This week, Wall Street analysts advised investors to look for stocks with compelling valuations ahead of earnings.
According to FactSet, approximately 85 percent of S&P 500 companies have reported a positive earnings surprise for the second quarter.
Poshmark, Sally Beauty, Activision Blizzard, Republic Services, Affirm, and Disney are among them.
Buy Affirm stock now because the consumer loan company will report earnings later this summer, according to Bank of America analyst Jason Kupferberg.
The stock is on the firm’s list of top picks for the third quarter of 2021, and it likes the setup ahead of Affirm’s fourth-quarter results.
“We believe Affirm’s F4Q21 (June) earnings results and preliminary F22 guidance will be a positive catalyst for shares during C3Q21,” he said.
Kupferberg is particularly enthusiastic about Affirm’s exclusive partnership with Shopify on point-of-sale financing, which allows customers to finance whatever they are purchasing at the time of purchase.
“We also anticipate that AFRM will provide additional disclosures on SHOP and quantify SHOP’s contribution to F22 guidance on the next earnings call, allowing investors to begin sizing the opportunity and tracking AFRM’s momentum on the platform,” he wrote.
Kupferberg added that Affirm has many competitors in the space, but he believes the company is up to the challenge, especially given its success with the buy now, pay later model.
“As AFRM continues to ramp up the SHOP partnership and deliver solid quarterly earnings,” the firm wrote, “we see a meaningful upside to the stock and see current valuation as an attractive entry point.”
The stock dropped 14.5 percent for the week.
Poshmark shares have fallen nearly 61 percent since the online fashion resale marketplace went public in January.
But don’t give up on Poshmark just yet. This week, Stifel analyst Scott Devitt wrote.
Poshmark was described as the “best positioned player in the resale eCommerce landscape” by the firm, which upgraded the stock from hold to buy.
Poshmark will report second-quarter earnings on August 10, and the near-term outlook appears to be “favorable,” he added.
“We see a clear path for active buyer additions to accelerate in the coming quarters and into 2022, supported by rising marketing investments, international expansion, and a better apparel backdrop,” he said.
Poshmark is also one of the few companies that has had success incorporating social media into its business model, according to the company.
“The social features of the company act as a competitive moat, driving user engagement and conversion,”
Devitt pointed out that the stock is inexpensive and that the economic reopening provides a “opportunistic entry point” for eager investors.
Services of the Republic
In a note to clients earlier this week, Morgan Stanley Jeffrey Goldstein declared, “The right time for waste.”
Prior to the company’s earnings report on July 29, the firm upgraded the stock to overweight from equal weight and stated that it has “increasing confidence” in waste fundamentals.
“Top-line growth at waste companies is comprised of both price and volume, both of which should benefit in this environment,” he explained.
Furthermore, Goldstein noted that waste stocks are currently a bit of a safe haven for savers.
“We believe that if the market experiences any type of contraction, we believe that the waste group’s multiple would be more insulated than the overall market given its historical recession resiliency,” he wrote.
Goldstein acknowledged that 2021 comps would be difficult, but he believes there are too many reasons to be optimistic, including increased margins and cash flow.
Furthermore, Goldstein believes there is upside to the consensus and that the stock is at a “compelling” entry point.
This month, the stock is up 4.7 percent.
Stocks close to a turnaround
A few companies are not loved by experts at Wall Street, but Wolfe Research advised investors to take care of a possible reversal in the underperforming names.
“One of the areas we currently find interesting to look for new stock ideas is those companies that have underperformed and currently have 40% analyst buy ratings, but exhibit traits that we believe may be indicative of a turnaround,” Wolfe Research chief investment strategist Chris Senyek wrote to clients.
Potential turnaround signals include a change in CEO, positive changes in cash flow generation, or accelerating earnings growth, according to Senyek.
Wolfe looked for “unloved stocks with favorable signals” by looking for stocks with buy ratings from less than 40% of the analysts who cover it. They must also have underperformed their industry over the previous 12 months. Furthermore, the group has activated at least two of the firm’s turnaround signals.
Take a look at this list:
Consumer staples Colgate-Palmolive, Clorox, and Kellogg are down 8%, 43%, and 22%, respectively, in the last year compared to their industry. According to Wolfe, only 38% of the analysts covering Colgate believe the stock is a buy. According to the data, Clorox and Kellogg have buy ratings from 24% and 30% of the analysts who cover them, respectively.
Wolfe, on the other hand, points out that the three consumer companies have all announced CEO changes in recent years. Colgate-Palmolive and Kellogg’s earnings have also been increasing, according to the firm.
Stock in chips Intel has suffered recently, with its stock down about 43 percent over the last year in comparison to its industry. Only about a third of the analysts who cover Intel advise investors to buy the stock. However, the company’s new CEO stated that the old Intel is “back” in the first quarter, which could indicate that the company is ready for a turnaround.
Intel CEO Pat Gelsinger announced plans for two new chip factories in Arizona, allowing Intel to produce chips for other companies at a time when the global semiconductor supply chain is becoming increasingly problematic.
The Wall Street Journal reported on Friday that Intel is in talks to buy GlobalFoundries for around $30 billion.
Cloudera has struggled as a public company since its initial public offering (IPO) in 2017. The company, along with Hortonworks, entered the market as a market leader in commercializing Hadoop, an open-source analytics technology. Cloudera and Hortonworks merged at the start of 2019 in a $3 billion transaction.
However, as competition in the cloud database and analytics market has increased from companies such as Amazon, Microsoft, Google, and Snowflake, Cloudera’s stock has suffered.
Marsh & McLennan Companies, Northern Trust Corp, CVB Financial Corp, and TriCo Bancshares all made Wolfe Research’s list of hated stocks due for a turnaround.
Marsh & McLennan Companies shares are down 32% year to date, Northern Trust Corp shares are down 10%, CVB Financial Corp shares are down 42%, and TriCo Bancshares shares are down 7% year to date compared to their respective industries. Wolfe also stated that none of the names are liked by more than 33% of analysts.
However, the Wall Street firm sees potential in financial stocks as a result of executive turnover and an increase in earnings growth.
AT&T, Fastenal, and Kinder Morgan were also named to Wolfe Research’s list of “unloved stocks with favorable signals.”