Earnings season: five stocks on Goldman’s radar

Earnings season is underway. Now’s the time to take a look at some stocks that could provide investors with more than the Wall Street consensus would tell you.

US earnings season Q3 2021

Goldman reviews earnings season stocks

Sometimes investors like to break away from the pack. To dare is to do.

It’s all about spotting opportunities from stocks that may be overlooked by Wall Street.

As reported by CNBC, Goldman Sachs has been scanning Wall Street for stocks it believes hold promise for investors looking for something different this earnings season.

Earnings season began in earnest this week with major US banks leading the charge as always. You can use our earnings season calendar to see which megacaps are reporting this quarter and when.

In a note to investors published on Wednesday, Goldman said it expects stocks to rise 6% this quarter. Its spotlighted stocks, however, could offer upsides of 14%.

The investment bank deployed a fairly complex methodology when analysing Q3 2021 earnings season stocks. 1,000 companies in Goldman Sachs’ coverage universe were scanned at the 25 best opportunities were selected when considering EPS of $5 per share over the next four quarters.

After this, the results were filtered through analysts which were above or below Thomson Reuters’ consensus for the upcoming quarter, and the year ahead, “on a key financial metric.”

“Single stock put-call skew is at its highest level in over a year,” Goldman said, encouraging investors to make out-of-money calls on its out-of-consensus stock picks. “Given investors are well hedged, even modest earnings beats are likely to drive a relief rally in specific stocks (on earnings day) and the broad index (over the next three months).”

The out-of-consensus stocks to pick

Please note these are only Goldman Sachs’ recommendations – not hard and fast must-buys. Only invest if you are comfortable with the risk of potential capital loss.

The top five stocks Goldman has selected to watch this earnings season are:

  • Uber
  • Signature Bank
  • Yeti
  • Bank of America Corp
  • Lowe’s

Let’s start with Uber. The ride-hailing service burst onto the scene several years ago as a taxi industry disruptor. Goldman’s Eric Sheridan thinks the app can deliver a 37% upside over the coming year. Sheridan’s earnings estimates put Uber 20% higher than Wall Street consensus right now too.

The idea is that if Uber can close the supply/demand gap, then this should lead to normalised ride pricing, higher demand in general, and thus pre-pandemic profits.

Outdoor retailers Yeti could offer even better upsides than Uber. Goldman considers Yeti a “growth compounder with best in class authentic brand positioning.” It could deliver upsides of 44% if Goldman is on the money. In terms of EPS, Yeti’s could be 8% higher than analysts think in the third quarter and 3% higher in the next.

Investment banks are usually amongst the first to start reporting on Wall Street come earnings season. It’s certainly true this year. Of these, Goldman flags Bank of America as the one to keep an eye on. Goldman’s analysis puts BoA’s upside at 7% – some 10% higher than consensus.

Bank of America’s potential has been pegged to “significant remixing of cash into securities” by Goldman.

Smaller banks are represented by Signature Bank. Ryan Nash, a Goldman stock analyst, forecasts earnings-per-shares to come it at 7% higher than Wall Street forecasts this quarter and 5% for the next four. Signature is on course for a revenue-beating Q3, driven by an acceleration in loan growth.

Rounding off Goldman’s section of potentially consensus-beating stocks is Lowe’s. The DIY probably benefitted more than most from the pandemic last year, but this quarter it could offer investors an upside of 12%.

Goldman’s Kate McShane said Lowe’s position is stronger now than in the last 6-12 months, thanks to bringing forward its seasonal inventory purchases.