The market can’t quite seem to get its feet under it. Bullish hopes that a strong earnings season would offset external fears haven’t quite played out. The S&P 500 continues to trade sideways, and actually has moved down modestly so far in 2018.
It hasn’t all been bad news. A earnings beat from Apple Inc. (NASDAQ:AAPL) and strong results from Facebook Inc (NASDAQ:FB) have helped the tech space. But older consumer stocks are struggling, with Procter & Gamble (NYSE:PG), Kraft Heinz Co (NASDAQ:KHC) and Anheuser Busch InBev NV (ADR) (NYSE:BUD) both at multi-year lows.
In short, it looks like a stock-picker’s market at the moment. And this week’s batch of earnings reports might provide more opportunities to find value – even if the overall market stays choppy. A gaming stalwart will try and reverse the weakness seen in that sector of late.
Another consumer giant will hope to avoid reaching a 52-week low. And a Chinese growth play will test investors’ tolerance for risk in that emerging market.
The hopes of earnings season sending the entire market higher probably are dashed at this point. But there’s still plenty for investors to watch this week.
Earnings Reports to Watch Next Week: JD.com (JD)
Earnings Report Date: Tuesday, May 8, before market open
JD.com Inc (ADR) (NASDAQ:JD) has struggled of late. JD stock has pulled back almost 30% from all-time highs reached in late January.
But Q1 earnings on Tuesday morning might provide a catalyst for a rebound. Expectations have come down substantially, with JD receiving several downgrades over the past few days. Yet even those lower estimates still suggest revenue growth in the range of 30% year-over-year. And Street targets, on average, still imply nearly 40% upside.
And the story here still looks intact. JD.com is building out its supply chain and expanding into off-line sales. It has years of growth in front of it in China alone, as that country’s middle class expands and e-commerce growth takes off.
Amid trade war fears, a more nervous market has sold off both JD and rival Alibaba Group Holding Ltd (NYSE:BABA). But a reminder of JD.com’s growth potential on Tuesday morning could change sentiment. And any kind of earnings beat could send JD back toward the $50 level it cleared back in January.
Earnings Reports to Watch Next Week: Electronic Arts (EA)
Earnings Report Date: Tuesday, May 8 after market close
The video game space has not had a good run of late – though Electronic Arts Inc. (NASDAQ:EA) has held up better than its two main rivals. The success of free-to-play Fortnite from privately held Epic Games has rattled video game stocks. Activision Blizzard, Inc. (NASDAQ:ATVI) has fallen 16%, and moved a bit further south after its early Q1 earnings release on Thursday. Take-Two Interactive Software, Inc (NASDAQ:TTWO) has pulled back 19%, even with a recent bounce.
EA stock, meanwhile, is just 8% off its highs – and its outperformance makes some sense. Its sports-heavy portfolio is less susceptible to losing player hours (and spend) to Fortnite. And that in turn seems to set up a potentially big report for Electronic Arts on Tuesday.
With Activision’s full-year guidance disappointing, any good news from EA could strengthen the narrative that it’s the best-positioned of the ‘big 3’ in video games going forward. Wall Street targets suggest a healthy 15% upside, and EA is likely to see little competitive impact in the Q1 numbers.
With investors already buying the dip in TTWO, and ATVI perhaps giving those investors a reason for caution, EA looks to be a nice spot ahead of its report.
A solid quarter could bring back the long-running bull case on the stock – which should benefit from continued demand for gaming and margin improvements from digital downloads – while dispelling near-term concerns. That in turn, could push EA back to all-time highs.
Earnings Reports to Watch Next Week: Walt Disney (DIS)
Earnings Report Date: Tuesday, May 8 after market close
Fiscal Q2 earnings from Walt Disney Co (NYSE:DIS) look potentially dangerous. Concerns about subscriber losses in the company’s key ESPN unit have dogged DIS stock for the last few years. Disney stock actually has dropped 10% over the past three years, and currently sits only a few points above a 52-week low just above $96.
Investors should brace for another disappointing number on Tuesday afternoon. Both Comcast Corporation (NASDAQ:CMCSA) and Charter Communications Inc (NASDAQ:CHTR) are trading at their lowest levels since the November 2016 election. Charter’s video subscriber losses in its Q1 suggest a potential acceleration of the ‘cord-cutting’ trend – and more pressure on ESPN’s subscriber numbers.
So it will be up to Disney management, led by CEO Bob Iger, to convince investors that ESPN and other networks are adapting to the new media environment. Good numbers from the new ESPN+ launch would help. So would strength from the movie and theme park businesses.
Still, it seems likely that investors will be focusing on ESPN and ABC. And given the growth of Netflix, Inc. (NASDAQ:NFLX) and the accelerating weakness at cable operators, that likely won’t be good news for Disney. With Comcast creating a potential bidding war for the UK’s Sky Plc (ADR) (OTCMKTS:SKYAY), Disney seems to have too many headaches at the moment. And in this market, investors are unlikely to want to add any more worries to their portfolios.
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.
