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The week was going a little too well for some investors who are evidently not willing to let big paper profit ride . . . even when the stocks leading the way released strong numbers. Most of the BMR names that reported yesterday had reasonably strong quarters. But all needed a little time to catch their breath.

 

What we learned here is that it takes a huge earnings beat to impress the market right now. Even minor deviations from the target are being punished, as we saw with Alphabet (GOOG: $1,448, up 1% so far this week) in the wake of its slight revenue miss. But upside surprises aren't getting rewarded. Instead, reaction is once again revolving around bigger swings between anxiety and relief. Release your numbers on a good day and the market will smile on you and other stocks. Pick a bad day and even the best results get ignored.

 

Usually the earnings cycle sets stocks on their trajectory for the coming quarter. This time, it's creating opportunities to capture the market's mistakes. Sooner or later, stocks always reflect their fundamentals. Strong fundamentals will eventually translate into strong stocks.

 

The Carlyle Group (CG: $33, up 1% this week), for example, was a win. We would have been happy to see last year's loss turn into a profit of $0.43 per share. Management gave us $0.47 and a healthy $580 million in revenue where we only expected $532 million. There's no reason for the stock to go down. Those looking to buy the dip have their signal.

 

Spotify (SPOT: $147, up 4% for the week, but down $7 today) was a murkier story with a somewhat steeper loss ($1.14 per share when we expected $0.22) and slightly weaker revenue growth than some wanted. We're not really disappointed to see revenue up "only" 24% from last year instead of our 26% target. A little churn is normal in a company moving this fast, especially when the business model is pivoting from pure music to more robust talk, news and sports formats. We've always loved Spotify for its ability to replace terrestrial radio in all its aspects, not just music programming. This is how that happens.

 

But the fact that the company that beat forecasts on all fronts was punished as severely as the one that reported more mixed results reveals that Wall Street isn't really looking at the numbers right now. Investors are rotating out of recent winners in order to stay liquid enough to ride out the next market storm. Look at Tesla, which we don't cover right now but will undoubtedly pick up again at the right moment. That stock was up a stunning 40% in the past week before giving back 17% of that surge yesterday.

 

Likewise, most of the members of the S&P 500 that lost ground were among the market's YTD leaders, including several of our stocks. That's not a rout. It's a wary market cashing in on winners where it can . . . and you can only lock in profit on stocks that have made money. There are much worse scenarios.

 

But it's also telling that the stocks that reported after hours had generally led the market up so far this year and then yesterday joined the retreat. This is before the earnings releases even came out, so anyone who tries to connect these downswings to the fundamentals needs to address how cause and effect got reversed. Look at Paycom Software (PAYC: $323, up 1%), which is a great company and is still up a healthy 22% YTD despite giving up 5% yesterday.

 

The numbers were great. Earnings of $0.86 per share blew through our $0.77 target and revenue was $3 million better than our $190 million target as well. Guidance was fine. There's zero reason for this stock to drop beyond the fact that it's already come a long way. Those who know how Paycom moves after earnings have seen this cycle play out many times. Hint: It will be back.

 

MetLife (MET: $52, up 4%) is a similar story. Big revenue beat ($18.1 billion when we would have been happy with $16.8 billion) and a truly spectacular win on the bottom line. Our projections suggested barely 1% earnings growth here. The company gave us a full $1.98 per share, 45% above last year's anemic level. The growth story is back here. We're excited even if the market has yet to do more than yawn.

 

We also see the market's perversity on Omega Healthcare (OHI: $43, up 1%), which would be the earnings stock we would ordinarily expect to see sag after a miss on the bottom line. We wanted $0.37 per share and got $0.27. However, we also know that with Real Estate stocks the earnings number is a little arbitrary, an artifact of accounting genius. The real number to watch is Funds From Operations, where Omega gave us $0.78 per share, $0.01 above our target and more than enough to pay the dividend. There's no reason for this stock to drop either, and in our view seasoned REIT investors know it. It's powerful 6.4% dividend is welcomed.

 

Finally, Twilio (TWLO: $127, up 2%) dropped 5% before earnings and then fell another 4% overnight. Disaster? Hardly. Revenue came in nearly $20 million above our $313 million target, giving shareholders 62% growth, plus management promised even better things ahead. Our best math said the company might book $1.46 billion in sales for 2020. Management just told us to expect as much as $1.49 billion.

 

This is another high-speed year to look forward to, and the extra revenue will feed the bottom line. As it is, an anticipated $0.01 per share profit turned into $0.04. This company is clearly moving in the right direction. If the stock doesn't cooperate, we see it as an opportunity. By the way, Twilio is still up 29% YTD. We'd rather be here than Tesla. We still feel that this company is on a stratospheric trajectory. One clue: Customer accounts totaled 179,000 up from 64,000 a year ago. This is not a misprint.