Earnings season: five stocks on Goldman’s radar

Equities
Investments

Earnings season is underway. Now’s the time to take a look at some stocks that could provide investors with more than the Wall Street consensus would tell you.

US earnings season Q3 2021

Goldman reviews earnings season stocks

Sometimes investors like to break away from the pack. To dare is to do.

It’s all about spotting opportunities from stocks that may be overlooked by Wall Street.

As reported by CNBC, Goldman Sachs has been scanning Wall Street for stocks it believes hold promise for investors looking for something different this earnings season.

Earnings season began in earnest this week with major US banks leading the charge as always. You can use our earnings season calendar to see which megacaps are reporting this quarter and when.

In a note to investors published on Wednesday, Goldman said it expects stocks to rise 6% this quarter. Its spotlighted stocks, however, could offer upsides of 14%.

The investment bank deployed a fairly complex methodology when analysing Q3 2021 earnings season stocks. 1,000 companies in Goldman Sachs’ coverage universe were scanned at the 25 best opportunities were selected when considering EPS of $5 per share over the next four quarters.

After this, the results were filtered through analysts which were above or below Thomson Reuters’ consensus for the upcoming quarter, and the year ahead, “on a key financial metric.”

“Single stock put-call skew is at its highest level in over a year,” Goldman said, encouraging investors to make out-of-money calls on its out-of-consensus stock picks. “Given investors are well hedged, even modest earnings beats are likely to drive a relief rally in specific stocks (on earnings day) and the broad index (over the next three months).”

The out-of-consensus stocks to pick

Please note these are only Goldman Sachs’ recommendations – not hard and fast must-buys. Only invest if you are comfortable with the risk of potential capital loss.

The top five stocks Goldman has selected to watch this earnings season are:

  • Uber
  • Signature Bank
  • Yeti
  • Bank of America Corp
  • Lowe’s

Let’s start with Uber. The ride-hailing service burst onto the scene several years ago as a taxi industry disruptor. Goldman’s Eric Sheridan thinks the app can deliver a 37% upside over the coming year. Sheridan’s earnings estimates put Uber 20% higher than Wall Street consensus right now too.

The idea is that if Uber can close the supply/demand gap, then this should lead to normalised ride pricing, higher demand in general, and thus pre-pandemic profits.

Outdoor retailers Yeti could offer even better upsides than Uber. Goldman considers Yeti a “growth compounder with best in class authentic brand positioning.” It could deliver upsides of 44% if Goldman is on the money. In terms of EPS, Yeti’s could be 8% higher than analysts think in the third quarter and 3% higher in the next.

Investment banks are usually amongst the first to start reporting on Wall Street come earnings season. It’s certainly true this year. Of these, Goldman flags Bank of America as the one to keep an eye on. Goldman’s analysis puts BoA’s upside at 7% – some 10% higher than consensus.

Bank of America’s potential has been pegged to “significant remixing of cash into securities” by Goldman.

Smaller banks are represented by Signature Bank. Ryan Nash, a Goldman stock analyst, forecasts earnings-per-shares to come it at 7% higher than Wall Street forecasts this quarter and 5% for the next four. Signature is on course for a revenue-beating Q3, driven by an acceleration in loan growth.

Rounding off Goldman’s section of potentially consensus-beating stocks is Lowe’s. The DIY probably benefitted more than most from the pandemic last year, but this quarter it could offer investors an upside of 12%.

Goldman’s Kate McShane said Lowe’s position is stronger now than in the last 6-12 months, thanks to bringing forward its seasonal inventory purchases.

Week Ahead: FOMC minutes, Walmart earnings, next PMI round in focus

Week Ahead

US discounters Walmart and Target, and home improvement retailers Home Depot and Lowe’s report their earnings this week. With the exception of Target, these stocks have dramatically outpaced the S&P 500 this year. The global monetary policy outlook also gets an update this week thanks to minutes from the FOMC, ECB, and RBA, while flash PMIs for August will help shape the Q3 growth outlook.

