Despite a tumultuous market environment, corporate earnings have been remarkably solid so far this year. With some exceptions in sensitive sectors such as travel and energy, U.S. companies have generally kept sales and profits intact, indeed often driving impressive growth.
Earnings have been a key factor in the market’s strong rally so far this year, and equities’ recovery off March lows. Third quarter earnings season hasn’t been any different. According to Factset, 84% of the S&P 500 companies that have reported have topped Wall Street consensus estimates. If that figure holds, it would tie for the highest such percentage ever.
Here are 10 winning stocks to buy after big Q3 earnings results:
- Altus Midstream (NASDAQ:ALTM)
- Snap (NYSE:SNAP)
- Ebix (NASDAQ:EBIX)
- Simon Property Group (NYSE:SPG)
- Superior Industries International (NYSE:SUP)
- Cooper-Standard Holdings (NYSE:CPS)
- The Trade Desk (NASDAQ:TTD)
- Appian (NASDAQ:APPN)
- General Electric (NYSE:GE)
- Align Technology (NASDAQ:ALGN)
Even by the standards of the market’s strong performance, the stocks ahead stand out for their strength. All ten posted strong reports that led to impressive short-term rallies. And each of those reports strengthened the long-term cases for these respective stocks as well.
10 Stocks to Buy After Big Q3 Earnings: Altus Midstream (ALTM)
Altus Midstream is not just one of the biggest winners of this quarter’s earnings, but one of the biggest winners of any earnings season in recent memory. As you’d expect of a biotech whose flagship drug was approved, ALTM stock more than tripled after its third quarter release on November 5.
The optimism makes sense. The bull case for midstream players like Altus long has been based on the idea that commodity prices don’t matter — at least not directly. As long as production stays elevated, revenue and profits should at least remain stable. Altus’ Q3, in which operating income turned sharply positive from a year-prior loss, seems to confirm that bull case.
The question is why investors didn’t believe in that bull case earlier, particularly after second quarter results in August that looked solid as well (if perhaps not quite as impressive). And that’s a question without a real answer. ALTM wasn’t the only midstream stock to soar, either: Western Midstream Partners, L.P. (NYSE:WES) gained 42% in the two sessions into and out of its release.
What’s particularly intriguing here is the fact ALTM stock still looks potentially cheap. Altus management said in the Q3 release that it would resume paying a dividend in early 2021, with a recommendation of $1.50 paid out quarterly starting in March. That recommendation might have been enough to make investors sit up and take notice. Incredibly, that dividend would suggest a 16% yield based on the current ALTM stock price.
That price includes another 22% rally since the post-earnings close. And given the yield and valuation, that rally may not yet be over.
It’s easy to forget that less than two years ago, SNAP was trading below $5, with seemingly good reason.
The company’s Spectacles seemed like a disaster. Snap was losing money and burning cash. User growth had stalled out.
The story now looks very different. User growth is back: daily active users rose 18% year-over-year in Q3. And meanwhile, Snap continues to get better and better at monetizing those users, a key pillar of the bull case coming into this year. ARPU (average revenue per user) increased 28% in the quarter, including 43% growth outside of the U.S. and Europe.
And the reaction to Q3 comes not just from the fact that Snap crushed Wall Street estimates. It’s also about how the company drove the results that sparked optimism. Even amid the lingering effects of a novel coronavirus pandemic that pressured ad spending, Snap’s results suggest that its acceleration in growth has real legs.
Meanwhile, with Pinterest (NYSE:PINS) posting a blowout quarter of its own (nearly matching the short-term and year-to-date gains in SNAP stock), the newer social media companies look like the best-positioned players in the space. Valuation is a concern, but investors in this market have done well to pay up for growth. As long as Snap keeps driving that growth, SNAP stock can keep rallying.
A number of big winners this earnings season were companies that needed to post some kind of good news. Ebix was one of those companies.
Even before the pandemic, EBIX stock had been down more than 50% from 2018 highs. Short sellers were taking aim, while a massive effort to build out a payments business in India seemed to be sputtering.
Risks remain and short sellers haven’t yet run for the hills. But Ebix’s Q3 is at least a step in the right direction. Despite the pandemic’s impact on Ebix’s travel business, revenue still increased 5% year-over-year. Earnings grew at a much faster clip.
That was enough to get EBIX stock to a nine-month high before a recent, modest pullback. Yet shares still are down 6% year-to-date. That could be a sign that the post-earnings rally was something of a “dead cat bounce” — or it could suggest that there’s plenty more upside if Ebix can keep regaining investor confidence.
Simon Property Group (SPG)
Few companies came into earnings in greater need of good news than Simon Property Group. The shopping mall owner came into 2020 with its stock at a seven-year low. The expected pandemic-driven acceleration of e-commerce suggested even further pressure. At March lows, SPG had declined more than 80% from 2016 highs.
Simon’s report itself doesn’t appear to have provided the needed boost. SPG stock actually slid three-tenths of a percent the day after earnings. FFO (funds from operations, a common profitability measure for real estate investment trusts like Simon) declined nearly one-third year-over-year, and badly missed analyst estimates.
But a closer look suggests that Simon did deliver good news, if not in the traditional way. The stock did fall after earnings — but after rallying 28% the day of the report amid hopes for a coronavirus vaccine. And while FFO fell sharply, all of the decline, and then some, came from short-term effects of the pandemic. Investors clearly saw enough for Simon to keep its gains, something many pandemic-sensitive stocks were unable to do.
