3 Stocks to Buy This Earnings Season - Analyst Blog


As the polar vortex gradually starts to withdraw from the U.S. after venting its fury for about a week or so, the focus has shifted to the vagaries of the stock market, with the Q4 earnings season turning up the heat. That the overall equity market has taken the Fed tapering in its stride with a continued uptrend in stock price across all indices last month further speaks volumes of this dauntless fighting spirit.

The disconcerting December jobs report is also expected to be accepted with a grain of salt as the Fed is anticipated to continue with a measured quantitative easing before winding off the bond-buying program by the end of 2014. While the 6.7% unemployment rate was much weaker than expected, with the U.S. economy adding just 74,000 jobs in December (the smallest since Jan 2011), what hurt the most was a 35-year low labor participation rate of 62.8%.

Nevertheless, the market is expected to dispel this negativism with a solid performance in Q4 - arguably the strongest in 2013. Let us have a quick look as how the earnings season is shaping up.

Q4 Earnings Season Shaping Up

The current expected Q4 earnings growth for the S&P 500 is pegged at +6.3% with revenues anticipated to expand by 1.2%. This include a healthy earnings improvement in the Finance sector (+20.1%), Transportation (+17.0%), Autos (+15.8%), Business Services (+15.2%) and Conglomerates (+10.3%).  

So far, about 24 S&P 500 companies have already reported earnings. With a 'beat ratio' of 54.2% and a median surprise of +1.5%, total earnings for these companies are up +18.6% year over year. Top-line growth has aggregated +7.2% compared with the year-ago period, with a stellar revenue 'beat ratio' of 66.7% and a median surprise of +1.5%.

Most of this growth is attributable to a steady yet improving U.S. economic outlook, with GDP growth estimates for Q4 steadily going up in recent weeks. In fact, GDP growth in the second half of 2013 appears to have accelerated at double the pace of the first half.

Whether such growth pace is sustainable or not is highly debatable, but the current consensus GDP growth expectation is billed at +3% in 2014 and beyond. Commensurate with these expectations, earnings for S&P 500 companies are expected to be up 9.8% in 2014 and a further 11.0% in 2015.

Given this scenario, it might be a good idea to zero-in on a handful of top-ranked stocks that are poised to beat earnings estimates this quarter and are part of a strong industry. An earnings surprise should help these stocks outperform in the near term.

How to Pick?

Amid a diverse range of companies in the equity market, picking the right stock for your portfolio could appear to be a colossal task. An easy way to narrow down the list is to look at stocks that have a solid Zacks Rank and a favorable Zacks Earnings ESP .

Earnings ESP is our proprietary methodology for determining which stocks have the best chance to surprise with their next earnings announcement. The Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Consensus.

The combination of a Zacks Rank #1 (Strong Buy) or #2 (Buy) or #3 (Hold) and a positive Earnings ESP is usually a harbinger of earnings beat and serves a perfect success formula on platter. For investors seeking to benefit by applying this strategy to their portfolios, we have mentioned three stocks below which match these criteria, and thus may be the potential winners this earnings season.

In addition, these stocks belong to industries that have a 'Positive' Zacks Industry Rank. As a guideline, the outlook for industries with Zacks Industry Rank #88 and lower is 'Positive.'

Cablevision Systems Corp. ( CVC ): Headquartered in Bethpage, New York, Cablevision Systems offers telecommunications and media services throughout the greater New York area. The company operates a full suite of advanced digital television, voice and high-speed Internet services in addition to local media and programming properties, including newspapers and motion picture business.

The company is anticipating strong quarterly earnings, which is expected to be up 129.1% year over year with Zacks Consensus Estimate being pegged at 9 cents. Analysts have been moving their quarterly and full year estimates higher of late, further suggesting a solid earnings momentum this time.

This Zacks Rank #1 stock has an Earnings ESP of +77.8% and a Zacks Industry Rank #44.

Genco Shipping & Trading Ltd. ( GNK ): Based in New York, Genco owns and operates drybulk carrier vessels worldwide, transporting iron ore, coal, grain, steel products and other drybulk cargoes. The company primarily charters its vessels to trading houses, which include commodities traders; producers; and government-owned entities.

Genco's quarterly earnings are expected to be up 51.4% year over year. Analysts have been moving their full year estimates higher for the stock.

Genco currently has Zacks Rank #1 along with an Earnings ESP +54.9% and a Zacks Industry Rank #32.

Trinity Industries Inc. ( TRN ): Headquartered in Dallas, Texas, Trinity operates as a diversified industrial company which provides products and services to the energy, transportation, chemical and construction sectors. The company manufactures railcars, including auto carrier, box, gondola, hopper, intermodal, specialty and tank cars; railcar components; highway products, such as guardrail, crash cushions and other protective barriers; structural wind towers, containers and tank heads.

The company is anticipating strong quarterly earnings, which is expected to be up 57.6% year over year with Zacks Consensus Estimate being pegged at $1.42. Analysts have also been moving their quarterly and full-year estimates higher of late.

This Zacks Rank #1 stock has an Earnings ESP of +1.4% and a Zacks Industry Rank #36.

Moving Forward

As the U.S. stocks look poised to record strong quarterly results to wind of an eventful 2013, a sneak peek to the space for some possible outperformers backed by a solid Zacks Rank, a positive Zacks Earnings ESP and a positive Zacks Industry Rank could be a great idea for investors to gain from this earnings season.

CABLEVISION SYS (CVC): Free Stock Analysis Report

GENCO SHPG&TRDG (GNK): Free Stock Analysis Report

TRINITY INDS IN (TRN): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CVC , GNK , TRN



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