Today I want to look at the six best upcoming earnings season stocks. I focused on high-quality companies that investors think are going to report recession-related declines.
Some of these may indeed stumble, but I suspect that many of the strong American tech stocks will do more than muddle through. I think they will do just fine.
That is why these six stocks will be good earnings season stocks. Analysts will be surprised to see their better-than-expected earnings next year over this year. These stocks will likely soar when their numbers come out.
Let’s dive in and look at the earnings picks.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is forecast to show 18.8% EPS growth next year, rising from $112.25 to $133.35 in 2023. Therefore, at $2,344.59, as of the close on June 7, the stock is on a forward P/E multiple of just 17.6x.
In other words, there may be a recession going on, but you wouldn’t know it looking at Alphabet’s expected earnings. The simple fact is that companies still need to advertise to sell their products, even if there is a slowdown in economic activity.
Although Alphabet does not pay a dividend and it’s not clear when, if ever, it will do so, the company still generates large amounts of free cash flow (FCF). It uses this FCF to do massive share buybacks every quarter.
For example, in the last 12 months ending March 31, its free cash flow (FCF) worked out to $69 billion, according to Seeking Alpha, and of this $52 billion was spent on share buybacks. That works out to 19.2% of its $270.3 billion in sales in the last 12 months. It also works out to 3.44% of its massive $1.51 trillion market cap. That activity helps to push up the stock price and increases its earnings per share.
Netflix (NASDAQ:NFLX) is very cheap now. The stock has declined to the point where it’s trading at just 16 times 2023 forecast sales. Analysts now forecast that 2023 earnings will actually grow 13% by 2023 to $12.35 per share, along with 10% sales growth in 2023 over 2022.
According to Barron’s magazine, Netflix said it lost 200,000 subscribers in Q1. It also expects to lose 2 million subscribers in Q2. This is why NFLX has fallen around 67% YTD, from over $602 per share to just below $200 as of the close on June 7 ($198.61). That reflects a lot of bad news. Analysts are hoping that the latest season of Stranger Things will push subscriptions higher.
This could make Netflix one of the most-watched earnings season stocks after June 30.
Block (NYSE:SQ) (formerly Square) is forecast to show a huge gain in earnings and revenue next year after this year’s slump. They forecast to see 85% EPS growth in 2023 to $1.64 from 89 cents, as well as 20.7% revenue gains.
That puts Block on a forward P/E multiple at $84.60 on June 7, of 51.6x. That is much cheaper than its historical P/E multiple over the past five years of 123x, according to Morningstar.
In fact, the lowest P/E in the last five years was 67x in 2019. This means that today Block stock is at undervalued by at least 30% (i.e., 67x/51.6x -1). The 30% potential gain in SQ stock after it has fallen so far is not that hard to believe. It means SQ stock is a good investment now.
But of course, this also makes it one of the best earnings season stocks, especially if revenue starts to rebound earlier than forecast.
Moreover, at $81.48 per share, this puts the stock on a forward P/E multiple of 17x. That is significantly below its five-year average multiple of 66x according to Morningstar.
So, once the market sees that earnings are turning around, this could be one of the best-performing earnings seasons stocks.
Amazon (NASDAQ:AMZN) is set to show a surprising rebound in earnings next year, up 189% to $2.72 per share. This puts the stock on a forward P/E of 45x. This is well below its historical average of 78x over the last five years, according to Morningstar.
Moreover, the stock has taken a major hit year-to-date (YTD), falling over 25% as of June 7 to $123 per share (post stock split). The company is suffering from slower demand for goods and higher shipping and operating costs. When the market thinks the recession has a whiff of a chance of slowing, AMZN stock will take off, even before it actually happens
That is why this is one of the best earnings seasons stocks. The market will be looking for the slightest indication that things are turning around.
So, at $187.15 at the close on June 7, CRM stock is on a forward P/E of 32 times. This is well below its 61 times historical average for the past five years. In fact, its average P/E in 2021 was 55 times. So the stock is undervalued by at least 72%.
Even if it rises by half of that amount, it will produce a huge ROI of 36%.
On the date of publication, Mark Hake did not hold (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.