Can Strong Earnings from These Stocks Ease Trade Concerns?

 

This week the market is extending last week’s gains as trade tensions between the U.S. and China escalate.

After months of expecting the two nations to reach some sort of deal, both countries have moved to increase tariffs on the other to apply pressure and hope to craft a trade deal to their liking.

The strong underlying economy in the U.S. and record stock markets gave President Trump the willingness to play hardball, and China swiftly retaliated with higher tariffs of its own. Most analysts agree that a prolonged trade war will have a meaningful impact on global economic growth which is why the markets are off so sharply since the new tariffs were announced.

A big part of the selloff is that the market had already priced in the expectation of a trade deal, and if we see continued earnings strength with this week’s reports the market may start to stabilize and look forward to an eventual deal, albeit one not as soon as previously believed.

Here are four stocks that could help bring much needed stability back into the major indexes.

Walmart (WMT)

Walmart (WMT) will be in focus when it reports its first-quarter numbers before the market opens Thursday. Analysts expect to see the retail giant post earnings of $1.02 per share on revenue of $125.2 billion. Wall Street has been bullish on Walmart, but the stock has lost some ground as trade negotiations between the U.S. and China have strained. Walmart has a high sensitivity to China which will continue to weigh on the stock and puts the company in a position where it really needs to deliver a strong report to put to ease some of Wall Street’s trade fears. Walmart has done a great job growing e-commerce and in-store sales, and investors will have to see strong e-commerce growth. WMT stock trades at $99.94 with an average price target of $110.05. The street has a whisper number of $1.05 for the most recent quarter.

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Cisco Systems (CSCO)

Cisco Systems (CSCO) is the leading network company. Escalating trade tensions between the U.S. and China have resulted in a technology selloff, and CSCO stock shares have been pulled down with the overall sector. The trade war is already hurting the Chinese economy and escalating tariffs will slow global growth which has the potential to impact a wide range of sectors, technology being among the most vulnerable as individuals and corporations have to scale back tech spending. Cisco reports its fiscal third-quarter numbers after the market close Wednesday with the consensus calling for earnings of $0.77 on sales of $12.9 billion. During the same period last year the company earned 66 cents per share and earnings are up 7% per annum over the last five years. The street has a whisper number of $0.79 for the quarter.

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Deere & Co. (DE)

Of the groups already hurt from the trade war is farmers. China’s retaliations have targeted American farmers, and as both nations move to increase tariffs on each other Deere & Co. (DE) has fallen sharply over the last week ahead of its Friday morning fiscal second-quarter numbers. Analysts forecast the heavy machinery maker to post earnings of $3.57 per share and revenue of $10.15 billion, versus $3.67 on $10.72 billion during the same period last year. Deere has reported negative earnings surprises the last three quarters and the street expects another small miss this quarter with a whisper number of $3.50 per share. The small earnings miss has already been priced into the stock, so anything above the whisper should help bring strength back into the stock. Given the sharp pullback over the last week the downside at this point is likely limited while there is a good chance for a rally on a better than expected report. Analysts see a lot of upside in the stock, but the company needs a strong set of numbers or analysts will start to reduce their targets. DE stock is trading at $146.28 with an average price target of $174.00.

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Tilray (TLRY)

Marijuana grower Tilray (TLRY) reports first-quarter numbers after the market close Tuesday. There has been a lot of hype around the marijuana sector, but after a strong run in the latter part of 2018 after going public TLRY shares have trended steadily lower since October. Tilray continues to operate at a loss but the company has positioned itself as a top producer of marijuana which has huge potential as medical and recreational marijuana spreads. Last quarter Tilray reported mixed quarterly numbers with better than expected sales. Analysts see huge potential for TLRY stock, with an average price target of $122.75 versus its current price of just $45.37. Wall Street expects the stock to find support and move higher, and a strong set of Q1 numbers could be just the catalyst TLRY stock needs to regain its strength.

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Symbols: CSCO DE TLRY WMT
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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