start after two of the "Magnificent Seven" tech stocks reported earnings.
Both Apple (AAPL) and Tesla (TSLA) reported on Wednesday, sending stocks lower in the worst day since 2022. The results clearly weren't awful, but it was part of the rotation we're seeing out of large-cap tech stocks into smaller stocks and sparked some fears for what could happen as more mega-cap tech stocks report next week.
Let's take a look at what happened. Tesla (TSLA) 
Source: TradeSmith Finance Tesla shares fell 12% Wednesday after the company's second-quarter earnings missed estimates when they were released Tuesday afternoon.
Earnings fell 43% from last year to 52 cents per share, missing Wall Street's estimate of 61 cents. Automotive revenue declined 7% to $19.9 billion, but total sales inched up 2.4% to $25.5 billion and beat estimates by $1 billion.
Tesla does remain the top seller of electric vehicles in the U.S. but continues to lose market share to rivals. The company has also been forced to lower prices globally amid slowing sales.
Despite that, the company did state that "plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025."
That 60.3 Quantum Score is outside of my preferred buy range of 70 to 85. It's weighed down by the lower Technical Score after shares have dipped 9% in two weeks with that rotation out of big tech. But the fundamentals continue to score well, and I wouldn't bet against TSLA in the long run. Alphabet (GOOGL) 
Source: TradeSmith Finance Alphabet, Google's parent company, reported earnings after the close on Tuesday that actually beat analyst estimates, but shares still fell 5% the next day.
Earnings of $1.89 per share grew 31% over last year and topped expectations by 5 cents. Revenue also beat at $84.74 billion compared to estimates for $84.19 billion, which was up 14% year over year.
Ad revenue hit $64.6 billion, up from $58.1 billion last year. And while YouTube ad revenue missed estimates, it still grew 13% to $8.66 billion.
CEO Sundar Pichai pinned the quarter's strong performance on the company's ongoing strength in Search, momentum in Cloud, and innovation in AI.
GOOGL's solid 70.7 Quantum Score puts it right at the bottom end of the optimum buy scores. The technicals have weakened in the recent action, but the fundamentals remain excellent with a rating near 80. What to Expect Next Week As we've said, small-caps are having their moment. And that means mega-cap tech stocks – like the Magnificent Seven – have lost some steam after their tremendous run that lifted the entire market.
In fact, those seven stocks posted their worst day on record Wednesday when investors fled after Tesla and Alphabet's earnings reports. Even so, the Mag Seven stocks are still expected to grow earnings three times faster than the S&P 500 in last quarter's results – 30% vs. 10%.
The action continues fast and furious next week with four more Magnificent Seven reporting.
Microsoft (MSFT) reports after the close on Tuesday, July 30. Analysts estimate revenue of $64.38 billion, a 14.6% increase from a year ago. Earnings are expected to grow 9.3% to $2.93.
Investors will likely be watching revenue growth for the company's cloud platform Azure, which has benefited from the AI boom and helped fuel previous earnings beats.
MSFT Quantum Score: 63.8.
Meta Platform (META) is expected to release earnings next Wednesday, July 31, with the Street anticipating $4.69 per share – a solid increase of 45.2% over last year. Revenue is expected to increase 19.6% to $38.27 billion.
META Quantum Score: 69.
Apple (AAPL) steps up next Thursday, Aug. 1, after the close. There's a lot of buzz that the world's largest company (by market cap) is working on a foldable iPhone that could be released as early as 2026. Believe it or not, the global foldable smartphone market grew 49% in the first quarter.
Apple is also big on AI and plans a major reboot of its digital assistant Siri. The consensus estimate is for revenue of $84.4 billion (up 10%) and $1.34 in earnings per share (up 13.6%).
AAPL Quantum Score: 67.2.
Amazon (AMZN) also reports next Thursday after market close. The company just had its biggest Prime Day shopping event ever with record sales. Analysts anticipate earnings per share of $1.03, a hefty 63.5% increase from a year ago.
AMZN Quantum Score: 62.1.
It will be interesting to see how these Magnificent Seven stocks shape up and whether they can help lift big tech out of the trenches. With increased volatility during earnings season, it's more important than ever to invest in those high-quality stocks set to weather any storms. Those stocks with superior fundamentals, strong technicals, and institutional money flowing in.
That's always my focus, and it works. I see especially good opportunities in small-caps as this rotation into those smaller stocks should last a while and is potentially huge. Those are exactly the kinds of stocks we focus on in my Quantum Edge Pro service.
If you'd like to focus on those stocks as well, click here to learn more about Quantum Edge Pro and how you can receive immediate access to my full list of recommended stocks.
Talk soon,   Jason Bodner
Editor, Jason Bodner's Power Trends Disclosure: On the date of publication, Jason Bodner held a position in Alphabet (GOOGLE), Tesla (TSLA), and Nvidia (NVDA) mentioned in this article. | 
Post a Comment
Post a Comment