If you’ve used my Portfolio Grader tool or have kept up with this blog, you know that I put a lot of weight on what analysts are saying about any given stock. And an effective way to judge how the analyst community feels about a stock is tracking their earnings estimates for the quarter.
Upward revisions are an important indicator of a company’s future success. You see, analysts are paid to estimate a company’s earnings outlook. If an analyst makes a wrong estimate that ends up costing investors money, that analyst could be out of a job. If a number of Wall Street analysts start to move their forecasts higher, it’s a good bet that the stock will outperform expectations and deliver market-beating returns to investors since positive revisions are never made lightly.
I know that during earnings season, I focus mainly on sales and earnings growth. But even though we’re in the lull between earnings, we’re seeing interesting analyst activity regarding some of the hottest names on Wall Street. While the market may have not reacted to these upgrades (and downgrades) just yet, I want you to be prepared for what’s to come the next earnings season.
That being said, here are five companies that have the analyst community buzzing, and they should be on your radar as well.
- Gap Inc. (GPS): In the past two months, estimates have been revised up 8%. Analysts now expect 8.1% sales growth and 56.8% earnings growth this quarter. GPS is a strong buy.
- HollyFrontier Corp. (HFC): In the past three months, estimates have been upwardly revised 70%. Analysts now expect 2.2% sales growth and 87.7% earnings growth. HFC is a strong buy.
- LG Display Co. Ltd. (LPL): In the past three months, estimates have been upwardly revised 75%. Analysts now expect 29.2% sales growth and 147.7% earnings growth. LPL is a buy.
- Moody’s Corp. (MCO): In the past two months, estimates have been revised up 10%. Analysts now expect 17.8% sales growth and 53.3% earnings growth this quarter. MCO is a buy.
- Regeneron Pharmaceuticals Inc. (REGN): In the past two months, estimates have been revised up 19%. Analysts now expect 213.8% sales growth and 296.3% earnings growth. REGN is a strong buy.
To put these earnings estimates into perspective, analysts forecast that the average S&P 500 company will grow earnings by 8.8% this quarter. This means that each of the five buys above are well-positioned to win big next earnings season, which kicks off around the first week of January.
Of course, I’d also like to alert you to these big blue chips that have fallen in the eyes of the analyst community.
- Amazon.com Inc. (AMZN): In the past two months, analysts have slashed their estimates by 47%. AMZN is a hold.
- Du Pont & Co. (DD): In the past two months, analysts have slashed their estimates by 83%. DD is a strong sell.
- General Motors Inc. (GM): In the past two months, analysts have slashed their estimates by 28%. GM is a hold.
- Hewlett-Packard Co. (HPQ): In the past two months, analysts have slashed their estimates by 24%. HPQ is a strong sell.
- Potash Corp. (POT): In the past two months, analysts have slashed their estimates by 36%. POT is a sell.
Now a lot can happen in the months between now and fourth-quarter earnings season, so there is a chance that some of these will firm up before then. However, in the meantime I see no reason to hold stocks that are underperforming their peers, especially when so many premium stocks are still on sale.
If you want to see how the analyst community feels about one of your holdings, feel free to run it through my Portfolio Grader screening tool. After hitting “submit,” you’ll see that one of the components of the stock’s Fundamental Grade is “Analyst Earnings Revisions.”