Earnings: Walmart, Target, Home Depot, Lowe’s

Discounters like Walmart and Target, and home improvement retailers Home Depot and Lowe’s have raced higher since the market bottomed-out in March. Walmart is 11% above 2020 opening levels, although that pales in comparison to Home Depot’s 28% surge and Lowe’s 30% rally. Target is the exception, although with year-to-date gains of 5% the stock is still fractionally outperforming the wider market.

According to Bank of America analysts, Target and Walmart could post strong earnings, thanks to broadened revenue streams, a timely shift to eCommerce, and shrinking expenses – with Q1 bearing the brunt of Covid-related costs.

Home Depot and Lowe’s have raced higher as investors bet on strong demand from consumers fed up of the homes they’ve been stuck inside for months. Both were able to stay open in Q1 while other businesses had to close, helping boost sales growth. Markets will be looking to see whether this moderated in Q2 as a whole as other firms opened their doors.

FOMC and RBA minutes, ECB accounts

We’ll get plenty of insight into the current state of mind of the world’s central bankers this week thanks to the latest meeting minutes from the Federal Open Market Committee, European Central Bank, and Reserve Bank of Australia.

The Fed, ECB, and RBA all left policy unchanged at their most recent meetings while reiterating their commitment to doing whatever it takes to keep the economy supported. The minutes will provide more information on their respective outlooks and how concerned policymakers are over second-wave risks.

Flash PMIs to help shape Q3 outlook

Now that the Q2 GDP data for the world’s major economies is in (in preliminary form at least), the focus can turn to the outlook for Q3. The next set of flash PMIs from Markit cover August, and will help to shape expectations of the pace of recovery this quarter.

The latest manufacturing, services, and composite numbers will be released for the Eurozone, UK, and US. July’s composite readings indicated economic activity in the Eurozone had expanded by the fastest pace in just over two years, while the UK expansion was the fastest since June 2015.

UK inflation, retail sales

Price growth in the UK came in slightly above forecast in June, rising from 0.5% to 0.6% on the year versus expectations of a slip to 0.4%. However, inflation is still running at a four-year low, and analysts do not believe June’s rise was the start of a sustained uptrend. Spare capacity in the economy is expected to keep a lid on price growth or see the rate slow even further.

Retail sales showed a larger-than-expected rise in June, jumping 13.9% on the month and following on from a 12.3% rebound in May. Despite the strength, many high street stores have announced jobs cuts recently. Data from the British Retail Consortium points to further sales growth in July, but with online still driving a huge portion of this the threat to the UK high street remains.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

07.15 UTC Daily European Morning Call
12.00 UTC 17⁠-⁠⁠Aug Master the Markets
From 15.30 UTC 18-⁠⁠Aug Weekly Gold, Silver, and Oil Forecasts
17.00 UTC 19-⁠⁠Aug Using candlestick charts to form the basis of your trading analysis
17.00 UTC 20⁠-⁠⁠Aug Election2020 Weekly

Top Earnings Reports this Week

22.30 GMT 17-Aug BHP Billiton – Q4 2020
Pre-Market 18-Aug Walmart – Q2 2021
Pre-Market 18-Aug Home Depot – Q2 2020
Pre-Market 19-Aug Lowe’s Companies – Q2 2020
Pre-Market 19-Aug Target Corp – Q2 2020
After-Market 19-Aug NVIDIA – Q2 2021
After-Market 20-Aug Ross Stores – Q2 2020

Key Events this Week

Watch out for the biggest events on the economic calendar this week:

01.30 GMT 18-Aug RBA Monetary Policy Meeting Minutes
06.00 GMT 19-Aug UK Inflation
14.30 GMT 19-Aug US EIA Crude Oil Inventories
18.00 GMT 19-Aug US FOMC Meeting Minutes
11.30 GMT 20-Aug ECB Monetary Policy Meeting Accounts
12.30 GMT 20-Aug US Weekly Jobless Claims
14.30 GMT 20-Aug US EIA Natural Gas Storage
06.00 GMT 21-Aug UK Retail Sales
07.15 – 08.00 GMT 21-Aug Eurozone Flash PMIs (Composite, Manufacturing, Services)
08.30 GMT 21-Aug UK Flash PMIs (Composite, Manufacturing, Services)
12.30 GMT 21-Aug Canada Core Retail Sales
13.45 GMT 21-Aug US Flash Manufacturing PMI

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