Heading into the earnings season for the third quarter, you’d be forgiven for having an ominous feeling about the incoming proceedings. While there were plenty of stocks worth buying early in this year due to game-changing narratives such as the novel coronavirus vaccine rollout, they’re old news now. Now, the markets are forward looking. Moreover, bullish enthusiasm can’t last indefinitely before encountering a corrective action.
For instance, while the mainstream media frequently praises President Joe Biden’s administration for lowering the unemployment rate down to more manageable levels (4.8% in September), that statistic only counts those who are considered employable. When you consider those who have left the workforce or are too discouraged to look for a job — that is, the labor force participation rate — the backdrop isn’t as enticing in terms of stocks worth buying.
If that wasn’t enough, the benchmark S&P 500 index hit a record peak in early September, only for valuations to decline conspicuously. From less-than-encouraging jobs data to domestic political rumblings to economic problems abroad (particularly in China), the narrative for stocks worth buying took a hit. However, as the actual Q3 earnings numbers rolled in, sentiment shifted decisively to the positive end. As evidence, the S&P rocketed higher, securing a fresh all-time high.
While the backdrop contains many uncertainties due to the ongoing Covid-19 crisis, there are legitimate sources of optimism. For example, Ally Invest’s Lindsey Bell told CNBC that the consumer discretionary sector should be a big winner for stocks worth buying over the next six months. Citing supply chain bottlenecks, Bell anticipates that people will do their shopping earlier to make sure they’re well stocked for the holidays.
Furthermore, the broader concept of retail revenge — people opening their wallets to make up for lost experiences last year — should help several other markets beyond the consumer discretionary segment. So, if you’ve got the stomach for risk, here are the stocks worth buying this earnings season.
- Electronic Arts (NASDAQ:EA)
- Cloudflare (NYSE:NET)
- Imax (NYSE:IMAX)
- CarMax (NYSE:KMX)
- Coinbase (NASDAQ:COIN)
- Olin (NYSE:OLN)
- Lockheed Martin (NYSE:LMT)
Although earnings performances so far have been pleasantly optimistic, you want to be careful about overplaying this thesis. While some of the early performances have bolstered the concept of stocks worth buying, anything can happen given that we’re still working through multiple global challenges. Therefore, vigilance is key.
Stocks Worth Buying: Electronic Arts (EA)
While the Covid-19 crisis has been a net negative for virtually all industries at the onset of the pandemic, a few sectors enjoyed robust gains, particularly video games. As USA Today pointed out, gaming was already a popular activity prior to the pandemic upturning everything. But when government mandates and lockdowns temporarily shut down traditional entertainment options, companies like Electronic Arts became cynical beneficiaries.
Honestly, what else were you going to do during the shutdown? Although people are now going out and about or otherwise acclimating to the pandemic, video games received a free organic marketing opportunity. That type of foothold will be tough for competitors to usurp, making EA one of the stocks worth buying.
Still, a bombshell revelation that the company’s EA Sports division and FIFA, soccer’s governing authority, are feuding might worry investors. Long story short, FIFA wants more than twice as much money as it currently receives from EA for an exclusive license.
In turn, EA is balking and it should. As the New York Times noted, worse comes to worst, the World Cup occurs once every four years — meaning that the exclusive license loss might not matter that much.
Cloudflare (NET)
As an increasing number of commercial activities migrate to the cloud, it’s never been more important for enterprises to consider content delivery network (CDN) services, which speed up delivery of web content by bringing source materials closer to users or the point of demand.
If you ever doubted the necessity of CDNs, just consider the ramifications of the recent Facebook (NASDAQ:FB) service outage. As our own Louis Navellier explained in supporting the bullish narrative for Cloudflare:
“The outage was not Cloudflare’s fault, but it did stress on its systems as users repeatedly tried to access the offline services. The company reported a 30 times surge in traffic. Still, although this massive increase had the potential to disrupt other sites, Cloudflare held up quite well. It was also called upon for expert commentary on what had gone wrong. That brought renewed attention to the importance of CDNs like NET, while its resilience impressed tech analysts.”
To be sure, NET has been one of the stocks worth buying throughout this year and not just for Q3. As well, I’m not entirely keen on chasing shares higher. Nevertheless, the company proved its worth in a baptism of fire, suggesting this rally could have long legs.
Stocks Worth Buying: IMAX (IMAX)
For contrarians seeking discounted stocks worth buying, proprietary film projection specialist IMAX has been both alluring and frustrating over the nearly two-year trailing period. Naturally, when the Covid-19 crisis touched down in the U.S. and other developed nations, IMAX stock suffered grievously due to the sudden loss of foot traffic.
