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5 S&P 500 Stocks to Buy Ahead of Q3 Earnings This Week

We are in the first major week of the third-quarter 2021 earnings season with more than 900 companies slated to release their quarterly results. While market participants’ attention will be predominantly on technology giants, several other companies from the S&P 500 stable will also release their financial numbers.

The last quarter was a mixed one for the S&P 500 Index as the benchmark gained a marginal 0.2%. Good performances in July and August were almost offset in September’s market turmoil. Investment in S&P 500 companies with a favorable Zacks Rank that are set to beat earnings estimates should be fruitful going forward.

Robust Start to Third-Quarter Earnings

The third-quarter 2021 earnings season has picked up from where it ended in the second quarter.  Results are pretty encouraging so far despite prolonged supply-chain disruptions, a labor shortage, higher inflationary pressure and the resurgence of the Delta variant of the coronavirus.

As of Oct 22, 117 S&P 500 companies reported third-quarter results. Total earnings of these companies are up 46.2% year over year on 16.3% higher revenues with 85.5% beating EPS estimates and 73.5% surpassing revenue estimates.

At present, total third-quarter earnings of the market's benchmark — the S&P 500 Index — are projected to jump 32.5% from the same period last year on 14.4% higher revenues. This suggests a steady improvement from 26.1% earnings growth on 14% higher revenues, estimated at the beginning of the reporting cycle.  

Favorable Impacts on Earnings Results

Earnings results of the first two quarters of this year were favorably impacted since the corresponding quarters of last year were affected by the pandemic-led lockdowns and restrictions. This was evident with 95% year-over-year earnings growth on 25.3% higher revenues in the second quarter and 49.3% year-over-year earnings growth on 10.3% higher revenues in first-quarter 2021.

Nevertheless, the U.S. economy started reopening partially albeit at a languid pace since the third quarter of 2020. Notwithstanding favorable comparisons with last year, third-quarter 2021 earnings estimates reflect genuine growth, climbing nearly 23% from the pre-pandemic third-quarter of 2019.

Our Top Picks

Five big S&P 500 companies (market capital > $45 billion) are slated to release third-quarter earnings results this week. Each of these stocks carries either a Zacks Rank#1 (Strong Buy) or 2 (Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The chart below shows the price performance of our five picks in the last quarter.

Zacks Investment ResearchImage Source: Zacks Investment Research

Capital One Financial Corp. COF is primarily focused on consumer and commercial lending as well as deposit origination providing various financial products and services in the United States, the United Kingdom, and Canada. It operates through three segments: Credit Card, Consumer Banking and Commercial Banking.

The company's Credit Card segment is likely to continue showing strength. In the first half of 2021, Domestic Card, which accounted for 92.2% of the Credit Card net revenues, reflected robust loans held for investment balance.

This Zacks Rank #2 company has an Earnings ESP of +4.66%. It has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1.3% over the last 30 days. It recorded earnings surprises in the last four reported quarters, with an average beat of 92.3%. The company is set to release earnings results on Oct 26, after the closing bell.

Thermo Fisher Scientific Inc. TMO delivered a strong performance in the first half of 2021 banking on accelerated growth in Base business. Solid end-market growth was driven by robust fundamentals in the life sciences, strong economic activity globally and the role this industry is playing in the pandemic response.

Thermo Fisher is currently expanding its bioproduction purification resin capacity, which is used in the mRNA manufacturing process. In Biosciences business, it launched several new products, including two instruments to advance cell analysis- the Invitrogen Bigfoot Spectral Sorter and the Invitrogen Attune CytPix Flow Cytometer.

This Zacks Rank #2 company has an Earnings ESP of +3.02%. It has an expected earnings growth rate of 13.2% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.2% over the last 7 days. It recorded earnings surprises in the last four reported quarters, with an average beat of 10.4%. The company is set to release earnings results on Oct 27, before the opening bell.

Aflac Inc. AFL continues to maintain strong risk-adjusted capital at its operating subsidiaries supported by consistent earnings and good liquidity. Its U.S segment is poised to grow from the buyout of Argus Dental and Vision and Zurich North America's U.S. Corporate Life and Pensions (Group Benefits) business. A robust product pipeline for 2021 is likely to boost the segment’s sales.

This Zacks Rank #2 company has an Earnings ESP of +1.44%. It has an expected earnings growth rate of 13.1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.2% over the last 30 days. It recorded earnings surprises in the last four reported quarters, with an average beat of 19.9%. The company is set to release earnings results on Oct 27, after the closing bell.

DexCom Inc. DXCM made continued advancements with respect to key strategic objectives. DexCom’s slew of tie-ups and buyouts are also encouraging. A solid international foothold and a strong product portfolio bode well. Strong solvency is an added advantage.

DexCom's FDA-cleared CGM system – the DexCom G4 Platinum has been boosting its top line. The inbuilt features of the G4 Platinum make it the most innovative system for continuous glucose monitoring in the market. In July 2021, DexCom announced the FDA’s clearance for Dexcom Partner Web APIs. The latest nod will enable approved third-party developers to integrate real-time CGM data into their digital health apps and devices.

This Zacks Rank #2 company has an Earnings ESP of +5.46%. The Zacks Consensus Estimate for current-year earnings improved 0.4% over the last 30 days. It recorded earnings surprises in the last four reported quarters, with an average beat of 32.5%. The company is set to release earnings results on Oct 28, after the closing bell.

Exxon Mobil Corp. XOM made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. Recently, the company raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels.

Its bellwether status and an optimal integrated capital structure that has historically produced industry-leading returns make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. During the same time frame, the firm expects to reduce flaring and methane emissions by 40%.

This Zacks Rank #1 company has an Earnings ESP of +1.57%. The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2% over the last 7 days. The company is set to release earnings results on Oct 29, before the opening bell.


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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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