Tuesday, November 26, 2024

Earnings > Everything

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EDITOR'S NOTE

Below we have a guest article from our friends over at Manward Press.

Shah Gilani dives into the true driver of our economy and business growth: earnings.

And with regulatory cuts on the horizon with President-elect Donald Trump...

Americans could stand to save even more…

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Over 7.6 million Americans became millionaires during his last term...

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- Nicole Labra, Senior Managing Editor

THE SHORTEST WAY TO A RICH LIFE

The True Driver of Stock Prices

Shah Gilani, Chief Investment Strategist, Manward Press

Shah Gilani

Our 24-hour news cycle means the markets are bombarded with constant "noise."

Whether it's loud noise like an election... the constant hum of political squabbles... the buzz of geopolitical tensions... or the clanging of economic data like inflation, GDP, and consumer spending... the flow of information is nonstop.

But here's a secret that all seasoned investors know...

Most noise is just "news"... short-term distractions that rarely impact the long-term value of your investments.

What actually matters?

Earnings.

Earnings growth is the single most important factor that drives stock prices over time.

All the noise in the media may cause temporary moves in stock prices... but it doesn't change the fundamental value of companies.

The long-term success of any company comes down to one thing...

Its ability to generate profits for shareholders.

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Now, there's a difference between short-term market movements and long-term market trends.

Short-term market movements are often driven by "sentiment." Sentiment can be swayed by whatever happens to be dominating the news cycle. Fear and greed take center stage, and these emotional responses to short-term events can cause the market to fluctuate wildly.

Long-term market trends, on the other hand, are driven by fundamentals - specifically, earnings. Earnings reports, quarterly guidance, and annual outlooks determine the true value of a company. The performance of a company's core business operations is far more important in the grand scheme of things than any one-day blip caused by news or rumors.

Consider this...

Between 2007 and 2009, the world experienced a massive financial crisis, with government bailouts, banking collapses, and global recessions. The noise was deafening.

But the best companies - those that had solid fundamentals and were able to adapt to the environment - ultimately thrived in the long run. If you'd bought quality stocks during that time - i.e. Amazon (Nasdaq: AMZN), McDonald's (NYSE: MCD), and AutoZone (NYSE: AZO) - even though headlines were terrifying, you would have come out ahead, a very long way ahead.

Again... market reactions often do not reflect the true value of a company or its long-term potential.

The real long-term money is made by investing in businesses that have a proven ability to generate earnings.

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The True Driver of Value

Earnings are the lifeblood of a business. A company can have the best management, the most innovative products, and the largest market share in its industry, but without healthy earnings, it's not going to succeed in the long term.

When earnings grow, stock prices typically follow suit.

It's that simple.

Companies with consistent earnings growth are rewarded with higher valuations. If a company is growing its earnings at a steady pace, investors are willing to pay more for each dollar of earnings, which pushes the stock price higher.

That's why companies with strong earnings reports often see their stocks rise, even in the face of market noise.

For investors who rely on dividends, consistent earnings are critical. Companies that can generate strong profits are able to pay - or even increase - dividends. Businesses with weak earnings may be forced to cut dividends or stop paying them altogether.

Strong earnings allow businesses to reinvest in growth, fund research, expand operations, or acquire new assets. This reinvestment ultimately fuels long-term stock price appreciation.

Earnings are a reflection of a company's ability to compete and win in its industry. Strong earnings suggest that the business has found a profitable niche, is effectively managing its costs, and is creating value for customers.

Weak earnings often signal that a company is losing ground to competitors, facing inefficiencies, or not generating enough demand for its products or services.

The Best Qualities

Companies that experience consistent earnings growth over time are typically those that are able to adapt to changing market conditions, innovate, and find new revenue streams.

They focus on improving their operations and generating value for shareholders.

The most successful stocks over the long term will flourished by growing their earnings year after year - regardless of the political or geopolitical turbulence that might have occurred along the way.

So, while everyone else is wringing their hands over the latest poll numbers or the newest trade deal, you can build a portfolio around companies that consistently deliver the earnings growth that truly matters.

Over time, those companies will be the ones that win, no matter what noise is swirling around them.

What truly matters for investors is earnings - companies that can consistently generate profits, grow their bottom lines, and reward shareholders with dividends and capital appreciation.

These are the companies that will weather the storms of market noise, and their stocks will rise over time.

Cheers,

Shah

P.S. During Donald Trump's first term, his regulatory cuts saved each American household $11,000...

And helped stimulate the economy...

This is what I believe is in store during his second term.

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