Question:
Do you follow all the stocks every day that post earnings or just the ones that are good companies? I can see what you mean by waiting until after the report to buy or not. Sometimes it is a good idea to buy before the report though. How does one really know? What service do you use to know what companies are going to report for that day? Yahoo lists some and so does MSN. I have been watching www.earningswhispers.com some.
My Response:
I typically just follow the stocks that I’m tracking in the database, and will watch very closely a few of the very best companies that are near a breakout or within buyable range because maybe the earnings provides the catalyst to break out as we saw with LQDT. I don’t think it’s ever a good idea to buy ahead of earnings, but there are times when I’ll hold a stock through earnings (sometimes if the company is larger and has proven itself over time – ie. Google or News Corp)
You won’t ever know what a company is going to report but the whisper number (which earningswhispers.com) provides is a much more accurate number than what the analyst estimates are and is the number that a stock often trades off of. If a company beats the analyst estimates number but misses the whisper number, you’ll often see the stock sell.
It’s generally a good idea to avoid trading off earnings altogether. Why worry if a company is going to beat the whisper and guide higher for next quarter? Here is a copy of a post I made at the blog a couple years ago regarding earnings:
"The greater the degree of uncertainty, the greater your risk in holding a position in a stock. All stocks are uncertainties, but there is no moment of greater uncertainty than that of an earnings report. It’s the time when the company reports on how well it is doing now and how well it expects to do in the future. Often times, other major announcements are made as well. It can be a time of extreme volatility, especially with small cap, high growth stocks. Sure, the upside potential can be great, but there are too many things that can go wrong, which could cause the stock to plummet. Remember, the name of the game is preservation of capital. You can always repurchase the stock once the coast is clear.
A company may report below analyst estimates, or the whisper number (earnings that the company is rumored to report, often leaked by an insider). There are times when a company will beat the analyst estimate, but not the whisper number and sell off.
They may release negative news about the company, the industry, or reveal a less than optimistic outlook for the future.
"Buy the rumor, sell the news". Often times a stock will rise ahead of expected good earnings, only to sell off once the great earnings are released. "