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4 Sector Stocks to Buy on Q2 Earnings Optimism

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Optimism over Q2 earnings coupled with a solid jobs report has shifted investors’ attention back to equities dissipating fears of a global trade war. This is especially true as earnings for the S&P 500 index are expected to grow 19% from the same period last year on 8.1% higher revenues. This would represent the third consecutive quarter of double-digit earnings growth, a trend that is currently expected to continue in the second half of the year.

According to a FactSet data, S&P 500 earnings for the second quarter are expected to grow 20%. A strong economy and historic tax cuts will continue to drive earnings higher. Several economists expect economic growth to accelerate to an annual pace of 4% in Q2, double the growth of 1Q.

Of the 16 Zacks sectors, 11 are expected to post double-digit earnings growth with energy (138.2%), basic materials (54%), construction (45%) and industrial products (24.5%) leading the way. However, sectors like autos and conglomerates are expected to have lower Q2 earnings than the year-ago level.

Given this, it would be a good idea to zero in on the best stocks of the sectors that have a high chance of surprising in their upcoming release. These stocks could make great plays as the Q2 earnings season unfolds and will likely lead higher in the days to come.

How to Choose Stocks?

Earnings beat will definitely inspire investors’ confidence and propel the price of these sector stocks higher. Picking the star performers would be easy if we go by our proprietary methodology that selects stocks with a combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive Zacks Earnings ESP.

You can see the complete list of today’s Zacks #1 Rank  stocks here.

Earnings ESP is our proprietary methodology to identify stocks that have the maximum chance to surprise with their upcoming earnings announcements. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Below we have highlighted four stocks each from the best sectors that will likely deliver an earnings beat when their earnings are released in the coming weeks and would drive share price higher, resulting in above-market returns.

Energy

Marathon Oil Corporation (MRO - Free Report) : This is a leading exploration and production company with extensive operations across four core regions - Africa, Middle East, Europe and North America. It has a Zacks Rank #1 and an Earnings ESP of +30.82%. The Zacks Consensus Estimate for the yet-to-be reported quarter has been revised upward by six cents to 20 cents over the past 90 days, representing whopping growth of 183.33%. The stock delivered a positive earnings surprise of 11.11% in the last four quarters. It is scheduled to report earnings on Aug 1 after market close.

Basic Materials

Cleveland-Cliffs Inc. (CLF - Free Report) : This iron ore mining company is a supplier of iron ore pellets to the North American steel industry from its mines and pellet plants located in Michigan and Minnesota. It has a Zacks Rank #2 and an Earnings ESP of +8.24%. The stock saw solid earnings estimate revision of 11 cents over the past three months for the to-be-reported quarter and has an expected earnings growth rate of 107.69%. It also delivered average earnings surprise of 49.92% in the last four quarters. The company is slated to release earnings results on Jul 20 before the market opens.

Construction

M.D.C. Holdings Inc. (MDC - Free Report) : This is engaged in the construction, sale and related financing of residential housing and the acquisition and development of land for use in the Denver, Phoenix, Maryland, Virginia, mid Atlantic region, Las Vegas, Dallas, California metropolitan areas. It has a Zacks Rank #2 and an Earnings ESP of +1.98%. The stock saw solid earnings estimate revision of 9 cents over the past 90 days for the second quarter, representing substantial growth of 42.37%, and delivered a positive earnings surprise of 31.45% in the past four quarters. The company is slated to release earnings results on Aug 1 before the market opens.

Industrial Products

The Manitowoc Company Inc. (MTW - Free Report) : This is a leading manufacturer of cranes that serve the infrastructure, residential & commercial construction, petrochemical, industrial, power/utility and military end markets. It has a Zacks Rank #1 and an Earnings ESP of +14.36%. The stock saw positive earnings estimate revision of four cents for the yet-to-be-reported quarter in the past three months and has an expected growth rate of 45%. It has delivered a positive earnings surprise of 122.28% in the past four quarters. The company is slated to release earnings results on Aug 6.

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