With earnings season winding down, it’s time to look at what the results portend for a list of hot stocks that I believe are worthy of investment now.
The results show that the fourth quarter of 2020 is the first final period since Q4 2019 to show year-over-year earnings growth. More S&P 500 Index companies beat earnings estimates for the period and they did so with a wider margin than average, according to FactSet.
“Analysts expect double-digit earnings growth for all four quarters of 2021,” FactSet’s Senior Earnings Analyst John Butters wrote earlier this month.
So, with 2020 earnings pretty much as prologue, let’s look at the seven hot stocks with forward earnings momentum:
- Apple (NASDAQ:AAPL)
- Disney (NYSE:DIS)
- Deere & Co. (NYSE:DE)
- Applied Materials (NASDAQ:AMAT)
- Taiwan Semiconductor Manufacturing Co. (NYSE:TSM)
- DraftKings (NASDAQ:DKNG)
- American Tower Corp (NASDAQ:TSLA)
Hot Stocks: Apple (AAPL)
Any article about earnings, hot stocks and staying strong, ought to begin with Apple. I can’t imagine Apple doing anything but staying strong through 2021. It remains one of the strongest and brightest companies in the U.S., and indeed in the world.
Back on Jan. 27., when Apple’s quarterly earnings announcement came out, it was a record one. Apple posted all-time high revenues of $111.4 billion with sales that were boosted by its significant international exposure. In fact, 64% of revenues were attributable to foreign sales during the record quarter. That helped boost revenues to 21% higher than those in the same quarter of the previous year.
Earnings per share of AAPL stock was strong, as could be expected on such massive revenues. EPS blew past expectations of $1.42 per share, surprising by 35% at $1.68 a share.
Although the iPhone accounted for the majority of Apple’s revenues in the Q4, it wasn’t actually the biggest gainer. That distinction goes to the iPad which accounted for $8.44 billion in revenue, growing by 41% in quarter.
Still, the iPhone was by far Apple’s most important revenue source, bringing in 58.56% of the quarterly revenues. Apple did this despite serious issues in the procurement of vital semiconductors for its iPhone 12.
Under CEO Tim Cook, Apple will use its savvy and position to power through easily and remain very strong in the coming quarters.
Disney’s 2020 was a story of one massive success set against a loss caused by unavoidable externalities. This of course refers to the great success of Disney’s streaming services juxtaposed against the shuttering of its parks amid the pandemic.
Direct-to-consumer revenue hit $3.5 billion for the quarter, representing a 73% increase. Operating losses there continued to improve although still significant at $466 million. Across the board at Disney+, Hulu, and ESPN+ Disney saw increasing subscriptions, yet higher costs.
Disney+ has become a massive success for the company, having grown to 94.9 million paid subscribers. The channel had only 26.5 million at the end of 2019.
The one spot of contention is that while subscriptions are rising rapidly across Disney’s DTC assets, Disney+ revenue per subscriber declined by 28%. This is attributable to Disney’s expansion strategy in certain markets and follows sound rationale in expanding its global presence.
The other side of the coin has been what has happened with Disney’s parks. The catalyst for the decline is obvious: the pandemic. In the last quarter of 2019 parks accounted for $2.522 billion in revenue. The same period a year later resulted in a loss of $119 million.
Despite the serious operational roadblocks Disney has faced in the past year, DIS stock has still gained 32.15%. That’s why I believe Disney is only going to grow stronger moving forward. The obvious catalyst is right there.
Deere & Co. (DE)
Deere started 2021 on a “strongly positive note,” CEO John C. May told shareholders earlier this month. How strongly positive? In the first quarter of 2020 (January end), Deere posted net income of $517 million. A year later that figure ballooned to $1.224 billion.
The positive news resulted in the company raising its full-year earnings forecast to $5.0 billion from $4.6 billion. Of course, with success follows the pressure to achieve at greater and greater levels.
Further, the company has blown past EPS expectations in each of the last four quarters. Meanwhile, DE stock has doubled in value over the last 12 months, including a 28.5% gain since the start of the year.
One of the most impressive things about that massive jump in net income is that it was done while revenues increased a comparatively modest 19% during the same period. That’s right, John Deere managed to increase net income by 137% while top line revenue rose by only 19%.
