The Q2 earnings season is heating up, with total S&P 500 earnings expected to be up
67.7%
from the same period last year on 19.1% higher revenues. The earnings projection suggests a solid improvement from 50.6% growth expected at the start of Q2 and would follows 49.3% earnings growth in Q1.
Most of the strength would be backed by easy comparisons to last year’s pandemic-hit period. Last year’s June quarter represented the peak of the pandemic’s earnings impact when S&P 500 earnings dropped 32.2% from the year-earlier period. Four of the 16 Zacks sectors — consumer discretionary, autos, energy & transportation — actually lost money in Q2 of 2020. The Zacks consumer discretionary sector lost $251 million in Q2 of 2020, while the auto, energy and transportation sectors lost $1.2 billion, $9.6 billion and $5.3 billion, respectively.
These sectors are now projected to report positive earnings. The other 12 sectors are also expected to witness positive year-over-year earnings growth. Basic material is expected to be the biggest contributor to S&P 500 earnings with 241.9% growth. This may be followed by aerospace (154.7% earnings growth), finance (124.8%), conglomerates (114.7%) and industrial products (64.9%). In fact, nine of the 16 Zacks sectors are expected to earn more than they did in second-quarter 2019, including technology (up 32.2%), basic materials (74.1%), medical (19.9%), retail (27.1%) and construction (58.9%).
Per CNBC, the second-quarter earnings season looks like it would be the mother of all earnings reports, with estimates having risen steadily over the past six months, from 45% growth in January to
65% growth currently
compared with the same period last year. It marks the strongest rate of growth since 2009, when earnings had just started to recover from the disaster of the Great Recession. According to Factset, Q2 earnings are estimated to grow
69.3%
, which would represent the highest year-over-year growth since Q4 of 2009.
Earnings strength is broad-based with small caps projected to report much better. For the small-cap S&P 600 Index, total earnings are expected to soar 190.7% from the same period last year on 22.3% higher revenues. This would follow 364% earnings growth on 10.1% revenue growth in Q1.
Given the strong earnings momentum, many investors want to capitalize on this opportune moment, with stocks having massive earnings growth potential for the reporting cycle. And the currently beaten-down stock market performance has provided investors with a good opportunity to grab the stocks on cheap.
How to Find Cheap Stocks?
For this, we have used our
Zacks Stock Screener
and have selected stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive
Zacks Earnings ESP
. According to our methodology, the combination of a positive Earnings ESP and a favorable Zacks Rank increases the chance of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our
Earnings ESP Filter
.
Then we looked for stocks having a lower P/E than the industry average and a triple-digit estimated earnings growth rate for the to-be-reported quarter. You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Finally, we arrive at the five stocks that are cheap and have the potential to deliver higher earnings growth.
Hasbro Inc.
HAS
– P/E Ratio: 28.31 vs. 31.34
The stock has a Zacks Rank #3 and an Earnings ESP of +10%. It is expected to report robust earnings of 50 cents per share for the to-be-reported quarter, up from 2 cents a year ago. Hasbro has a market cap of $12.9 billion and is expected to release its earnings on Jul 26.
FreeportMcMoRan Inc.
FCX
– P/E Ratio: 10.60 vs. 14.39
The stock has a Zacks Rank #2 and an Earnings ESP of +0.41%. The Zacks Consensus Earnings for the to-be-reported quarter is pegged at 73 cents, up from 3 cents a year-ago quarter. FreeportMcMoRan has a market cap of $48.7 billion and is scheduled to release quarterly results on Jul 22.
LyondellBasell Industries N.V.
LYB
– P/E Ratio: 5.66 vs. 12.44
The stock has a Zacks Rank #1 and an Earnings ESP of +2.38%. LyondellBasell is expected to see massive earnings growth of 629.6% for the to-be-reported quarter and has a market cap of $32.1 billion. It is slated to release its quarterly earnings on Jul 30.
M&T Bank Corporation
MTB
– P/E Ratio: 10.20 vs. 10.83
The stock has a Zacks Rank #3 and an Earnings ESP of +1.08%. M&T Bank has a market cap of $17.6 billion and estimated earnings growth of 110.2% for the to-be-reported quarter. The company is expected to release its quarterly earnings on Jul 21.
Dow Inc.
DOW
– P/E Ratio: 8.06 vs. 12.44
The stock has a Zacks Rank #2 and an Earnings ESP of +4.04 The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $2.40 earnings per share against a loss of 26 cents reported in a year-ago quarter. Dow has a market cap of $44.8 billion and is expected to release its earnings on Jul 22.
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