Wall Street had a dream run in 2019 wherein all three major stock indexes, predominantly consisting of large-cap stocks, witnessed best yearly performances in six years. Although corporate earnings growth were negative year over year in the first three quarters, results were far better than initially anticipated.
Weak Expectations for Fourth-Quarter Earnings
Expectations for fourth-quarter 2019 earnings are far from encouraging at present. Total earnings of the S&P 500 Index are anticipated to be down 3.6% from the same period last year on 3.2% higher revenues.
As of Jan 10, just 19 S&P 500 members reported fourth quarter earnings results. Total earnings of these companies are down 19.1% from the same period last year on 2.5% higher revenues. Of the total, 78.9% surpassed EPS estimates while 68.4% outpaced revenue estimates. (Read More: Can Earnings Reports Push Bank Stocks Even Higher?)
Fourth-Quarter at a Glance
In the fourth quarter of 2019, the Dow gained 6%, the S&P 500 rose 8.5% and the Nasdaq rose 12.2%. The last three months of the year were quite promising for Wall Street as the U.S.-China trade war finally seemed to ease and strong economic data boosted investors’ sentiments.
The U.S. economy is on a stable footing. Strong consumer spending, which constitutes 70% of the GDP, a firm labor market, a historically low-level of unemployment, steady growth in wage rate and a housing-market revival bolstered investors’ sentiments and are likely to reflect on earnings results. Notably, in the first three quarters of 2019, the GDP growth rate was more than 2%.
Moreover, after remaining quiet in the first half of 2019, the central bank reduced the benchmark interest rate by 75 basis points in three equal trenches in the second half of last year. Fed’s timey intervention not only boosted the economy and raised investors’ confidence, it also helped the sagging U.S. housing market to recover with a low mortgage rate.
5 Corporate Giants Set to Beat on Earnings in Q4
We have used several selection criteria for our picks. First, we selected large-cap (market capital >35 billion) companies as these are doing business for a long time and their stock prices are generally stable. Second, these stocks are regular dividend payers. So, during severe market downturns, they can prove to be a regular income stream.
Moreover, all these stocks are expected to release earnings reports this week and have a positive Earnings ESP. Finally, each of our picks carries either a Zacks Rank #2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows price performance of our five picks in the past three months.
Delta Air Lines Inc. (DAL - Free Report) provides scheduled air transportation for passengers and cargo in the United States and internationally. It operates through two segments, Airline and Refinery. The Zacks Rank #2 company has an Earnings ESP of +3.26% for fourth-quarter 2019 and a dividend yield of 2.72%.
The company has expected earnings growth of 7.7% and 24.4% for the fourth quarter and full-year 2019, respectively. The Zacks Consensus Estimate for the fourth quarter and full-year 2019 improved 0.7% and 0.3%, respectively, over the last 60 days. Its trailing four-quarter positive earnings surprise is 3.5%, on average. Delta Air Lines is expected to release earnings results on Jan 14, before the opening bell.
UnitedHealth Group Inc. (UNH - Free Report) is a diversified health and well-being company in the United States. It operates through four segments: UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx. The Zacks Rank #3 company has an Earnings ESP of +0.43% for fourth-quarter 2019 and a dividend yield of 1.46%.
The company has expected earnings growth of 14.9% and 16.3% for the fourth quarter and full-year 2019, respectively. The Zacks Consensus Estimate for the fourth quarter and full-year 2019 improved 0.5% and 0.1%, respectively, over the last 60 days. The trailing four-quarter positive earnings surprise is 3.4%, on average. UnitedHealth Group is expected to release earnings results on Jan 15, before the opening bell.
Kinder Morgan Inc. (KMI - Free Report) operates as an energy infrastructure company in North America. It operates through Natural Gas Pipelines, Products Pipelines, Terminals and CO2 segments. The Zacks Rank #3 company has an Earnings ESP of +4.46% for fourth-quarter 2019 and a dividend yield of 4.65%.
The company has an expected earnings growth rate of 4% and 7.9% for fourth quarter and 2019, respectively. Kinder Morgan is expected to release earnings results on Jan 15.
The Charles Schwab Corp. (SCHW - Free Report) provides wealth management, securities brokerage, banking, asset management, custody and financial advisory services. It operates through two segments, Investor Services and Advisor Services. The Zacks Rank #3 company has an Earnings ESP of +0.26% for fourth-quarter 2019 and a dividend yield of 1.42%.
The company has an expected earnings growth of 9.4% for full-year 2019. Its trailing four-quarter positive earnings surprise is 5%, on average. The Charles Schwab is expected to release earnings results on Jan 15.
CSX Corp. (CSX - Free Report) offers rail-based freight transportation services like traditional rail service, transport of intermodal containers and trailers apart from rail-to- truck transfers. The Zacks Rank #3 company has an Earnings ESP of +0.55% for fourth-quarter 2019 and a dividend yield of 1.31%.
The company has an expected earnings growth of 8.3% for 2019. Its trailing four-quarter positive earnings surprise is 4.1%, on average. CSX is expected to release earnings results on Jan 16, after the closing bell.
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