The biggest cloud hanging over the market at this point is the ongoing trade war between the U.S. and China. The earnings season is pretty much over, and while the numbers have been positive, they also show earnings growth slowing and fears are rising that a prolonged trade war could lead to a global recession.
As the nations give reports of new talks, or possible deals on the horizon the market has risen. When reality returns and Wall Street sees that a trade deal is not going to come easy, and certainly not quickly.
The earnings season has taken a back seat to trade concerns, and this week will feature a handful of stocks that are sensitive to the trade war, and who will either help ease the concerns, or amplify them and push the overall market even lower.
These are earnings report to pay close attention to since they have such a high chance of sending ripple effects across the market.
Alibaba Group (BABA)
Chinese internet leader Alibaba Group (BABA) will report fiscal Q1 earnings Wednesday before the market opens. Analysts have a forecast of $1.51 for the quarter, but the street expects a small earnings miss with a whisper number of $1.49. During the same period last year the company earned $1.22. The stock is highly vulnerable to the trade war between the U.S. and China and the stock has sold off multiple times as trade negotiations stalled and quickly recovered each time as trade hopes improved. Over the second half of the year the stock will likely continue to trade in sympathy to trade war reactions, and given the current trade war escalations the company’s post-earnings move could be big. The street has priced in a small earnings miss, so in-line or better numbers could shoot shares higher. Analysts have a $220 price target, and shares are currently trading at $158.50.
Another stock that will be in focus due to its China exposure is semiconductor maker NVIDIA (NVDA). Analysts expect a significant earnings drop to $1.14 per share from $1.94 during same period last year. The company reports second-quarter numbers after the market close August 15. Analysts forecast earnings of $1.14 per share, versus $1.94 during the same period last year. Earnings are falling after years of blistering growth as comparables become more difficult to hit as trade war starts to impact the sector. The street expects a small earnings beat with a whisper number of $1.18 for the quarter. NVIDIA has an incredible earnings track record, and another beat could drive shares higher if the number is higher that the whisper number. NVDA trades at 28 times earnings at $150.50 with an average price target of $193.29.
Applied Materials (AMAT)
Applied Materials (AMAT) is another semiconductor stock that has exposure in China, but so far the stock has remained strong as the overall market reacted negatively to worsening trade negotiations. Applied Materials is also experiencing slowing earnings growth but analysts still forecast 8.5% annual growth for the next five years, and the stock is currently trading at just 13 times earnings. The low valuation has helped the stock remain strong as other stocks in the sector have traded lower. The company has a two quarter streak of better than expected numbers on the top and bottom line and 10 straight quarters of better than expected revenue, and the street expects another earnings beat with a whisper number of $0.72 for the quarter, slightly higher than the $0.70 consensus. The company reports Thursday after the market close. Analysts see additional upside with an average price target of $49.50 versus the current trading price of $46.42.
Mega retailer Walmart (WMT) is scheduled to release its quarterly numbers before the market opens Thursday. The company is expected to report earnings of $1.21 for its second-quarter, down from $1.29 during the same period last year. The stock has been strong over the last year as the company has shown in-store and online investments have boosted both sides of the retail spectrum for the company. Profits were flat over the last five years with earnings up a mere 0.3% annually but looking ahead analysts expect earnings to show a slightly improved 3.7% annual rate over the next five years. The company has posted big earnings surprises the last four quarters, and if the trend continues actual earnings estimates could be greatly understated. Walmart sells a lot of “Made in China” goods, so the trade war poses a problem and the company has pulled back from its all-time high set in July as trade negotiations faltered between the world’s two largest economies. The company will need another earnings beat to bring recent enthusiasm back into the stock and the street expects to see a beat with a whisper number of $1.25. WMT trades at $105.15 with an average price target of $112.14.