The company attributes this to a strategic shift toward an organizational focus on operating with greater speed and agility. Clearly that strategy works. Operational efficiency led to 137% more on the bottom line form 19% more on the top line.
The company anticipates a strengthening year in relation to the agricultural and construction sectors. The company’s increased efficiency should keep it strong throughout the year.
Applied Materials (AMAT)
Applied Materials jumped by $10 per share to $123 after releasing its earnings report a few days ago. A big reason for that was the fact that AMAT stock was bolstered by a quarter in which sales rose 24% year-over-year to $5.162 billion. Margins also rose by 0.9% which translated to a net income increase of 27% on the 24% increase in sales.
This, all amid a period during which Applied Materials can continue to really move forward. That’s because the tech maker supplies an industry very much in need of what it supplies. The company makes tools necessary in the production of semiconductors. There is an ongoing semiconductor shortage which is hitting a broad variety of companies but is especially acute in tech and automotive.
The semiconductor industry largely operates on an outsourced manufacturing model whereby many companies design chips in-house to be manufactured elsewhere. This so-called fabless production is providing a boon to companies which require Applied Materials’ tools. Regardless of the manufacturing business model, semiconductor companies are seeking to ramp up production to meet the demand.
Therefore, AMAT stock sits in enviable territory. However, Applied Materials’ CFO Daniel Durn believes the growth opportunity is just getting started at his firm, stating that the growth will last for perhaps a decade or more.
Taiwan Semiconductor Manufacturing (TSM)
Taiwan Semiconductor is a company that should be on pretty much everyone’s watch list in my opinion.
As I mentioned above that Applied Materials is in a strong position for the fact that it supplies semiconductor manufacturers. Taiwan Semiconductor is the most important of those chip makers.
Taiwan Semi has a 57% global market share of the semiconductor foundry business. That means that of all of the semiconductor companies that currently operate by designing chips, 57% of such chips are manufactured by TSM.
Thus, TSM stock is in ideal position given the massive push to satisfy demand during the semiconductor shortage.
TSM’s Q4 earnings were strong. The company reported a 22% increase in revenue, at $12.68 billion.
The company is responding to the shortage by increasing spending to improve capacity by 50% this year. It plans to spend $28 billion in that effort.
TSM stock has risen 145% in the last year and it looks to be in as strong a position as ever based on market dynamics and industry reliance on it as a foundry. Analyst ratings for the stock are overwhelmingly ‘buy’.
DraftKings recently got a bump when Oppenheimer analyst Jed Kelly raised his target price on DKNG stock to $80 from $65 based on anticipation that the sports betting site will outperform on expectations around revenues. DKNG shares currently trade around $60, but analyst price targets run as high as $100 a share.
The company has a lot of growth prospects in the burgeoning sports betting world. Back in Q3, the company reported 42% YoY pro forma growth and revenues of $133 million.
Online sports betting is a largely nascent industry with important revenue-producing states, including Virginia and Michigan, having recently come online. There are estimates that the addition of those two states could allow it to generate sales topping $1 billion.
DKNG stock has risen 262% from just under $17 per share at this time last year, fueled by more people staying home with time and disposable income on their hands.
American Tower REIT (AMT)
I believe American Tower REIT shares will remain strong after earnings on Feb. 25. AMT stock is essentially flat over the past three months but has seen a lot of movement up and down during that period.
In any case, American Tower REIT remains a company situated in position to capitalize off of the build out of 5G both across the U.S. and internationally. Pundits anticipated that 2020 would be the year in which 5G really took root across the U.S. Of course, externalities changed that narrative, pushing back the rollout.
Much of the talk surrounding 5G gravitates toward the battle for contracts between Huawei, Ericsson (NASDAQ:ERIC), and Nokia (NYSE:NOK). While this battle remains central to the 5G story, other areas of the next-generation communication tech are worth exploring.
That’s why American Tower REIT is interesting. The company maintains towers across five continents and should get a boost following the pandemic. Analyst target prices average over $275, while AMT stock sits below $230 a share. That difference probably prices in the delay in the 5G roll out but nevertheless indicates Wall Street’s perception of the company.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.