Earnings season is in full swing, and so far, the news looks positive. Broad markets continue their slow, steady, grind higher.
Not all of the results have been good — key industrial General Electric Company (NYSE:GE) posted an ugly Q3 on Friday — but overall, investors and the Street have seen enough to stay bullish. And that momentum should continue next week, when a host of market leaders report.
For two key markets, semiconductors and auto manufacturing, which are going in different directions, next week is particularly important. Chip stocks will try and keep a major long-term rally going. Auto stocks, meanwhile, will try and maintain some recent momentum — against a disappointing multi-year backdrop.
Earnings Reports to Watch: Advanced Micro Devices (AMD)
I wrote back in August that Advanced Micro Devices, Inc. (NASDAQ:AMD) needed another home run to extend what has been an impressive rally off early 2016 lows. AMD’s new product lines are challenging market incumbents, with the new Radeon Vega taking on the flagship GTX 1080 from Nvidia Corporation (NASDAQ:NVDA).
From that standpoint, the Q3 report is key for AMD. Investors and analysts will get a look at the sales being driven by the Vega, the new Ryzen line in GPUs, and Epyc datacenter chips. For most of this year, AMD stock has been relatively range-bound, as bulls and bears have argued about the prospects for its new lineup. On Tuesday afternoon, those traders will get their first answer.
It’s a report to watch closely. I’d expect AMD stock to make a big move, given just how important the recent launches are to the long-term earnings growth prospects. Gross margin, in both Q3 results and Q4 guidance, will be an area of focus, as investors discern whether Advanced Micro Devices is trying to price its way to market share gains.
Weakness in that figure hit Advanced Micro Devices stock after Q1 — and a Q2 rebound led shares higher. From a fundamental standpoint, AMD still has a lot left to prove. And that will likely lead to post-earnings fireworks on Tuesday.
Earnings Reports to Watch: Intel Corporation (INTC)
While smaller chip stocks like AMD, Nvidia and Micron Technology, Inc. (NASDAQ:MU) have garnered the headlines, Intel Corporation (NASDAQ:INTC) has quietly made a nice move. INTC has moved up straight up over the past two months, and it has gained roughly 15% since I advised investors to buy the transformation in Intel in mid-May.
I’m sticking with that recommendation ahead of Intel earnings on Thursday afternoon. Admittedly, competitive pressure is rising, and AMD’s report on Tuesday may be almost as important for INTC as its own release two days later. But the reasons for optimism I saw in May haven’t changed.
Intel still looks priced for little growth, with the stock trading at 13x earnings-per-share estimates for 2018. Opportunities in automotive, through the company’s Mobileye NV (OTCMKTS:MBBYF) acquisition, and Internet of Things both provide long-term growth potential. And a 2.7% dividend yield adds income to the INTC bull case.
Even with Intel at its highest levels since the dot-com bubble burst, the company is still overshadowed by its faster-growing, but smaller, competitors. A strong Q3 report on Thursday could change that, and push INTC higher.
Earnings Reports to Watch: General Motors (GM)
After several years stuck in a relatively tight trading range, shares of General Motors Company (NYSE:GM) have come alive. GM stock now is up 30% so far in 2017, with essentially all of the gains coming over the past two months.
The Street clearly is more optimistic toward General Motors’ future in autonomous driving, with Barclays upgrading the stock last week for precisely that reason. At under 8x earnings, GM would seem to have further room to run, even after recent gains.
But I’d be extremely careful with the stock heading into, and out of, the Q3 report on Tuesday morning. There shouldn’t be a lot of surprise relative to revenue, given that GM details monthly sales. As such, the focus will be on margins and the post-earnings conference call. And with expectations clearly rising, I question whether General Motors has enough to offer to keep the short-term rally going.
Longer-term, concerns about “peak auto” and the role of upstart Tesla Inc (NASDAQ:TSLA) persist. Rival Ford Motor Company (NYSE:F) reports on Thursday, giving a better picture of the U.S. auto market as a whole. Even with GM still cheap on an earnings basis, neither the stock nor the sector is out of the woods yet. And if investors are starting to expect a big quarter from GM, as the recent run-up suggests, I’d worry that they will be disappointed.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.