The fourth-quarter earnings season has started on a good note with both earnings and revenue growth improving compared to recent quarters. Banks, in particular, have been reporting better than expected year-over-year growth.
While Q3 was a turnaround quarter for the S&P 500 index after five quarters of back-to-back declines, current expectations for Q4 show earnings growth of 4.7% on revenue growth of 3.7%. This compares to 3.8% earnings growth in Q3 on revenue growth of 2.3%. With the Q4 earnings season expected to pick pace in the next few days, the market will be focused on seeing if positive surprises, especially on the earnings front, will increase (Read more: Q4 Earnings Growth the Highest in 8 Quarters ).
Sectors that Should Perform Well in Q4
10 of the 16 Zacks sectors are expected to record positive earnings growth this quarter with Finance leading the group on the back of expected earnings growth of 19.9%, followed by Consumer Staples (9.3%). Meanwhile, with the Medical sector expected to record earnings growth of 2.9% on revenue growth of 5.6% in Q4, it makes sense to select stocks from this sector that are expected to do well in Q4. Investing in such stocks could prove beneficial for investors as an earnings beat usually leads to significant share price appreciation. Medical is one of the few sectors that has consistently recorded earnings growth over the last 4 quarters.
5 Drug Stocks to Watch Out for This Earnings Season
With the help of the Zacks Stock Screener, we have zeroed-in on five drug stocks that sport a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) and have an Earnings ESP of at least 5%. Earnings ESP is a very valuable tool for investors looking for stocks that are most likely to beat earnings estimates. Moreover, adding a Zacks Rank of #1, 2 or 3 has produced a positive surprise 70% of the time. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
RedHill Biopharma Ltd.RDHL : Israel-based Redhill is focused on the development and commercialization of late clinical-stage, proprietary, orally-administered, small molecule drugs for gastrointestinal and inflammatory diseases and cancer.
This Zacks Rank #2 stock is expected to post a positive earnings surprise of 20.64% in the fourth quarter. The company is expected to report results on Feb 23. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Cempra, Inc. CEMP : Chapel Hill, NC-based Cempra is a clinical-stage company focused on developing differentiated antibiotics for the acute care and community settings to meet critical medical needs in the treatment of bacterial infectious diseases, particularly respiratory tract infections and acute and chronic staphylococcal infections.
The Zacks Rank #2 company, which had posted an earnings surprise of 3.12% in the last quarter, has an Earnings ESP of 15.79% for Q4. Average surprise over the last 4 quarters is 12.2%. Cempra is expected to report fourth quarter results on Feb 22.
Vertex Pharmaceuticals Incorporated VRTX : Boston, MA-based Vertex is focused on the discovery, development, and commercialization of small molecule drugs targeting serious diseases. The company's main area of focus is cystic fibrosis.
Vertex, which is a Zacks Rank #3 stock, has an earnings ESP of 400%. The company will be reporting results for the fourth quarter on Jan 25.
Acorda Therapeutics, Inc. ACOR : Ardsley, NY-based Acorda is focused on developing treatments that restore function and improve the lives of people with neurological disorders. Acorda, which posted an average surprise of 168.27% over the last four quarters, is expected to deliver a positive earnings surprise of 72.73% in the fourth quarter. The Zacks Rank #3 stock is expected to report results on Feb 9.
Kite Pharma, Inc. KITE : Santa Monica, CA-based Kite Pharma is a clinical-stage company engaged in the development of novel cancer immunotherapy products, with a focus on engineered autologous cell therapy (eACT) designed to restore the immune system's ability to recognize and remove tumors.
Kite, which posted an average surprise of 7.89% over the last four quarters, is expected to deliver a positive earnings surprise of 13.64% in the fourth quarter. The Zacks Rank #3 stock is expected to report results on Mar 6.
Zacks' Top 10 Stocks for 2017
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