I love earnings season. Don’t you? Sure, it can feel like trying to stand in front of an open fire hydrant, but so many opportunities can arise for both short-term traders as well as long-term investors due to the volatility among individual stocks. Time is scarce – institutional investors react swiftly, often buying or selling before they have time to fully digest the news.

Earnings season is particularly busy for me, as I try to keep up with the 100 stocks on my watchlist as well as pay attention to important ones that aren’t. This past week, for instance, 30 of the 100 reported, many hosting conference calls at the same time. One morning, I caught four straight live calls, but I tend to end up reading the transcripts for many of them. For those not aware, Seeking Alpha provides free transcripts, which are available on many companies.

When a company reports, there are many possible reactions. The report can can be viewed as “Good”, “Neutral” or “Bad”, but it’s not that easy. To me, it’s almost always about the future rather than the recent past. Ultimately, my key question that I want to answer is this: How does the news impact the future earnings? Presumably, if the future is brighter, the stock goes up. If it is dimmer, it goes down. If only it were that easy!

So, when I am judging the quarter, I am looking ahead, but I certainly recognize that many others focus on the short-term. For example, one of the stocks I will address below, Mattel (MAT), missed earnings by 50%. OH MY GOD! The reality is that this was their smallest quarter in terms of earnings typically, and the “huge miss” was rather inconsequential relative to the full year.

The real opportunities that stand out to me are the following combos:

    * Good news, mild reaction
    * Bad news, terrible reaction

While I am not addressing it today, often a company will report what I view as very favorable news, but the market, for whatever reason, doesn’t fully appreciate it. These situations can be tricky, requiring a judgment about why the stock isn’t moving. The flip-side, though, seems to happen more frequently: A company “misses” and the stock is pounded silly.

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