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Wall Street Gears Up for Blockbuster Q3 Earnings: 5 Picks

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Markets are spooked by rising costs and decelerating global growth concerns. By the end of this week, however, corporate earnings, revenues and management outlook will determine the future course of the stock market. Market pundits expect a strong Q3 earnings season, mostly in response to robust economic growth at home.

Let us for now keep an eye on stocks from sectors that are likely to make the most of the Q3 earnings season.

Q3 Earnings to Grow Double Digits

Starting Oct 12, bigwigs like JPMorgan (JPM - Free Report) , Wells Fargo (WFC - Free Report) and Citigroup (C - Free Report) will be reporting their Q3 numbers, and overall S&P 500 results are expected to be impressive.

Total earnings for S&P 500 companies are estimated to improve 17.8% from the same period last year on 7.1% higher revenues. Thus, Q3 earnings growth is expected in the double-digit territory for the sixth time in the last seven quarters.

The gains are likely to be broad-based, with nearly all the sectors expected to report year-over-year earnings growth, except for autos and conglomerates. Around 10 of these sectors are likely to come up with double-digit growth.

What Will Drive Earnings?

Earnings are likely to rise mostly on solid economic growth. The U.S. economy, in particular, is in good shape. U.S. unemployment rate fell to a 49-year low of 3.7% in September, the lowest since December 1969, per the Labor Department (read more: American Labor Market Hale and Hearty: Top 5 Winners).

Another key barometer of the U.S. economy has hit a post-recession high. The ISM services index climbed to 61.6% in September from 58.5% in August, its second-highest reading. At the same time, ISM reported that manufacturing activities operated at a strong rate despite cooling off in September.

In fact, most of the components of the Conference Board’s Leading Economic Index indicated a 3% or more growth rate in GDP in the final two quarters of the year and is on track to hit the Trump administration’s annual growth target of 3%. If that happens, it would be the best yearly performance since 2005, two years before the Great Recession. 

Potential Gainers of Q3

The energy sector is poised to report the highest earnings growth at 88.6% from the same period last year on 17.2% higher revenues. The sector is benefitting from the growing evidence of declining crude exports from Iran and the closure of almost 40% of U.S. Gulf of Mexico crude output owing to Hurricane Michael.

Meanwhile, the construction sector has been looking up, with Q3 earnings expected to rise 40.6% on 20.8% revenue growth. Materials is likely to report the third-highest growth in year-over-year profit, with Q3 earnings poised to be up 37.4% from a year ago on 15.2% higher revenues.

Earnings for the financial sector are set to grow 29.5% from the same period last year on 3.2% higher revenues. Banks, insurers and asset managers are all expected to report double-digit growth mostly due to a higher interest rate environment (read more: 5 Top Bank Stocks to Buy Ahead of Q3 Earnings ). 

High profits are also expected from the retail segment. Total Q3 earnings for the retail sector are projected to rise 14.8% from the same period last year on 6% higher revenues. This is because U.S. consumer confidence soared to its highest level in 18 years in September, per the Conference Board. Such high consumer confidence will surely boost consumer spending. Retailers, in turn, will gain as rise in spending will drive revenues.

 

(As of Oct 3, 2018)

Buy These 5 Stocks for Stellar Earnings Growth

A very strong economic backdrop looks set to deliver another round of stellar earnings growth in Q3. This calls for investing in five companies from the aforesaid sectors, which are expected to see a significant uptick in Q3 earnings.

These stocks have a positive Earnings ESP. This is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. These stocks, in the meanwhile, also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Northern Oil and Gas, Inc. (NOG - Free Report) engages in the acquisition, exploration, exploitation, development, and production of crude oil. The stock has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 292.9%, way ahead of the industry’s rise of 20.1%. The company is expected to report earnings results for the quarter ending September on Nov 14. Northern Oil and Gas has an Earnings ESP of +12.50%.

Domtar Corporation (UFS - Free Report) manufactures and distributes various communication papers, specialty and packaging papers. The stock has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 46.9%, higher than the industry’s rise of 23.3%. The company is expected to report earnings results for the quarter ending September on Oct 26. Domtar has an Earnings ESP of +1.32%.

First Bancorp (FBNC - Free Report) provides banking products and services for individuals and small to medium-sized businesses. The stock has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 63.2%, better than the industry’s rise of 31.4%. The company is expected to report earnings results for the quarter ending September on Oct 23. First Bancorp has an Earnings ESP of +2.21%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ameriprise Financial, Inc. (AMP - Free Report) provides various financial products and services. The stock has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 20.1%, better than the industry’s rise of 4.8%. The company is expected to report earnings results for the quarter ending September on Oct 23. Ameriprise Financial has an Earnings ESP of +4.30%.

Callaway Golf Company (ELY - Free Report) designs, manufactures, and sells golf clubs, golf balls, golf bags, and other golf-related accessories. The stock has a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 88.7%, higher than the industry’s rise of 30.5%. The company is expected to report earnings results for the quarter ending September on Oct 24. Callaway Golf has an Earnings ESP of +221.42%.

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