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3 Stocks to Buy and 3 to Sell Before Earnings

For the first time in perhaps ever, we are in the middle of an earnings season where there’s tremendous uncertainty from an unknown phenomenon. This makes it terribly difficult for anyone to guess at what could happen in the future.

The way the virus affects an industry will completely change the performance and direction of constituent companies in the near to medium term. This means that the industry to which a company belongs will play an outsized role in how it does this earnings season.

Individual strengths and weaknesses play a secondary role although, of course, they are important too. Take a stock like Apple AAPL for example, which has huge cash flow and a solid balance sheet. When you see how consistently estimates have moved up over the last 90 days, you know that they’re not just related to the way it has capitalized on the work from home and entertain at home trends. It’s also because of its huge installed base and steady introduction of new offerings that attracts the most affluent and then makes it hard for them to move away. This competitive moat sets Apple apart.

But stock picking isn’t about a bunch of stocks, however great they might be. It’s more about getting in the game at the right time and then getting out at the right time. With earnings season gathering steam this week, here are some stocks you can profitably buy and sell before the announcement-

Lithia Motors, Inc. LAD

Lithia Motors is one of the leading U.S. automotive retailers of new and used vehicles offering 28 vehicle brands across 181 stores in 18 states of the United States and the Lithia.com and DCHauto.com websites. Top brands on sold across its stores and platforms include Chrysler, General Motors, Toyota, Subaru, Honda, Acura, Ford, BMW, MINI, Nissan and Hyundai. It also offers tailored service through its nationwide network.

Why I like this company-

As I said above, the industry plays a key role this earnings season. Lithia belongs to the Automotive - Retail and Whole Sale industry, which is in the top 2% of 250+ Zacks-classified industries. The segment is seeing the benefits of the prolonged lockdown that restricted movement. So as soon as the lockdown was lifted, people wanted options that could help them move around safely, and take road trips when possible. And what could be safer than your own transport?

The next consideration is its Zacks Rank #1 (Strong Buy rating), which is a proprietary methodology identifying winning stocks. When it’s paired with a VGM Score of A, you know that there’s something specifically great about the company as well.

That brings us to the estimate revision history. Both June quarter and fiscal 2020 estimates are showing an attractive upward trend. More significantly, they are up 84.4% and 10.3%, respectively in the last four weeks. The Earnings Expected Surprise Prediction (ESP) of 74.1% for the current quarter earnings indicates that the more recent estimates are significantly higher. Therefore the chances of a positive surprise are solid.

Lithia is expected to report on Jul 22.

SpartanNash Company SPTN

SpartanNash Co. distributes food to military commissaries and exchanges as well as through independent, owned retail stores across 44 U.S. states and the District of Columbia, Europe, Cuba, Puerto Rico, the Azores, Bahrain and Egypt. Its supermarkets operate under the Family Fare Supermarkets, No Frills, Bag 'n Save and Econofoods brands.

Why I like this company-

It is a part of the Zacks-classified Food - Natural Foods Products industry, which is in the top 6% of 250+ such industries. The pandemic has driven people to healthier eating with a focus on boosting their immune systems, which has helped this industry. Irrespective of how the year shapes up and the timing for a recovery, the heightened demand for such products is likely to generate positive outcomes for the industry.

Its #1 Zacks Rank and VGM Score A indicate that the positives are not limited to the industry alone. Any investor irrespective of his risk appetite could profit from this stock.

And that’s especially true for its quarterly earnings to be reported on Aug 12 because the most recent estimates for the quarter are trending up. The last four weeks have in fact seen an 18.5% increase in the Zacks Consensus Estimate for the June quarter and a 16.4% increase for the year. With earnings ESP also positive at 4.84%, this stock looks headed for a big surprise.

WillScot Corporation WSC

WillScot Mobile Mini Holdings Corp. provides modular space and portable storage solutions. It operates principally in the U.S., Canada, Mexico and the UK.

The Furniture industry to which it belongs is in the top 14% of Zacks Classified industries and there’s very good reason for this. With work from home, school from home and such things becoming more of a norm and many industry commentators seeing it as something of a lasting trend, there has been increased demand for the company’s products. Not only that: trends in the housing market indicate strong demand for new construction homes to accommodate these activities. All this bodes well for the industry in the near to medium term.

