We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Earnings Countdown: Mega-Cap Stocks Take the Stage Next Week
Read MoreHide Full Article
Although next week will not be the most numerous in earnings reports, it will be the most important. Five of the ‘Magnificent Seven’ stocks will be reporting and the two largest American energy companies – sharing with investors some of the most valuable economic data in the world.
Thus far, the earnings season has been generally upbeat with the majority of stocks reporting thus far beating both earnings and revenue estimates.
Technology
From the Zacks Earnings Trend Report from research head Sheraz Mian, he notes that:
“For the Technology sector, total Q4 earnings are expected to be up +18.7% from the same period last year on +6.8% higher revenues. Had it not been for the strong Tech sector contribution, Q4 earnings for the remainder of the index would be down -5.9% (instead of up +0.6% as a whole).
The ‘Big 7 Tech Players’ - Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) , Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Nvidia (NVDA) and Tesla (TSLA) - will start reporting Q4 results in the next few days. Total Q4 earnings for the group are expected to be up +38.3% from the same period last year on +12.5% higher revenues, which would follow the group’s +54.2% higher earnings on +12.9% higher revenues in 2023 Q3.”
Which is quite incredible when you think about it. We have many analysts and commentators commenting on how large a portion of the S&P 500 the mega-cap tech stocks have become, but the sales and earnings growth they put up is simply undeniable.
I also want to note the valuations on the five tech stocks reporting next week. Although there is much talk of “its only the mag 7 dragging the market higher,” none of them have absurd valuations, and a couple are quite appealing.
We can see that Amazon and Microsoft have the loftiest forward earnings multiples, while Meta Platforms and Alphabet have the lowest and Apple is right in the middle. Both Meta Platforms and Alphabet are trading below their five-year median valuations of 23.3x and 24.2x respectively and are forecasting EPS to grow 21% and 17% annually over the next 3-5 years.
Both Microsoft and Apple are trading above their five-year median valuations of 31x and 26x respectively. These are obviously historical premiums, but not excessively high. Microsoft is anticipating annual EPS growth of 15.5% over the next 3-5 years and Apple 12.7%.
And finally, Amazon, with the most premium valuation is actually the farthest below its five-year median of 72.5x. Admittedly, Amazon’s valuation has always been a bit of a conundrum, because the e-commerce business runs with such low margins, but these days it is balanced by Amazon Web services, which is the largest cloud-service provider. AMZN is projecting annual EPS growth of 28.5% over the next 3-5 years.
Image Source: Zacks Investment Research
I think that this data can yield a fairly simple conclusion; based on valuations Meta Platforms and Alphabet are quite appealing, while Microsoft and Apple may have to work off their premium multiples before they are as attractive. Amazon looks appealing as well based on its very high earnings growth expectations.
It is also worth noting that Microsoft, Amazon, and Meta Platforms have a Zacks Rank #2 (Buy), while Apple and Alphabet have a Zacks Rank #3 (Hold) rating.
Energy
Regarding earnings expectations, energy stocks are on the completely other side of the spectrum from Technology. From the Earnings Trend Report:
“Sectors expected to experience the biggest earnings declines in Q4 include Autos, Basic Materials, Medical, Energy, and Transportation.”
Energy stocks have struggled over the last year primarily due to the easing of Oil prices. Following the start of Ukraine-Russia war, and easing of inflation, the price of crude oil has steadily fallen from the $130 highs to $78 today, with intermittent spikes up to $95.
This reflects the cyclical nature of investing in oil stocks and doesn’t come as to big a surprise. But even with expectations of falling YoY earnings, I think this sector is still rather appealing, and worth considering as investments.
On Friday, US oil majors Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) report earnings before the market opens.
Like the technology stocks, when looking at energy from a historical valuation perspective it is hard to deny the attractiveness. Both Exxon Mobil and Chevron are trading at very reasonable valuations of ~10x forward earnings, easing considerably from the three-year highs near 30x. But they are also below the 10-year medians, which both stand at ~17.7x.
Chevron and Exxon Mobil also both pay hefty dividends of 4% and 3.7% respectively and have structural tailwinds. The structural tailwinds are namely a broad underinvestment in oil and gas infrastructure, which is likely to keep oil supply low for the coming years.
Both Exxon Mobil and Chevron have a Zacks Rank #3 (Hold) rating.
Image Source: Zacks Investment Research
Final Thoughts
The energy and technology sectors offer two very different outlooks regarding earnings, yet both may be appealing based on valuations. Because they are such critical and leading industries in the country, discerning investors would be wise to hold some mix of the stocks shared.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
Earnings Countdown: Mega-Cap Stocks Take the Stage Next Week
Although next week will not be the most numerous in earnings reports, it will be the most important. Five of the ‘Magnificent Seven’ stocks will be reporting and the two largest American energy companies – sharing with investors some of the most valuable economic data in the world.
