2016 Best and Worst Earnings Trades in Review
Earnings season kicks off next week and that means a whole new round of trading opportunities. We’ve been analyzing historical post earnings price movement for over eighteen years and believe that trading on earnings reports continues to be a consistent and profitable strategy.
There are a few ways to trade earnings events – pre-earnings, which we believe is a guessing game, and post earnings, when you can use the actual reported earnings number against the whisper number expectation as the catalyst for a long or short position.Â
This article will present our biggest earnings trade winners…and losers, from 2016, and we’ll hope to offer some insight and potential earnings trades for 2017.
Winners
Hovnanian
Hovnanian (HOV) reported earnings short of the whisper number in the first three quarters of 2016, and finally reported a beat in the fourth quarter. Three short trade positions and one long, and all four were winners with an average return of 14%. The long position in December provided the best returns of 22%. Hovnanian tops our list in 2016 of best and most consistent earnings trades.
KB Homes
KB Homes (KBH) comes in a close second on our list of winners as we only had three quarters of activity. The company reported earnings short of the whisper number in the first quarter of 2016, but topped it in the following two quarters. One short trade position and two long positions yielded three winning trades with an average return of 5.7%.Â
Fiserv
Fiserv (FISV) also had three winning trades in 2016, and all three were long positions. The company reported earnings that topped the whisper number in three quarters, and reported earnings in-line with the whisper in one quarter. The three trades yielded returns of 0.9%, 7.6%, and 12.3%. Fiserv would have taken the second spot on our list, but the returns (as noted) were inconsistent.
Sprint
Sprint (S) is on the list for a few reasons, the top being big percentage earnings returns. It’s a cheap stock that sees big moves after an earnings report, and 2016 was no exception. The first three quarters yielded winners, and the fourth quarter turned against us. But those three winning (long) trades saw an average return of 17%. The company reported earnings short of the whisper number in the fourth quarter and the short trade position took back 9.1%. If it weren’t for that last trade, Sprint would have easily been in our top spot.