But it was at that point where contrarians piled into shares on the thesis that the pandemic will eventually fade away. Fast forward to early this year, and the rollout of vaccines proved the argument correct. But from July to the back half of August, IMAX slipped again. Sure enough, the volatility was inversely correlated with rising Delta variant cases.
However, as new infections are again on the mend, IMAX has been surging. As I mentioned earlier, the concept of retail revenge is a powerful catalyst for these types of stocks worth buying. That’s because IMAX offers cheap entertainment, something that most households should reasonably be able to afford thanks to record-breaking savings last year.
CarMax (KMX)
For many investors, the rise and rise of CarMax is one of the more perplexing narratives of 2021. While supply chain issues facilitated an unbelievable demand spike for used cars, many reasonably thought that prices will decline. That in some cases, used cars were selling for a higher price than their new counterparts just made this entire circumstance ridiculous.
Still, KMX is one of the stocks worth buying because there doesn’t seem to be consensus on when this craziness will end. Remember, some reports suggested that used-car prices were declining this past summer only for them to boom higher very quickly afterward.
Plus, supply chains don’t react on a dime. It’s more like steering a boat: you must anticipate your moves ahead of time. That doesn’t bode well for customers but it certainly helps KMX as one of the stocks worth buying this earnings season.
Finally, consider that Americans are keeping their cars longer, which means that when they do break down, drivers don’t have the luxury of waiting.
Stocks Worth Buying: Coinbase (COIN)
Before I get into my talking points for Coinbase, I must offer a disclosure: while I like the company, I haven’t exactly been keen on its storyline as one of the stocks worth buying. Personally, I’m not about to load up the boat on COIN stock nor on any of the cryptocurrencies it offers at this time. But given the explosive fury of digital assets, you might feel differently.
Over the past few months, the crypto sector has enjoyed unparalleled mainstream integration. From El Salvador recognizing digital assets as legal tender to the introduction of a futures exchange-traded fund for the benchmark crypto, blockchain proponents are finally getting their day in the sun.
One of my fears — a concept that InvestorPlace contributor Wayne Duggan expertly discussed — is that investors end up buying the rumor and selling the news. Duggan wrote “Investors started pricing in the new ETF well in advance of the listing. Once that big event finally arrives, traders often cash in on their winning trade and look ahead for the next big market catalyst.”
Still, if I’m wrong about the resilience of this enthusiasm, then COIN is definitely something you should keep on your radar.
Olin (OLN)
Known primarily for its chemicals business, Olin has garnered upside and notoriety for its other business: owning the Winchester brand of ammunition. When the Covid-19 crisis first hit us, did Americans embrace their neighborly spirit and offered to help their community get through this terrible time? I’m sure many did. But millions took a different approach and bought firearms, lots and lots of firearms.
Per a USA Today report, the tally ended up being nearly 40 million, a truly staggering amount. I remember a 2018 report from the Washington Post that decried that there are more guns than people in the U.S. Following the coronavirus pandemic, this figure has gotten skewed to the point where it’s utterly ridiculous. Still, that’s a great catalyst for OLN stock, which continues to benefit from a supply shortage impacting ammunition.
Oh yes, the supply chain disruption doesn’t just affect semiconductors. Everything is topsy turvy. Worse yet, there’s no telling when manufacturers can finally stay abreast of demand. Indeed, with countless millions of guns reaching largely virgin hands, high prices could be the norm for a good long while.
Stocks Worth Buying: Lockheed Martin (LMT)
Let’s face it: President Biden, despite being in office for less than one year, has made more than his fair share of gaffes. Usually, they’re comical ones — just Biden being Biden. However, his latest words sure caused quite a ripple.
Per a Reuters report, the president stated that the U.S. “would come to Taiwan’s defense and has a commitment to defend the island China claims as its own.” At the same time, the White House later expressed that “there was no change in policy towards the island.” Either way, the Chinese as you can imagine were besides themselves, labeling the Biden administration as the most incapable in U.S. history.
That’s problematic unless of course you’re invested in defense firms like Lockheed Martin. One of the stocks worth buying this quarter because of the ratcheted-up tensions throughout the globe, LMT might not look like it on paper due to its recent fallout from a revenue miss.
Still, with the Asia-Pacific region rumbling, Lockheed Martin is poised to deliver the goods for shareholders longer term while delivering weapons payload to the enemy (or at least the threat thereof).
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
