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Stocks  | September 25, 2020

The third quarter will soon be over and that means another onslaught of earnings reports will soon be upon us, likely bringing with it plenty of clues regarding which stocks to buy.

Investors looking for these hints may want to engage in some sector-level analysis. These figures are subject pending the outcome of the third-quarter earnings season, but heading into the home stretch of 2020, analysts are decidedly more bullish on some sectors than others, according to FactSet senior earnings analyst John Butters:

At the sector level, analysts are most optimistic on the Health Care (62%), Energy (61%), and Communication Services (59%) sectors, as these three sectors have the highest percentages of Buy ratings. On the other hand, analysts are most pessimistic on the Financials (46%), Consumer Staples (46%), and Real Estate (47%) sectors, as these three sectors have the lowest percentages of Buy ratings.”

Remembering that the U.S. economy is still reeling from the effects of the novel coronavirus and that glum earnings estimates for the September quarter have long been baked into stocks, there is some runway for companies to surprise to the upside this earnings season, providing investors will plenty of signals on stocks to buy. S&P 500 earnings for the current quarter are forecast to decline 21.8%, the worst year-over-year decline since the second quarter of 2009.

In other words, it could be advisable to wait out earnings season, but here are some stocks to buy after earnings season.

  • Bank of America (NYSE:BAC)
  • Las Vegas Sands (NYSE:LVS)
  • PagerDuty (NYSE:PD)

Stocks to Buy After Earnings Season: Bank of America (BAC)

On the surface, Bank of America’s status as a stock to buy before or after earnings appears dubious. It’s down 33% year-to-date and the Federal Reserve is confirming interest rates will remain near zero through at least 2023, damaging banks’ net interest margins in the process.

So why bother with BAC stock? For starters, the bad news on the interest rate front is priced into banks stocks. Second, if the U.S. economy firms up, all the cash banks set aside to cover bad loans in the first half of the year could be converted into earnings. Additionally, financial services is one of a small amount of sectors trading at a noticeable discount to the broader market.

If Bank of America can provide something in the way of positive news on reducing its bad loan reserve and possibly resuming dividend growth, the stock could rally following earnings. Plus, there’s still a lot to like in the way of long-term drivers.

“Bank of America now has one of the best retail branch networks and overall retail franchises in the United States, is still a Tier 1 investment bank, is a top four U.S. credit card issuer, is a top three U.S. acquirer, has a solid commercial banking franchise, and owns the Merrill Lynch franchise, which has turned into one of the leading U.S. brokerage and advisor firms,” according to Morningstar.

Las Vegas Sands (LVS)

Las Vegas Sands, the largest U.S. gaming company by market capitalization, is usually the first casino operator to report earnings and the upcoming report has stock-moving potential. The company is likely to comment on how things are shaping up in Macau – its largest market – following recent liberalization of travel controls implemented because of Covid-19.

Guangdong province, the mainland province closest to Macau, resumed issuing tourist visas in late August and the rest of the mainland will follow suit on Sept. 23. That means that Sands and other Macau operators went the bulk of the current quarter with still slack visits, but there should be enough data for the company to, at the very least, talk about pent up demand.

Additionally, the important Golden Week festival arrives before LVS reports. Commentary on that event from the company could pop up on the earnings conference call with analysts.

For now, into and following earnings, Sands is a waiting game, but patience could pay off if Macau, as expected, rebounds more rapidly than Las Vegas.

“Although we expect lingering Chinese macroeconomic uncertainty and virus fears to elevate trading volatility in the near term, we see nothing out there at this point capable of tempering our long-term enthusiasm on the name,” said Stifel analyst Steven Wieczynski in a recent note.

PagerDuty (PD)

PagerDuty might be the trickiest of the names highlighted here and if recent history is any guide, waiting until after earnings to embrace this stock could be advisable because it plunged 20% following its last report and has only recently begun to show signs of rebounding from that drubbing. Up just 9.7% year-to-date, PD stock is a laggard in the cloud computing arena this year.

Of the names mentioned here, PagerDuty will be the last to provide updated financials because it stepped into the earnings confessional earlier this month. In that report, PagerDuty revealed a 26% revenue increase and a narrower-than-expected loss, but that wasn’t good enough for investors.

The company forecast third-quarter sales of $52 million to $53 million on a loss of 10 cents to 11 cents a share. If both of those numbers are beaten, the software maker could deliver a post-earnings rally.

PagerDuty has some of the best margins among small-cap cloud companies, one of the strongest balance sheets and a robust product pipeline, but Wall Street appears more focused on the company’s reliance on small- to mid-sized businesses rather than the aforementioned factors or stellar international revenue growth (34% year-over-year in the fiscal second quarter.)

A combination of better-than-expected revenue and revealing of a large customer or two could be the fuel PD stock needs to regain lost luster.

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