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5 Must-Buy Stocks Ahead of Q1 Earnings Amid Market Volatility

Nalak Das

The first-quarter earnings season is toward its end. Meanwhile, volatility has gripped Wall Street since the beginning of this week. While the inherent strength of the U.S. economy remains firm, a major question mark related to possible solution to the U.S.-China trade conflict and consequently, concerns about global economic slowdown once again brought back volatility in the global stock markets.

However, first-quarter 2019 earnings results so far are better than expected. At this stage, it will be prudent to invest in stocks with a favorable Zacks Rank, strong growth potential and positive Earnings ESP for the first quarter of 2019. Strong earnings results will likely ensure a northbound move of stock prices in the near-term despite market volatility.

Trade Tension Reignites

On May 5, President Donald Trump tweeted that the U.S. government will increase tariffs from 10% to 25% on $200 billion of Chinese goods effective May 10. Already, $25 billion Chinese exports are facing 25% tariff in the United States. Moreover, Trump also threatened to impose 25% tariff on additional $325 billion of Chinese goods any time soon.

U.S. officials accuse China of “erosion of commitments” and said China is backtracking on promises which it made during the negotiation process. U.S. officials are worried of a change in tone of Chinese delegations over the weekend.

Meanwhile, Chinese vice premier Liu He will lead a short delegation instead of a 100-member strong team to Washington later this week.  Notably, the trade deal was expected to materialize by the end of this week.

Concerns Regarding Global Economic Slowdown   

On Apr 9, the International Monetary Fund (IMF) reduced global economic growth forecasts for 2019. This was the third reduction in the last six months. The new growth projection is 3.3% compared with 3.5% in January and 3.7% in October.

The projection for U.S. economic growth was reduced to 2.3% from 2.5%.  Notably, on Mar 20, the Fed lowered the U.S. GDP growth rate to 2.1% in 2019 from 2.3% projected in December. The IMF cited trade-related conflict between the United States and China as the primary reason for lowering global growth projections.

Better-Than-Expected First-Quarter Earnings

As of May 3, 388 companies of the benchmark S&P 500 Index reported first-quarter 2019 earnings results. Total earnings of these companies were up 1% year over year on 4.2% higher revenues.

Total earnings for the S&P 500 Index are now expected to be up 0.1% from the same period last year on 4.6% higher revenues. This would be a marked improvement from an expected earnings decline of nearly 4% at the beginning of the earnings period. (Read More: Three Takeaways from the Q1 Earnings Season)

Our Picks

At this stage, it will be prudent to invest in stocks with a favorable Zacks Rank, strong growth potential and positive Earnings ESP for the first quarter of 2019. We have narrowed down our search to five such stocks each carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are expected to soar close on the heels of earnings release irrespective of already solid gains year to date.

SunPower Corp. SPWR designs and manufactures high-efficiency silicon solar cells and solar panels based on an all-back contact cell design. The stock has surged 56.6% year to date. It has an Earnings ESP of +22.50% for the current quarter.

The company has expected earnings growth of 20.8% for the current year and generated positive earnings surprises in all of the last four reported quarters, with an average beat of 53.41%. SunPower is expected to release earnings results on May 9, after the closing bell.



Rosehill Resources Inc. ROSE focuses on the acquisition, exploration, development and production of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin. The stock has surged 95.5% year to date. It has an Earnings ESP of +9.41% for the current quarter.

The company has expected earnings growth of 128.6% for the current year and generated positive earnings surprises in three out of the last four reported quarters, with an average beat of 1,913.6%. The Zacks Consensus Estimate for the current quarter and year has improved 500% and 433.3%, respectively, over the last 30 days. Rosehill Resources is expected to release earnings results on May 14, after the closing bell.



Legg Mason Inc. LM is principally engaged in providing asset management, securities brokerage, investment banking and related financial services to individuals, institutions, corporations and municipalities. The stock has surged 32.8% year to date. It has an Earnings ESP of +4.41% for the current quarter.

The company has expected earnings growth of 713.5% for the current year and generated positive earnings surprises in three out of the last four reported quarters, with an average beat of 7.2%. The Zacks Consensus Estimate for the current quarter and year has improved 2% and 4.2%, respectively, over the last 30 days. Legg Mason is expected to release earnings results on May 13, after the closing bell.



Chaparral Energy Inc. CHAP engages in the acquisition, exploration, development, production and operation of onshore oil and natural gas properties primarily in Oklahoma, the United States. The stock has surged 27.3% year to date. It has an Earnings ESP of +110% for the current quarter.

The company has expected earnings growth of 71% for the current year and generated positive earnings surprises in three out of the last four reported quarters, with an average beat of 26.5%. The Zacks Consensus Estimate for the current year has improved 20.5% over the last 30 days. Chaparral Energy is expected to release earnings results on May 9, before the opening bell.



Acceleron Pharma Inc. XLRN is a clinical-stage biopharmaceutical company, which focuses on the discovery, development, and commercialization of therapeutics to treat serious and rare diseases. It has an Earnings ESP of +16% for the current quarter.

The company has expected earnings growth of 17% for the current year and generated positive earnings surprises in three out of the last four reported quarters, with an average beat of 0.5%. The Zacks Consensus Estimate for the current quarter and year has improved 2.9% and 4.4%, respectively, over the last 30 days. Acceleron Pharma is expected to release earnings results on May 9, after the closing bell.



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Legg Mason, Inc. (LM) : Free Stock Analysis Report
 
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