First-quarter earnings season is now in full swing. Broadly speaking, the results have been much better than expected, and these better-than-expected numbers are providing a lift to the whole stock market.
Context is important here. This was supposed to be the “bad earnings season,” weighed by slowing economic growth, recession fears and a consumer slowdown. But, this earnings season hasn’t been all that bad. In fact, it hasn’t been bad at all. Most companies are reporting sizable revenue and earnings beats — and delivering healthy guides, too. Stocks are rallying in response.
Which stocks have been the brightest stars this earnings season? Let’s take a closer look at seven hot stocks that are flying high on strong first-quarter numbers.
Hot Stocks After Earnings: Facebook (FB)
Shares of digital ad giant Facebook (NASDAQ:FB) popped this earnings season after the company reported first-quarter numbers that not only topped expectations but broadly confirmed that 2018 data privacy headwinds are in the rearview mirror. It seems like Facebook is back to being good old Facebook again.
The report was very good. The numbers beat everywhere. Full year 2019 guidance was also healthy, and the call had a very bullish tone. Overall, the quarter confirmed that Facebook has moved on from its biggest headwind in company history, continues to grow revenues at a 20%-plus pace, and is positioned for margin stabilization and eventual expansion soon.
Meanwhile, the stock is still pretty cheap for a secular growth giant, with the forward P/E multiple hovering around 22. That is still below the forward multiple over at Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). As such, the fundamentals here are improving, and the stock remains cheap. That’s a winning combination for further share price gains.
Cloud computing giant Microsoft (NASDAQ:MSFT) leveraged reinvigorated cloud tailwinds to report blowout numbers this earnings season. Indeed, the numbers were so good that not only did Microsoft stock pop, but it popped into $1 trillion valuation territory for the first time ever.
In a nutshell, the entire growth narrative at Microsoft is centered around the cloud. As goes the cloud, so goes Microsoft. The cloud business slowed in late 2018 against the backdrop of an economy that likewise slowed, as corporations paused spend amid concerns of a looming recession. But in early 2019, economic activity has picked back up, and corporations have resumed robust spending. As such, the cloud market came back to life and provided a big lift to Microsoft’s early 2019 numbers.
The big thing here is that only 20% of enterprise workloads have migrated to the cloud. Essentially, that means the the cloud growth narrative is only 20% complete. That means that the secular growth cloud tailwinds which have propelled MSFT stock higher over the past several years will stick around for the next several years, too. Ultimately, those tailwinds should keep MSFT stock on a winning trajectory.
Shares of social media giant Twitter (NYSE:TWTR) soared this earnings season after the company reported strong first quarter numbers that beat across the board.
There are really three big things here. One, user growth came back into the picture in the first quarter, with Twitter broadly reporting its best user growth rates in two years. Two, revenue growth remained robust against a tough lap, somewhat proving that big revenue growth is here to stay for the foreseeable future. Three, margins continued to expand, illustrating that this company’s robust profit growth narrative is far from over.
Overall, these three big positive developments sparked a huge post-earnings rally in Twitter stock. Ultimately, these trends persisting will push Twitter stock higher long term. But, in the near term, the valuation appears maxed out, and fundamentals and technicals both imply that it’s time for the stock to take a breather.
As it turns out, toys aren’t dead after all, and Hasbro (NASDAQ:HAS) proved that with strong first-quarter numbers that sparked a big rally in HAS stock.
The quarter was very good for Hasbro. Revenue growth came in above expectations at a very healthy 6% rate. Gross margins expanded. Operating margins expanded even more. And, of most importance, the company reported a surprise profit in the quarter of 21 cents per share, when analysts were expecting a loss of 11 cents per share.
Overall, Hasbro basically exclaimed with solid first-quarter numbers that the traditional toy market isn’t dead, and that the company can perform at a high level even in the face of secular demand headwinds from the widespread proliferation of consumer tech products. If the company can continue to execute despite these headwinds, then the stock will continue to head higher. But, the valuation is rich, and execution concerns remain, so this stock also isn’t without its fair share of risks here.
Domino’s Pizza (DPZ)
Fast-casual pizza chain Domino’s Pizza (NYSE:DPZ) has been the hottest game in the pizza world for a long time, and remained so this earnings season.
Despite reporting largely mixed numbers this quarter — profits beat expectations, but revenues and comparable sales came up shy — DPZ stock soared after the Q1 print. Why? Because the stock was priced for much worse. Last quarter, the numbers weren’t so good, with comps missing by over 150 basis points. Investors were worried that the miss might be the beginning of the end of a golden era for Domino’s. Thus, the stock dropped and didn’t recover.
First-quarter comps didn’t top expectations, but they only missed by 30 basis points, and they remained broadly healthy in the 4% range. As such, investors were pleased that the surprise was less negative than before, and the stock popped. In the big picture, though, DPZ stock is now rubbing up against some valuation friction, and growth trends are slowing amid rising competition. As such, it looks like the best of the DPZ rally is behind the stock.
Cloud giant ServiceNow (NYSE:NOW) has been one of Wall Street’s favorite stocks over the past several quarters, and that remained true this earnings season.
The digitization and automation company reported a clean double-beat-and-raise first-quarter earnings report that comprised 40% subscription revenue growth (which is up from last quarter and the exact same rate from the year ago quarter), 33% large customer growth (only one point below last quarter’s rate), a sky-high 98% customer renewal rate and 100 basis points of operating margin expansion.
In other words, ServiceNow continues to prove that it’s one of the best growth stocks in the market, with a sky-high revenue growth rate that simply refuses to come down, and a profitability profile that continues to improve with scale. So long as these two things remain true — and they should given secular tailwinds in the digitization and automation market — then NOW stock will remain on a healthy long-term uptrend.
Shares of beaten up automotive giant Ford (NYSE:F) popped this earnings season after the company reported much-better-than expected numbers which pave the way for 2019 to be a lot better than 2018.
Broadly speaking, it was margin strength that propped up Ford this quarter. Revenues remained weak, and the company largely continued to lose market share in the quarter, but margins improved dramatically. Specifically, adjusted EBIT margins in North America expanded 90 basis points year-over-year, and the company reported adjusted EBIT growth for the first time in six quarters. Management expects this new growth trend to persist in 2019, and broadly called for 2019 results to improve across the board relative to 2018 results.
Zooming out, this bounce-back in Ford is long overdue. This stock has been beaten up for a long time, and was priced for death below $10. Now, though, the stock is much more reasonably valued, and headwinds remain in terms of the EV shift and falling automotive demand. As such, further upside in the stock may ultimately be capped.
As of this writing, Luke Lango was long FB, GOOG, and NOW.
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