With a Zacks Rank #2 (Buy rating) and VGM Score A, there should be company-specific advantages as well. Let’s see.

The last four weeks have seen a 25.5% increase in the current quarter estimate as well as a 25.0% increase for the year. The more recent estimates are higher netting an ESP of 30.43%. Therefore, this one is also headed somewhere good when it reports on Aug 10.

But it certainly hasn’t been all rosy. Just as some industries (and stocks) have gained from the pandemic, others have lost out. Here are three of the losers that you’d better avoid or offload-

Live Nation Entertainment, Inc. LYV

Live Nation Entertainment is the world's premier live entertainment company, consisting of Live Nation, Ticketmaster and Front Line Management Group. The company produces, markets and sells live concerts for artists through its owned and operated venues (like The Fillmore in San Francisco, Nikon at Jones Beach Theatre in New York and London's Wembley Arena). It also produces, promotes or hosts theatricals, specialized motor sports and other live entertainment events. Its innovative ticketing technology facilitates ticket sales, ticket resales, and marketing and distribution on ticketmaster.com.

As may be expected, the Leisure and Recreation Services industry to which Live Nation belongs is in the bottom 5% of 255+ Zacks-classified industries. Most people are avoiding live entertainment shows indefinitely because it just doesn’t feel safe to frequent closed and crowded places. Many regions even have government directives against such gatherings.

If that isn’t deterrent enough, the Zacks Rank #5 (Strong Sell rating) along with the VGM Score D should scare you. This is just not the place you want to be in right now and the numbers are there to prove it.

So the Zacks Consensus Estimate for the June quarter and fiscal 2020 are down 9.9% and 22.5% in the last four weeks. Moreover, the most recent estimates are also trending down netting an earnings ESP of -0.67% for the quarter to be reported on Jul 23.

IMAX Corporation IMAX

Headquartered in Mississauga, Canada, IMAX is a leading global entertainment technology company, specializing in motion picture technologies and presentations. Its primarily offerings are IMAX Digital Re-Mastering (DMR) and IMAX Theater Systems. IMAX DMR digitally re-masters Hollywood films into IMAX digital cinema package format or 15/70-format films for exhibition in its theaters.

The Film and Television Production and Distribution industry, to which it belongs, is in the bottom 15% of more than 250 Zacks-classified industries. A lot of the content here is distributed through theaters and cinema halls, which of course means that there are government and personal restrictions to consumption.

Companies operating in the segment have been severely hit as a result and IMAX is no exception. Its Zacks Rank #5 and VGM Score F speak volumes in this regard.

Its numbers also look disappointing. The Zacks Consensus Estimate for June quarter is down 11.0% while that for fiscal 2020 is down 9.7%. Moreover, the most recent estimates on the stock are moving further down, as seen from its earnings ESP of -1.29%. So this stock will likely be punished when it reports on Jul 28.

The Boeing Company BA

The Boeing Company is one of the largest American defense contractors with its premier jet aircraft and other defense products. Other than the U.S. Department of Defense (DoD), the Department of Homeland Security, the National Aeronautics and Space Administration (NASA), other aerospace prime contractors and certain U.S. government and commercial communications customers, it also sells its aircraft to foreign airlines.

The Aerospace – Defense industry to which it belongs is in the bottom 18% of 250+ Zacks-classified industries, and with good reason. The pandemic has squeezed government funds and induced significant restrictions on flights in particular. As a result, most airlines all over the world are in all kinds of trouble. Other than the restrictions on flying, passengers themselves are avoiding long-distance travel, whether for business or pleasure. With technology filling the gaps, many people can continue to hold meetings and communicate effectively even without face-to-face interaction. The situation will change only gradually and only when there’s a cure, a vaccine, much more testing, or once herd immunity is achieved. None of this is likely to happen any time soon.

Boeing has a Zacks Rank #4 (Sell rating) and a VGM Score F.

In the last four weeks, the Zacks Consensus Estimate for the June quarter is down 24.7% while the fiscal 2020 estimate is down 12.5%. The most recent estimates are moving down, netting an earnings ESP of -4.82%. So it looks like we’re headed for an earnings miss and negative price action when the company reports on Jul 29.

 

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

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