The earnings season has picked up momentum, with many stocks reporting over the next few weeks. Analysts predict to see robust earnings growth in old economy stocks that include cyclical sectors, energy, materials, industrials, and consumer discretionary names. Meanwhile, following recent price declines, many tech shares are also offering better value. Therefore, today’s article introduces seven stocks to watch in February.
Corporate announcements also reveal how companies have been coping with rising inflation over the past few months. Inflation is now around 7% on an annualized basis, as measured by the Consumer Price Index (CPI). Therefore, identifying stocks that have pricing power, or the ability to increase prices without impacting demand, might hold the key for lucrative returns in 2022.
In January, the Dow Jones Industrial Average, S&P 500 index, and NASDAQ 100 index fell around 4.4%, 86.9%, and 11.5%, respectively. Understandably, these declines can feel unnerving. Yet seasoned investors are welcoming the volatility as a great buying opportunity, especially in names that had become frothy over the past year.
With that information, here are the seven stocks to watch for the near future:
- American Airlines (NASDAQ:AAL)
- Block (NYSE:SQ)
- Novavax (NASDAQ:NVAX)
- Palo Alto Networks (NASDAQ:PANW)
- Pinterest (NYSE:PINS)
- Target (NYSE:TGT)
- Workday (NASDAQ:WDAY)
Stocks to Watch: American Airlines (AAL)
52-week range: $15.33 – $26.09
Fort Worth, Texas-based American Airlines is one of the largest airlines by scheduled revenue passenger miles worldwide. Like other travel stocks, AAL shares became vulnerable during the pandemic, and many still have a lot to prove in 2022.
Management issued fourth-quarter and full-year 2021 results on Jan. 20. Revenue came in at $9.43 billion, up 134% year-over-year (YOY), yet down 17% compared to the same period in 2019. The net loss narrowed to $921 million, or $1.42 per diluted share, down from $2.2 billion, or $3.81 per diluted share, a year ago. Cash and equivalents ended the period at $15.8 billion.
Given that the company ended last year with over $46 billion of debt and lease liabilities, it could take well over a year of solid profits to fix the airline’s balance sheet. However, Wall Street is debating if that could be a likely scenario. After all, the airline faces significant cost pressures, especially due to rising oil prices and surging interest expense.
Meanwhile, reduced travel demand due to the omicron variant is expected to lead to another significant loss in the first quarter. As a result, management anticipates revenue to fall 20% to 22% compared with the first quarter of 2019.
AAL stock is priced at slightly below $17, up 7% over the 12 months. However, it’s down 8.5% YTD. Shares are trading at 0.35 times trailing sales. The 12-month median price forecast for American Airlines stock stands at $19.
Block (SQ)
52-week range: $102.00 – $289.23
Financial technology (fintech) name Block, formerly Square, offers a commerce and payments ecosystem for merchants. In addition, Block’s Cash App has evolved to become a personal finance platform that powers peer-to-peer (P2P) payments as well as trading in Bitcoin (CCC:BTC-USD).
Block is known for its innovative approach to the fintech sphere. However, in recent days, SQ stock investors were left scratching their heads as Apple (NASDAQ:AAPL) made the news in the payments space. The tech giant “is reportedly planning a new service that will allow businesses to accept payments using an iPhone without the need for extra hardware.” Now investors wonder how Block’s business might be affected in future quarters.
Square released Q3 results in early November. Revenue of $3.84 billion was up 27% YOY. Net income came in at $0.1 million, down from $37 million in the prior-year quarter. Cash and equivalents ended the quarter at $6.9 billion. The next report is due after the market close on Feb. 24; the Zacks Consensus Estimate is for 20 cents per share.
Cash App allows Block to generate revenue from various channels, including merchant fees, bank transfers, and investments. The platform grew faster than Block’s seller business, which generates revenue from transaction processing fees and subscription services.
Moreover, Block is on track to close its $29 billion acquisition of “buy now, pay later” company Afterpay. The deal aims to serve as a bridge between its seller ecosystem and Cash App.
Block lost more than half its value over the past three months. SQ stock is currently priced at $120, down 42% in the last 12 months. Shares look historically cheap at just 3.8 times trailing sales. The 12-month median price forecast for Block stock is $244.
Stocks to Watch: Novavax (NVAX)
52-week range: $66.38 – $331.68
Gaithersburg, Maryland-based Novavax is a clinical-stage biotech name that focuses on developing and commercializing vaccines. With the pandemic, the healthcare group came under the limelight.
The company’s COVID-19 vaccine, NVX-CoV2373, was tested in two large-scale studies, resulting in vaccine efficacies (VEs) of about 90%. These are strong results that could allow Novavax to get ahead of other vaccine players like AstraZeneca (NASDAQ:AZN) and Johnson & Johnson (NYSE:JNJ).
Management has already committed to delivering at least 430 million doses worldwide via advance purchase agreements. For instance, last week the Israeli Ministry of Health and Novavax signed such an agreement for five million doses. However, the U.S. Food and Drug Administration (FDA) has not yet approved the vaccine, a fact that has put pressure on NVAX shares.
Novavax issued Q3 2021 results on Nov. 4. Revenue increased 14% YOY to $179 million. At present, the pharma name relies on development agreements for revenue.
During the quarter, net loss widened to $322 million, or $4.31 per share, compared to $197 million, or $3.21 per share, in the prior-year period. Cash and equivalents ended the quarter at $1.9 billion. The next report is due on March 7; the Zacks Consensus Estimate is for 19 cents per share.
