The first quarter earnings season is upon is. Earnings season is a general term for the time period when the majority of companies report their earnings over the prior 3-month period. It has no set bounds as far as duration; however, it is commonly accepted that Alcoa (AA) kick-starts the season as the first major earnings release.
This period is important for several reasons. We as investors get a snapshot of how companies performed previously and how they expect to perform in the future. We get clarification on the companies' business plans, and how well they are executing on these plans. Major moves in the prices of specific stocks and the market as a whole can be expected due to these reports.
Research analysts use the earnings conference calls to update their estimates for future earnings and growth of specific companies. The analysts then review their specific recommendations on the companies they cover. The recommendations include the analysts' ratings (e.g., buy, sell, hold, etc.) and 1-yr price targets for the stocks. These revised estimates/opinions can cause a stock to jump up or down in price over a relatively short period of time.
It is important not to react hastily during this period. Quick decisions are often incorrect. After reading the earnings conference call transcripts or listening to the earnings webcasts, I often can pick up additional shares of stock for the Common Cents portfolio when the published headlines (EPS, Revenues), which don't factor in the overall story, cause a stock price to plummet unreasonably.
Common Cents Take: Be prepared to digest transcripts quickly during earnings season, especially when drastic moves in the prices of individual stocks occur. Informed buying or selling when these drastic moves occur can increase overall portfolio performance. However, uninformed buying and selling is usually unsuccessful.. A calm temperament and delayed action are just as beneficial as taking advantage of fast price swings in stocks.
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