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Should Investors Avoid These 3 Stocks Ahead of Earnings?

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Stocks closed lower on Tuesday on the back of fresh worries about rising government bond yields, along with a potentially troublesome message from economic bellwether Caterpillar (CAT - Free Report) . Therefore, investors need to be even more cautious about stocks that look poised to fall short of quarterly earnings estimates as Q1 earnings season heats up.

The S&P 500 fell 1.34%, which brought its five-day decline to 2.65%. Meanwhile, the Dow Jones Industrial Average sank by 424.56 points, after tumbling by as much as 600 points, to close down 1.74% on Tuesday.

With that said, let’s take a look at a few well-known companies that could disappoint investors this week, by posting lower-than-expected earnings results. To do this, Zacks Premium customers can utilize the Earnings ESP Screener in order to search for stocks that are expected to surprise, in one way or the other.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

In contrast, a stock with a Zacks Rank #3 (Hold) or worse, coupled with a negative Earnings ESP, is one investors typically want to avoid during earnings season.

Today, we are giving our readers a free look at three of these weak stocks in order to help them identify a few high-risk companies ahead of their upcoming reports.

Check them out now: 

1.      Baidu (BIDU - Free Report)

Shares of Baidu are down roughly 8.8% over the last 12 weeks. This might signal that investors are worried that the Chinese internet search engine giant could be headed for a down quarter. With that said, our current Zacks Consensus Estimates are calling for Baidu’s revenues to climb by 32.7% to reach $3.26 billion. Baidu is also expected to see its earnings skyrocket by 73% to hit $1.73 per share.

However, BIDU is currently a Zacks Rank #3 (Hold) and sports an Earnings ESP of -1.30%. The company’s Most Accurate Estimate—the representation of the most recent analyst sentiment—calls for earnings of $1.71 per share, which falls 2 cents below our current consensus estimates. Therefore, Baidu is a stock that investors might want to avoid for now as it could fall short of earnings estimates. 

2.       PepsiCo (PEP - Free Report)

PepsiCo is expected to see its quarterly sales climb just 3% to $12.41 billion, as drinking and eating habits continue to lean toward healthier options. Investors should also note that the company’s quarterly earnings are projected to dip 2% from the year-ago period to reach $0.92 per share. Worst still, the company has earned three downward earnings estimate revisions within the last 60 days.

PEP is also currently a Zacks Rank #3 (Hold) and holds an Earnings ESP of -0.97%. PepsiCo’s negative ESP figure comes from the fact that its Most Accurate Estimate falls 1 cent below our current consensus estimate. This means investors might want to avoid PepsiCo ahead of its Q1 earnings results on Thursday, April 26.

3.       Exxon Mobil (XOM - Free Report)

Shares of Exxon fell over 1.5% on Tuesday just a few days before the company is set to report its Q1 results on Friday, April 27. This decline bucked a positive trend that had seen Exxon’s stock price climb 7.5% over the last four weeks. Still, Exxon is expected to see its Q1 revenues hit $67.33 billion, which would mark a 6.4% jump. Meanwhile, the company’s earnings are projected to surge roughly 26%.

With that said, investors should note that the company has experienced mixed earnings estimate revision activity in the last 30 days. Furthermore, Exxon’s Most Accurate Estimate falls 5 cents below our current consensus estimate. XOM is also currently a Zacks Rank #3 (Hold) and rocks an Earnings ESP of -4.50%, which means that Exxon’s could be poised to miss earnings estimates.

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Caterpillar Inc. (CAT) - free report >>

Exxon Mobil Corporation (XOM) - free report >>

Baidu, Inc. (BIDU) - free report >>

PepsiCo, Inc. (PEP) - free report >>