Total Wealth Tactics: Analysts' Expectations Are Your Secret Weapon

 | May 10, 2015 01:48AM ET

Apple (NASDAQ:AAPL)'s most recent earnings were nothing short of spectacular, and the headlines reflected that:

… "Apple Beats Estimates on Soaring iPhone Sales" - The Street

… "Apple Beats Estimates with $10.2 Billion in Profit" - AppleInsider.com

… "Apple Crushes iPhone Estimates, Boosts Buybacks" – CNBC

What they should have said is "Analysts Got It Wrong Again."

We've talked in the past about how far off the mark Wall Street analysts can be, and how costly that can be for investors who blindly follow along. It's no surprise – or at least it shouldn't be – given the hidden biases Wall Street holds.

But we haven't talked about how to use that information to your advantage.

Until today.

Here are the two best presents analysts could possibly give you this earnings season.

Not many people realize it, but analysts' opinions are very short-term in nature. They're intended to reflect market potential over the next 30 to 60 days. They're also aimed squarely at institutional investors who are likely to move into or out of specific holdings at the blink of an eye. Not individuals.

It makes no sense, for example, that Boeing (NYSE:BA) reports quarterly numbers when its products are sold over a multiyear sales cycle. Nor does it make sense that a company like Alibaba (NYSE:BABA) gets a 17% haircut at a time when it reports EBITDA (earnings before interest, taxes, depreciation, and amortization) of only 58% at a time when it grew by 40% year over year.

Most CEOs would give their right arm to have that problem, yet Wall Street has gone to great lengths to convince investors that growth at any cost is a better approach than having real products with real profits.

What you need to understand is that most analysts are great at seeing the trees but not the forest. It's not uncommon for them to miss the bigger picture. They are so myopically focused that they can't see what a company is really doing, nor can they understand an opportunity that takes them beyond what they already think they know.

Especially when there are real products involved in markets that are changing quickly.

Take Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), for example.

h3 Analysts Punished This Stock – and Cleared the Way for 74.76% Gains/h3

I recommended the company to Money Map Report subscribers as a way to play the fastest-growing sector of the global food industry: the demand for organic food. At the time, it was almost completely unknown and unfollowed. The company's fundamentals were stellar: they had no debt and double-digit earnings growth year over year, with an aggressive expansion plan in the works. Readers who followed along had the opportunity to make gains of 43.37% in less than seven months.

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Then, just months after I recommended that my Money Map Report readers capture those profits by strategically exiting the trade, traditional analysts got to the stock.

On May 1, 2014, Natural Grocers reported Q2/2014 earnings that showed a 22.4% increase in net sales, a 5.7% increase in comparable store sales, and a 24.3% increase in net income year over year. Its gains in net profit margin were also unimpeachable, improving by 28.4%.

But the company forecast comparable store sales growth of 5.5% to 6.5% going forward, down from the 8.5% to 9.5% improvement analysts were "expecting." The result was a 36% plummet in the stock price that day, even as the company recorded strong growth in almost every other metric imaginable.

While headlines lamented the "decline," savvy investors loaded up. Anybody who missed NGVC's double digit run the first time was handed a second chance on a silver platter.