Earnings season kicked off just over a month ago and in the middle of it, earnings news took a backseat to inflation concerns and increased volatility. While almost 70 percent of the companies in the S&P 500 have reported already, there are a number of consumer names that are set to report over the next few trading days.
So far, as of February 13, 349 S&P members had reported earnings with 77.7 percent of stocks topping analysts’ EPS estimates. That is a better percentage than the historical average of 64 percent beating estimates and in the four most recently completed earnings seasons, 72 percent beat forecasts.
Looking at the revenue numbers, 79 percent of companies have beat the forecasts for revenues. Historically 60 percent beat revenue numbers and over the last four quarters, the average has been 63 percent beating estimates.
Given these numbers, you could call the fourth quarter earnings season a successful one, despite the recent selloff taking the attention off of the reports. That actually might be a good thing as it caused a decline in investor sentiment and that was desperately needed. The most recent Investors Intelligence report from February 6 shows that the bull-to-bear ratio dropped from 5.24 to 3.51. Had investors been focused on earnings rather than inflation news, the ratio likely would have remained high.
Turning our attention to consumer stocks that are announcing between now and next Tuesday, I put together a table like the one I did for the chip sector earlier this earnings season. It shows the companies that are announcing, the average EPS estimate, the 10-week RSI (over 70 is overbought and under 30 is oversold), and the sentiment toward the stock heading in to the earnings report.
Unlike when I made the table for the chip sector, the market just went through a correction and so none of the stocks are overbought like we saw last month. The only one that is oversold territory is Kraft Heinz, but it is also one of the weakest stocks in the group from a fundamental standpoint.
The two that really jump out to me based on the overall picture (fundamental performance, technical performance and sentiment toward the stock) are Home Depot and Deere & Co. Home Depot has performed really well in the past few years and has seen its price dip in recent weeks with the rest of the market. The 10-week RSI on HD is the lowest it has been since last August which could be a buying opportunity for a really solid stock.
Deere & Co. has also performed very well from a fundamental perspective and to see the sentiment at a neutral reading is encouraging. DE stands to gain from President Trump’s infrastructure spending plan if it gets approved by Congress. Deere’s heavy equipment will likely be needed to work on some of the proposed projects along with Caterpillar.
Of the six stocks on the list, the one I would steer clear of is Campbell’s Soup. It is the only one on the list with a bullish reading on the sentiment and it hasn’t performed up to par with the other companies when it comes to the fundamental and technical analysis.
While the economic reports are likely to continue garnering more attention over the next few days and driving the direction of the overall market, there will be investment opportunities that run counter to the overall market. These companies will likely move on their own merits in the coming days, regardless of what happens to stocks in general.