With Alcoa Inc (AA) reporting yesterday, first-quarter earnings season is officially underway. Once again, disappointing results are expected.
Fresh off a year in which corporate profits declined 5.1% from 2014, and coming off their weakest quarter in nearly five years, U.S. companies could use a few pleasant surprises — some more than others.
Stocks have finally emerged from their year-long funk, and have rallied more than 10% since hitting a 22-month bottom on Feb. 8. At 2,052, the S&P 500 is actually within striking distance of the all-time peak of 2,130 it reached last May. So in general, things are looking up.
But plenty of stocks are lagging behind, many of them big names. Though only 15 stocks on the New York Stock Exchange and Nasdaq are still trading at 52-week lows, plenty of large caps are well below their 200-day moving averages. With investors itching to jump back in the pool, many of those stocks just need a bit of good news to give the bulls a reason to buy.
More often than not, an earnings beat is enough of a reason.
So, with that in mind, here are three down-in the-dumps stocks in particular that could really use an earnings beat in the next few weeks.
Stock That Could Use an Earnings Beat: Goldman Sachs Group Inc (GS)
Few stocks have struggled as much as Goldman Sachs Group Inc (GS) in the past year. The only high-profile stock that still trades near 52-week lows, GS stock has fallen 21% in the last 12 months after the big bank’s sales and earnings declined in 2015 for the first time in four years.
The 29% drop-off in earnings per share last year was especially troublesome. The additional humiliation from today’s announcement that Goldman is being ordered by the Justice Department to fork over $5 billion for its role in the subprime mortgage crisis certainly won’t help matters.
Add in the fact that GS earnings have fallen short of analyst expectations for three straight quarters, and it’s easy to see why the “vampire squid” could use an earnings beat when it reports first-quarter results on April 19. Estimates are predictably modest, with analysts forecasting a 36% decline in sales and EPS of less than half the year-ago total.
With GS trading at just 8.5 times forward earnings, the stock is ripe for bargain hunters. Clearing a low earnings bar could be enough of a reason for them to buy.
Stock That Could Use an Earnings Beat: Chipotle Mexican Grill, Inc. (CMG)
We all know Chipotle Mexican Grill, Inc.‘s (CMG) horror story: the Mexican fast-food chain essentially poisoned hundreds of customers late last year, as customers in 10 states contracted either E. coli or (in Boston) norovirus after eating at a Chipotle. That led to the company’s first quarterly sales (-6.8%) and earnings (-43.6%) declines in years, and caused CMG stock to lose nearly half its value in just three months.
It has rebounded somewhat since bottoming out at $404 on Jan. 12; CMG currently trades at $443, though that’s way down from its March peak at $533.
It was just one bad quarter, but it was uncharacteristically ugly. CMG stock was a Wall Street darling in 2013 and 2014. To get back there, the company will need to prove that its customers haven’t abandoned it for good.
Analysts are expecting a 20% decline in sales and EPS to be in the red in the first quarter. If CMG reports better numbers than that on April 26, it could convince investors that the worst is behind Chipotle.
Stocks That Could Use an Earnings Beat: Apple Inc. (AAPL)
Yep, Apple Inc. (AAPL).
It sounds crazy; Apple is, after all, still the richest company on the planet. But it’s also coming off its worst quarter in years, with fourth-quarter sales all but flat compared with the prior year. That was a far cry from the 40%, 50% and 60% sales growth Apple was achieving during its 2010-2012 halcyon days. It was even well shy of the 20%-to-30% sales growth of the previous four quarters.
AAPL has actually still managed to exceed consensus estimates in recent quarters, but just barely. There was a time when Apple routinely blew analyst expectations out of the water.
Really, the company is a victim of its own unprecedented success, but such is life at the top.
Apple’s new iPhones and iPads no longer excite people — or at least investors — and until they come up with something new and groundbreaking again, AAPL stock probably won’t budge much … not unless it posts a big fat earnings surprise. Believe it or not, analysts are actually forecasting a 10.4% decline in Apple’s sales in the first quarter, and for EPS to tumble 14%.
If AAPL instead grows either number — or preferably both — it could add to the 17% run-up in Apple stock since it hit an 18-month low at $93 in January.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.