- I’d like to share these large-cap stocks to buy on earnings dips. These fickle markets can bring opportunities on headline reactions.
- Walmart (WMT): The relative outperformance could persist for this steady stock.
- Home Depot (HD): The Fed could cause fear in HD stock. Buy the bad guidance dip if it comes.
- Lowe’s (LOW): It’s already a cheap stock but it can get cheaper.
Amidst this uncertainty on Wall Street, companies have the daunting task of reporting earnings. Even under normal circumstances that is a tough test for everything from tiny startups to steady large-cap stocks. Humans can often overreact to disappointments. So great stocks often stumble even on strong results.
We saw devastation from a few of the mega-cap tech stocks that already reported. And this week, there are three more large-cap stocks to buy if fearful investors sell them. These are solid companies with excellent track records. But their stocks could still suffer when they report this week.
It is important to admit that the reaction on the headline is human nature. Overinflated expectations often are the culprit behind massive selloffs. Take Netflix (NASDAQ:NFLX) for example. Investors expected growth, and when they didn’t get it they crashed the stock.
This week I would consider buying these three large-cap stock on any potential earnings dips. They have good long-term outlooks that may suffer temporary setbacks.
There are also a few extrinsic factors in mix, especially from the Federal Reserve. The rhetoric now from them is extremely bearish, and they have speeches to give this week. This includes their chairman, Jerome Powell, so they may also sway markets.
| WMT | Walmart | $147.47 |
| HD | Home Depot | $294.13 |
| LOW | Lowe’s | $192.32 |
Walmart (WMT)
Walmart (NYSE:WMT) had an exceptionally strong March. It rallied around 20% at one point in the last three months, but then gave back much of that gain. So the easy froth is already out of the stock. Nevertheless, it still did much better than the S&P 500 in the same period. Management has learned some tricks from Amazon (NASDAQ:AMZN) and improved on some old ideas even further.
The revenue, earnings and other metrics are solid and boring, but that’s part of its charm. It is not cheap relative to its old self. But this is perhaps the new normal, since it changed many of its fundamentals. You have to trust in a team that is at the forefront of tech, too. They are not shy about making big moves, even into things like drone deliveries. Earnings are scheduled for May 17.
WMT stock has support going into $142 per share. Snagging shares there or lower would make for a compelling short-term entry point. Longer term and if the correction persists, the $134 level would be a reasonable place to expect more buyers.
Home Depot (HD)
Home Depot (NYSE:HD) stock rallied 200% out of the pandemic crash. It did this in two large stints and with a long consolidation at $280 per share. That is the current support zone for HD stock going into the earnings report on May 17. Under normal circumstances, I would bet that the support would hold.
Owning HD stock here makes sense, and its price-earnings ratio of around 18 is reasonable, but the earnings present a binary bet this week. If the reaction is negative, and if investors sell it, I would pounce.
My concern going into the report is the forward guidance. The Fed’s hawkish action puts HD’s business squarely in the crosshairs.
The Fed is out to kill lending, which heavily influences HD’s income. If there is no real-estate boom there aren’t as many construction projects. But the value in the stock is tangible, and on dips, HD stock would be a bargain.
There is strong support starting at $280 and getting stronger through $245 per share. Buying it there would make for a lucky mid-term entry.
Lowe’s (LOW)
The argument that I made for HD would work exactly the same for Lowe’s (NYSE:LOW). It, too, has a successful business and a strong stock. However, LOW stock has slightly more to fall before hitting its largest support platform. This relative outperformance to HD could be its problem this earnings report, on May 18.
Fundamentally there aren’t any cracks in the bullish stories. But we must still allow for some bad news to emerge this week. I’d rather miss out on a few upside bucks than pile into it just as it swings even lower. With a 15.6 P/E there isn’t much fat to lose but I can’t trust this fickle market too much.
LOW stock has strong support at $180 per share. It bounced there twice last summer. If it fails then there are likely buyers through $155 per share. Lowe’s is smaller than HD but surely belongs on the list of large-cap stocks to buy on dips.
On the date of publication, Nicolas Chahine 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.