Obviously, there’s a lot of work left to do. The e-commerce shift seems real. An occupancy rate of 91.4% isn’t high enough. But retail as a whole has performed better than many investors feared, and at least for now that goes for Simon as well.
Superior Industries International (SUP)
For SUP stock, Q3 results represent a lifeline. Heading into the release, shares of the aluminum wheel manufacturer were threatening a 35-year low. Net debt at the end of the second quarter was nearly $600 million against a market capitalization near $30 million. With little ability to sell stock to pay down debt, and with the pandemic leading first-half revenue to decline by more than one-third, bankruptcy seemed not just a real possibility, but a likely one.
Third quarter results aren’t exactly impressive. Unit sales still declined double-digits. Value-added sales (revenue less payments to outsourced providers) fell modestly. But cost savings had an enormous impact below the top line. Gross profit doubled, and Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) rose 20%.
At that profit level, Superior has at least a chance of avoided a restructuring. That optionality has led SUP to almost exactly quadruple in the three weeks since earnings. Superior needs a few more quarters like this, but some investors are betting that Q3 was a turning point.
Cooper-Standard Holdings (CPS)
Superior Industries wasn’t the only auto parts supplier to soar after Q3 earnings. CPS stock has more than doubled into and out of its release, touching a 52-week high in the process.
The two stories seem rather similar. Cooper-Standard too, saw a decline in revenue, but a nice spike in profits. That margin improvement calmed some of the fears about an onerous debt load, leading to the big rally in the equity.
Cooper-Standard’s financial situation wasn’t nearly as dire as that of Superior coming into the quarter, which explains the relatively lighter rally after the release. But long-term debts total nearly $1 billion, and the same broad worries about “peak auto” persist.
With SUP stock still risky even after the Q3 surprise, CPS stock might be a safer choice for sector bulls who believe the market still has more re-pricing to do.
The Trade Desk (TTD)
One advantage of a company stumbling into earnings is that expectations are low. Any sign of good news can be enough to send the stock dramatically higher.
It’s a different story for a company riding a wave of optimism into its report. As we’ve seen multiple times in recent quarters (Nvidia (NASDAQ:NVDA) springs to mind), even blowout quarters can be met with a shrug and a sense that the good news is already priced in.
In that context, Q3 earnings from The Trade Desk look particularly impressive. Even before the earnings report, TTD stock had rallied 149%. Investors knew that the shift to online advertising, and programmatic ads in particular, would be a tailwind.
The tailwind proved to be stronger than all but the most ardent TTD bulls expected. Results in the quarter, as one site put it, “obliterated analyst estimates.” Revenue rose 32% and more than doubled in the Connected TV segment, which should benefit from continued streaming growth.
Even with a big rally leading up to earnings, the results were enough to send The Trade Desk stock up another 27%. After a brief pause, the rally has resumed. It’s not hard to see why. Before the report, TTD looked like one of the best stories in the market. And after the report, it looks even better.
Appian’s Q3 brought APPN stock out of the shadows, to an extent. Before earnings, APPN had been a winner, tripling between late 2017 and last month. But the provider of a “low-code” platform for software developers largely was riding broader optimism toward SaaS (software-as-a-service) plays. Fellow sector player jFrog (NASDAQ:FROG) merited much more focus, and a far higher valuation, when it went public in September.
But Appian has the market’s attention now. Strong Q3 results have catalyzed a rally that led APPN stock to more than double from late October levels, including a parabolic rally over the past few sessions.
Unsurprisingly, valuation becomes a concern at this point, with APPN trading at 29x trailing twelve-month revenue. But FROG trades at 44x sales, and with Appian guiding for 34% revenue growth this year, its multiples can come down in a hurry.
More broadly, the best SaaS plays have sailed past any valuation worries in recent years, and APPN suddenly looks like one of the best SaaS plays.
General Electric (GE)
To be honest, I’m personally skeptical toward GE stock. With divestitures largely complete, pressure on the aviation business, and long-running (and still-unanswered) questions about cash flow, GE still has plenty of risks.
But the company’s Q3 report has sparked broader optimism among investors. GE stock cleared $10 for the first time since early March. A surprise profit (if on an adjusted basis) and solid free cash flow were enough to drive hopes that the company is finally positioned to turn the corner after years of disappointment.
Again, risks remain and GE still has a lot of work left to do. But for the first time since chief executive officer Larry Culp was hired in October 2018, investors are starting to believe.
Align Technology (ALGN)
ALGN stock has been on quite the roller-coaster ride over the last two-plus years. Heading into third quarter earnings back in 2018, the stock was on a roll, having quadrupled in less than two years. There seemed a real, and permanent, shift toward the company’s Invisalign system and away from traditional orthodontics.
But disappointing guidance for Q4 2018 sent ALGN stock plummeting. A pair of rallies in 2019 both ultimately reversed. By March of this year, ALGN had dropped some 60% from 2018 highs.
From those lows however, the stock has now tripled, and the Q3 release was a big reason why. Align absolutely crushed Wall Street estimates. Despite the impact of the pandemic, revenue grew 21% year-over-year. Profit margins expanded nicely.
Simply put, Align now seems back on track. So does Align stock, which has hit an all-time high. And if both the company and the stock are back to their old ways, there should be more upside ahead.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.