Thus far, the earnings season has been generally upbeat with the majority of stocks reporting thus far beating both earnings and revenue estimates.
Technology
From the Zacks Earnings Trend Report from research head Sheraz Mian, he notes that:
“For the Technology sector, total Q4 earnings are expected to be up +18.7% from the same period last year on +6.8% higher revenues. Had it not been for the strong Tech sector contribution, Q4 earnings for the remainder of the index would be down -5.9% (instead of up +0.6% as a whole).
The ‘Big 7 Tech Players’ - Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) , Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Nvidia (NVDA) and Tesla (TSLA) - will start reporting Q4 results in the next few days. Total Q4 earnings for the group are expected to be up +38.3% from the same period last year on +12.5% higher revenues, which would follow the group’s +54.2% higher earnings on +12.9% higher revenues in 2023 Q3.”
Which is quite incredible when you think about it. We have many analysts and commentators commenting on how large a portion of the S&P 500 the mega-cap tech stocks have become, but the sales and earnings growth they put up is simply undeniable.
On Tuesday, after the market closes, we will get earnings from Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) , and then on Thursday Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) , and Meta Platforms (META - Free Report) .
I also want to note the valuations on the five tech stocks reporting next week. Although there is much talk of “its only the mag 7 dragging the market higher,” none of them have absurd valuations, and a couple are quite appealing.
We can see that Amazon and Microsoft have the loftiest forward earnings multiples, while Meta Platforms and Alphabet have the lowest and Apple is right in the middle. Both Meta Platforms and Alphabet are trading below their five-year median valuations of 23.3x and 24.2x respectively and are forecasting EPS to grow 21% and 17% annually over the next 3-5 years.
Both Microsoft and Apple are trading above their five-year median valuations of 31x and 26x respectively. These are obviously historical premiums, but not excessively high. Microsoft is anticipating annual EPS growth of 15.5% over the next 3-5 years and Apple 12.7%.
And finally, Amazon, with the most premium valuation is actually the farthest below its five-year median of 72.5x. Admittedly, Amazon’s valuation has always been a bit of a conundrum, because the e-commerce business runs with such low margins, but these days it is balanced by Amazon Web services, which is the largest cloud-service provider. AMZN is projecting annual EPS growth of 28.5% over the next 3-5 years.
Image Source: Zacks Investment Research
I think that this data can yield a fairly simple conclusion; based on valuations Meta Platforms and Alphabet are quite appealing, while Microsoft and Apple may have to work off their premium multiples before they are as attractive. Amazon looks appealing as well based on its very high earnings growth expectations.
It is also worth noting that Microsoft, Amazon, and Meta Platforms have a Zacks Rank #2 (Buy), while Apple and Alphabet have a Zacks Rank #3 (Hold) rating.
Energy
Regarding earnings expectations, energy stocks are on the completely other side of the spectrum from Technology. From the Earnings Trend Report:
“Sectors expected to experience the biggest earnings declines in Q4 include Autos, Basic Materials, Medical, Energy, and Transportation.”
Energy stocks have struggled over the last year primarily due to the easing of Oil prices. Following the start of Ukraine-Russia war, and easing of inflation, the price of crude oil has steadily fallen from the $130 highs to $78 today, with intermittent spikes up to $95.
This reflects the cyclical nature of investing in oil stocks and doesn’t come as to big a surprise. But even with expectations of falling YoY earnings, I think this sector is still rather appealing, and worth considering as investments.
On Friday, US oil majors Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) report earnings before the market opens.
Like the technology stocks, when looking at energy from a historical valuation perspective it is hard to deny the attractiveness. Both Exxon Mobil and Chevron are trading at very reasonable valuations of ~10x forward earnings, easing considerably from the three-year highs near 30x. But they are also below the 10-year medians, which both stand at ~17.7x.
Chevron and Exxon Mobil also both pay hefty dividends of 4% and 3.7% respectively and have structural tailwinds. The structural tailwinds are namely a broad underinvestment in oil and gas infrastructure, which is likely to keep oil supply low for the coming years.
Both Exxon Mobil and Chevron have a Zacks Rank #3 (Hold) rating.
Image Source: Zacks Investment Research
Final Thoughts
The energy and technology sectors offer two very different outlooks regarding earnings, yet both may be appealing based on valuations. Because they are such critical and leading industries in the country, discerning investors would be wise to hold some mix of the stocks shared.