NVAX stock hovers around $77, down 46% year-to-date (YTD). Shares are now at a more reasonable valuation at just 3.4x forward earnings and 9.95x trailing sales. The 12-month median price forecast for Novavax stock currently stands at $266.
Palo Alto Networks (PANW)
52-week range: $311.56 – $572.67
Palo Alto Networks is one of the largest cybersecurity providers by revenue, serving over 85,000 customers worldwide. Its product portfolio includes firewalls and endpoint protection products and services. Management has been expanding cloud-based security and artificial intelligence (AI)-powered threat detection services. As a result, annual sales are approaching $5 billion.
The group issued Q1 FY22 results on Nov. 18. Revenue grew 32% YOY to $1.2 billion. Net income came in at $170.3 million, or $1.64 per diluted share, up from $158.1 million, or $1.62 per diluted share, in the previous year. Cash and equivalents ended the quarter at $2.27 billion.
Its security ecosystem boasts the cloud security platform Prisma and AI-powered threat detection platform Cortex. Management is forecasting a 26%-27% revenue increase for fiscal year 2022. Increased reliance on tech during the pandemic has made cybersecurity protection a top priority for businesses and individuals alike.
PANW stock changes hands around $500, up 42% over the past 12 months. Shares are trading at 74x forward earnings and 11.3x trailing sales. The 12-month median price forecast for Palo Alto Networks stock is $612.50.
Stocks to Watch: Pinterest (PINS)
52-week range: $27.75 – $89.90
Pinterest is well-known as an online sharing and discovery platform. With around 455 million monthly users, the platform has become a leading site for merchants and creators to advertise their products. In addition, client sites at Shopify (NYSE:SHOP) can upload their catalogs into Pinterest’s feed results.
The social media company released Q3 2021 results in early November. Total revenue grew 43% YOY to $633 million. Net income increased 119% YOY to $191 million, or 28 cents per diluted share, up from $87 million in the previous year. Cash and equivalents stood at $1.2 billion.
For platform names like Pinterest, robust engagement metrics are the key to future success. In the U.S., Pinterest has been struggling to preserve monthly activity on its platform, especially since the end of the pandemic.
As a result, management has been investing heavily to maintain its user base and grow its average revenue per user. During the quarter, U.S. and international revenue grew 33% and 96%, respectively.
PINS changes hands around $30, down 60% in the past 12 months. Shares are trading at 34.6 times forward earnings and 10.3 times trailing sales. The 12-month median price forecast for Pinterest stock is $50.
Target (TGT)
52-week range: $166.82 – $268.98
Dividend yield: 1.68%
The leading general merchandise retailer Target has close to 2,000 stores. The group also boasts robust omnichannel shopping capabilities, including key digital shopping options. In addition, the retailer has partnered with Apple (NASDAQ:AAPL), Walt Disney (NYSE:DIS), and Ulta Beauty (NASDAQ:ULTA) to create shop-in-shops, which fuel higher levels of customer traffic.
Target announced Q3 2021 results on Nov. 17. Revenue grew 13.3% YOY to $25.7 billion. Net earnings came in at $1.49 billion, or $3.04 per diluted share, up from $1.01 billion in the prior-year quarter. Cash and equivalents ended the period at $5.75 billion. The next report is due on March 1; the Zacks Consensus Estimate is for $2.85 per share.
On the results, CEO Brian Cornell remarked, “Following comp growth of nearly 21 percent a year ago, our third quarter comp increase of 12.7 percent was driven entirely by traffic, and reflects continued strength in our store sales, same-day digital fulfillment services.”
The retailer’s same-day delivery and in-store pickup services are key growth drivers. Orders using same-day services increased 60% during the quarter.
TGT stock hovers around $215, up over 12% over the past 12 months. Meanwhile, the Dividend King stock currently generates a 1.7% dividend yield. Shares look reasonably valued at 18.15 times forward earnings and 1.15 times trailing sales.
The 12-month median price forecast for Target stock stands at $280. If you want to invest in businesses with robust earnings prospects, Target stock needs to be on your watchlist.
Stocks to Watch: Workday (WDAY)
52-week range: $217.60 – $307.81
Pleasanton, California-based Workday provides enterprise cloud applications for finance and human resources (HR). Its enterprise cloud applications have been adopted by close to half of the Fortune 500..
The pandemic saw a significant increase in the number of employees working from home. As a result, put HR management platforms like Workday have been in the limelight. Now, the company boasts a strong brand name as well as a significant recurring revenue base.
Workday released FY22 Q3 results on Nov. 18. Revenue increased 20% YOY to $1.33 billion. Net income was $287 million, or $1.10 per diluted share, compared to $220 million in the prior-year quarter. Cash and marketable securities ended the quarter at $3.55 billion. The next report is due on Feb. 24; the Zacks Consensus Estimate is for 71 cents per share.
“We reported a strong third quarter, once again accelerating subscription revenue growth, as organizations across the globe look to Workday as their strategic partner in driving their Finance and HR digital transformations,” said CFO Robynne Sisco.
Meanwhile, management anticipates fourth-quarter subscription revenue to come in at almost $1.22 billion, representing 21% growth.
WDAY hovers around $236, down 1% (or flat) over the past 12 months. Despite declining 15% YTD, shares are trading at 77.5 times forward earnings and 14.3 times trailing sales. In other words, they are still frothy. The 12-month median price forecast for Workday stock is $325. Interested readers could consider waiting for a pullback to buy the stock.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
