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Earnings season turned out rather strong, although it didn’t do all that much for the broad market. Even after a recent rally, the S&P 500 still sits about 4% below early October highs. The question as to whether the earnings calendar could offset external worries has been answered – and even a strong set of earnings reports simply wasn’t enough.
Indeed, according to data from Factset, 78% of S&P 500 companies who reported this earnings season posted a positive earnings surprise. 61% beat on revenue. Guidance was a bit more disappointing — 24 positives against 46 negatives among index components — but overall earnings reports have looked solid. The rally in the broad market of late shows that at least some investors have seen the numbers as enough reason to buy the dip.
With the peak of earnings season past, there’s still plenty of important news on the horizon next week. Leaders in three key sectors will release earnings. All three sectors have seen some questionable sentiment of late — meaning these earnings reports could have a far-reaching effect.
Good news could add to the sense that last month’s selloff was an overreaction. But any weakness could put these three stocks — and perhaps their entire sectors — in the penalty box.
Canopy Growth (CGC)
Earnings Report Date: Wednesday, Nov. 14 (tentative)
It’s been a volatile stretch for marijuana stocks including Canopy Growth (NYSE:CGC). CGC stock dropped over 40% in just a few sessions last month — and has bounced another 30% since.
CGC wasn’t alone. After recreational marijuana officially became legal in Canada, pot stocks across the board saw a significant “sell the news” event. But positive results in U.S. elections have boosted optimism toward the sector in the last few days. The next mover for the marijuana sector is the earnings calendar next week. CGC’s Q3 report tentatively is scheduled for Wednesday. Cronos Group (NASDAQ:CRON) and Tilray (NASDAQ:TLRY) will both release their third-quarter results the day before.
To be sure, it’s not as if CGC stock — or other pot stocks — necessarily will move on the actual profit numbers. These are growth stocks, after all. Not even Canopy Growth, the largest of the three, is going to be profitable – nor is it expected to be.
But there’s still a lot to look for, and a lot to listen to, on post-earnings conference calls. How fast is revenue growing? What kind of commentary will executives give on the newly launched Canadian market?
The biggest question might be: how do investors react to the reports? For a few months, it seemed like any news, no matter how slim, was enough to move CGC stock higher. Last month, a $370 million acquisition led to a $1 billion-plus increase in the company’s market capitalization, and add billions more in value to other marijuana plays.
If pot stocks rise after the reports, it could be a sign that the stretched multiples in the sector will hold. If strong growth is met with a selloff, however, CGC stock – and its peers – could be headed back to Earth.
Earnings Report Date: Thursday, Nov. 15, before market open
Walmart (NYSE:WMT) enters next week at an eight-month high and potentially in a precarious position. Earnings reports have been big movers for WMT stock of late. The stock plunged after a disappointing Q4 report back in February and soared following a better Q2 release in August.
With expectations clearly rising of late, Walmart is going to need a big Q3 report on Thursday. And I’m not convinced. Questions surrounding tariffs, competition from Amazon.com (NASDAQ:AMZN), and e-commerce growth haven’t been fully answered.
A 10%-plus gain in just a couple of weeks seems like WMT stock already is pricing in a good quarter. And so Walmart had better deliver.
Earnings Report Date: Thursday, Nov. 15, after market close
Few sectors have taken a bigger hit of late than the semiconductor group. Nvidia (NASDAQ:NVDA) still trades about 30% below highs reached at the beginning of last month.
To reverse the slide, Nvidia needs to start with a strong fiscal Q3 earnings report on Thursday afternoon. And the good news is that the company has an impressive track record in terms of beating expectations. Nvidia hasn’t missed the Street on either revenue or earnings in over three years. Against consensus estimates of 22% revenue growth and a 29% increase in EPS, that means Nvidia likely will post a very strong report.
The question is how investors will react. It’s clear at the moment from trading in other chip stocks like Advanced Micro Devices (NASDAQ:AMD) and Micron (NASDAQ:MU) that investor confidence in the sector has waned. A beat might not be good enough — particularly if guidance suggests any deceleration in growth.
And a miss could be painful, as investors in AMD learned last month. All told, there’s a lot of risk in owning NVDA into Thursday’s release. But if NVDA is going to grind back to past highs, the Q3 report is the place to start.
As of this writing, Vince Martin has no positions in any securities mentioned.