The current earnings season is still in its infancy, but we have already seen several big name stocks impress Wall Street with their quarterly reports which should drive shares higher through the remainder of the summer.
The overall market remains very resilient with expectations rising that the Federal Reserve will cut interest rates in the very near future. Trade negotiations with China are progressing, but there is no guarantee that a trade deal will be reached any time soon, and the longer the trade war lingers the greater chance of a global slowdown that the Federal Reserve will try to combat with lower rates.
The trade war and interest rates will dominate market headlines in the next few months, and will either drive the major indexes to new record levels, or lead to a selloff resembling what the market experienced at the end of 2018.
No stock will be immune to a potential selloff, but companies that manage to post strong quarterly numbers this earnings season will be in the best position to hold recent gains and possibly even build on recent strength in a market correction.
Here are a few big names to consider buying following their most recent quarterly reports.
Tech giant Microsoft (MSFT) reported fiscal fourth-quarter numbers July 18 that easily topped estimates on both the top and bottom line. Microsoft earned $1.37 per share, up from $1.14 during the same period last year and ahead of the $1.21 consensus. The company’s fast-growing cloud computing segment continues to impress with 64% year over year growth. While this is down from three straight quarters of 70%+ growth, the figure remains impressive and shows that the company will continue to grow in the years ahead as cloud computing expands. MSFT was already in a strong upward trend ahead of the quarterly report and hit a new record high on the news. MSFT is up 37% on the year to $139.85 and analysts have an average price target of $150.30.
Wells Fargo (WFC)
Wells Fargo (WFC) kicked off the earnings season with a solid set of second-quarter numbers on July 16. The bank reported earnings of $1.30 per share on revenue of $21.6 billion, both numbers topping the $1.15 on $20.94 billion forecasts. WFC shares have been stuck in a sideways pattern for most of 2019, but the strong results pushed the stock through a major level of resistance at $48, and shares are currently sitting at $48.35 with an average price target of $50.47.There appears to be a lot of value in the stock at this point, with shares trading at just 10.3 times future earnings and analysts expecting to see earnings growth of 15.7% for the current year and 8.5% per annum over the next five years. Banks are interest rate sensitive, and while lower interest rates are a concern for banks, the Federal Reserve is unlikely to cut rates more than just one or two times, so the lower rate will not have a huge impact on earnings, and if the Fed’s moves help spur overall economic growth the benefits should outweigh the gains for the financial sector.
Chipotle Mexican Grill (CMG)
Mexican restaurant chain Chipotle Mexican Grill (CMG) has come a long way since the stock got punished in 2016 and 2017 for E. coli outbreaks that originated in its restaurants. The company has done a good job avoiding any additional problems and has regained the confidence of consumers which has resulted in strong earnings and the stock back to a record high. Chipotle reported better than expected earnings and revenue on July 23 with profits up 39% year over year. The recent gains in CMG has pushed the stock’s valuation a little high with shares currently trading at 45 times future earnings, but Wall Street has always been willing to buy into CMG at high multiples, and now that the company has put the E. coli scandal behind it Wall Street is once again very bullish on the stock and will not let the valuation prevent shares from trading higher still. After earnings fell 14% annually over the last 5 years, the return of consumer confidence has earnings on the rise and analysts expect profits to rise 46% this year and by an annual rate of 34% over the next five years. The strong growth forecast is the primary reason when Wall Street will overlook the stock’s valuation and now that CMG is once again a darling of Wall Street there is a lot of upside potential.
Hasbro (HAS) reported second-quarter numbers July 23 that shattered estimates on both the top and bottom line and pushed the stock to a new all-time high. Hasbro has managed to remain very strong in a world of mobile gaming due in part to the company’s close relationship with Disney (DIS), and in particular the superhero franchises. When Toys R Us went bankrupt there was a lot of fear that toy makers were going to follow, but Hasbro has shined. Disney has enjoyed huge box office success with its Marvel and Star Wars franchises and has produced a steady stream of blockbuster hits that benefits Hasbro. Frozen 2 will hit screens this November, and if it can find similar success to the first Frozen movie Hasbro will enjoy strong holiday sales of merchandise for the second movie this year. Q2 earnings of $0.78 per share were up from $0.48 during the same period last year and well ahead of the $0.50 consensus. Revenue of $984 million topped the $956.7 million forecast and were up 9% year over year. The stock is currently trading at $122.36 with an average price target of $113.64.