Stock prices follow earnings. This nugget of investing wisdom essentially says the most important thing long-term investors should focus on is the profits a company makes. Over time, a company growing its earnings will move the stock higher.
Of course, it’s not a hard-and-fast rule. We’ve all seen stocks beat earnings estimates, and raise their outlooks for the year and the stock still falls. But that’s a short-term phenomenon. Successful, profitable companies will ultimately win the day.
It stands to reason, then, that stocks serving up the biggest earnings beats will eventually go on to reward investors the most.
FactSet (NYSE:FDS) said that as of last Friday, 41% of all companies listed on the S&P 500 had reported second-quarter earnings. Of that number, 78% reported positive earnings, with the blended earnings growth rate averaging almost 10%. If it holds true after all companies report, it will be the fourth consecutive quarter of year-over-year (YOY) earnings growth for the index.
Below are three stocks notching some of the biggest earnings beats in Q2. Let’s see whether investors should expect their stock prices to soon follow.
American Express (AXP)
Financial services giant American Express (NYSE:AXP) reported second-quarter earnings on July 19, and beat analyst expectations by 27%. GAAP earnings of $4.15 per share easily trounced Wall Street’s estimates of just $3.26 per share as net interest income (NII) soared 20% to $3.7 billion from the year-ago period.
Driving NII higher was revolving loan balances, which benefited from the high interest rate environment we’re in. Card member loans jump 14% YOY to almost $131 billion. Members can get personal loans for amounts between $3,500 and $40,000 without any origination or prepayment fees.
American Express stock is up 5% since the earnings report, but shares have been moving higher all year long and even before that. AXP stock is up 35% year-to-date and 50% higher over the past 12 months. However, the move up really began last October after it reported third-quarter 2023 results. The stock is up 80% since then.
If the Federal Reserve begins cutting interest rates in September, as anticipated, it could weigh on AmEx’s NII. However, because the credit card issuer targets a demographic that is wealthier than other card issuers, it should be able to maintain long-term growth. It makes AXP stock an excellent candidate for your long-term buy-and-hold portfolio.
GE Aerospace (GE)
Following its breakup into three separate companies, the old General Electric is now known as GE Aerospace (NYSE:GE). Last year, it spun off GE HealthCare Technologies (NASDAQ:GEHC) and, in April, split itself again into GE Aerospace and GE Vernova (NYSE:GEV), a renewable energy company.
The aerospace stock readily exceeded analyst earnings estimates of $1.20 per share versus 99 cents per share. The stronger-than-expected profits were the result of its commercial engine and services business, along with more inputs from its defense operations.
Commercial engines witnessed a 38% increase in orders in the second quarter, rising to $9.1 billion, with segment profits surging 21% YOY. While defense orders tumbled 25% from last year, revenue inched 1% higher but saw profits rocket 71% from 2023. It noted margins expanded by 580 basis points and were “driven by mix, productivity, price and improved program performance.”
GE Aerospace stock was also on a roll before and after earnings. Shares are up 4% after the report but are 68% higher in 2024. The stock stands 88% above the level it traded at one year ago.
The old GE was a conglomerate of the highest order and always had its fingers in many different pies. That began to change a few years ago as it began to sell off different businesses. Now that it is wholly focused on aerospace and defense and entering life as an independent company with a large, installed base of customers, look for GE stock to keep rising similarly in the future.
Bristol-Myers Squibb (BMY)
Pharmaceutical stock Bristol-Myers Squibb (NYSE:BMY) got a much-needed lift from its earnings results. After adjusted profits of $2.07 per share compared to the $1.62 Wall Street forecast, BMY shares were up nearly 8%.
Yet, that still wasn’t enough to put the pharma giant into the black for the year. Bristol-Myers Squibb stock is still down 8% year-to-date and 24% lower over the past 12 months. The pharma is under heavy pressure from generic drugs, and that’s not likely to change much going forward.
In the second quarter, BMY benefited from growing sales of its lead legacy drug Eliquis, an anticoagulant used to treat blood clots and prevent strokes. Sales were up 10% in the U.S. and 7% higher worldwide, reaching $2.5 billion in quarterly sales. Oncology therapy Opdivo is BMY’s second-biggest drug and its leading growth portfolio treatment. It had $1.4 billion in sales for the period, a 16% increase globally.
However, generics continue to attack another legacy drug, Revlimid, another cancer treatment. It saw sales dip 7% from the year-ago period to $1.1 billion.
A lot of Bristol-Myers Squibb’s future growth lies in its ability to gain approval for a subcutaneous administration of Opdivo. The Food & Drug Administration has accepted BMY’s application, and a decision could come by the end of the year. The pharma wants to convert 30% to 40% of its patients to subcutaneous delivery, which could open a significant growth channel for BMY stock.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.