It’s that time of year again: Earnings season is upon us and U.S. companies are about to release a deluge of quarterly results.
In general, investors are braced for some pretty miserable results: Companies in the S&P 500 are projected to report a 9.1% decline in first quarter profits, according to FactSet, which would be the worst year-over-year decline since 2009.
However, that doesn’t mean there won’t be some standouts. According to Morgan Stanley MS +5.29%, there are 10 stocks that could soar on positive earnings results in the coming weeks.
One such name is Alphabet (formerly Google GOOGL +0.95%). The search giant could do better than Wall Street expects, say Morgan Stanley analysts, thanks to the growing number of searches that people are making on mobile devices as well as the continued success of YouTube.
Alphabet also has the opportunity to please investors by showing that it can keep a lid on costs. Last year, Alphabet’s moonshot bets lost a staggering $3.6 billion, reflecting heavy spending on ambitious side projects for the connected home (Nest), disease prevention (Verily) and super-fast internet connections (Google Fiber). While Alphabet has said it will continue to invest in these projects, chief financial officer Ruth Porat has acknowledged that they are taking “great care” when it comes to allocating resources.
Plus, if nothing else, Alphabet investors have a better picture than ever before of where the company is spending money — and reassurance that Google’s core business can more than cover the tab.
The long game: Amazon CEO Jeff Bezos has never been one to prioritize profits. (Photo credit: Peter Foley/Bloomberg)
Another stock that Morgan Stanley expects to take off after reporting earnings is Amazon, which “is entering a phase of improving profitability,” according to the analysts. Last year, Amazon had several profitable quarters and is expected to post a profit of 58 cents per share this quarter. Amazon’s margins have expanded as customers buy more stuff on the site and it becomes cheaper for Amazon to stock and ship orders, say the analysts.
Amazon’s fast-growing cloud services business, Amazon Web Services, should also continue to pad results. Last quarter, sales skyrocketed 70%.
Burlington Coat Factory should also do well, in part because it has put some tough circumstances behind it. For instance, last year the West Coast port delays held up its Easter clothing and it had to close some stores due to weather. Tax refunds were issued earlier in the year. That bodes well for Burlington, which will be making year-over-year comparisons. Plus, “the current buying environment for off-price is likely the most attractive since the ’08/’09 recession,” say the analysts.
Fitbit also supposedly has some revenue upside thanks to higher-than-expected demand for fitness watch Blaze and fitness wristband Alta, says Morgan Stanley. Touting the fast-growing wearables market, the analysts say Fitbit should post per-share earnings above the two cents that the Street is currently projecting, adding that Fitbit has been conservative with its guidance. Of course, this hasn’t always worked to its benefit: Last quarter, Fitbit gave weaker-than-expected guidance and investors responded by dumping shares. Over the last 12 months, its stock has dropped over 40%.
Other names that Morgan Stanley is betting on are Canadian National Railway, Ingersoll Rand, Nevro, Sherwin Williams, SVB Financial and Zayo Group.
[“source-Business2community”]
