As the second quarter has seen widespread shut-down measures ordered by the government to curb the spread of the coronavirus, expectations for the quarter’s earnings are dismal across all sectors. Total Q2 earnings for S&P 500 companies are currently expected to decline 44.8% on 10.7% lower revenues (read more: What Will Q2 Bank Earnings Reveal?).
Demand contraction due to widespread travel restrictions, supply shortages and deferred discretionary spending most likely impacted airlines, lodging and cruise operators. In fact, by mid-April, the Transportation Security Administration (TSA) checkpoints at the airport saw only 5% of passenger levels compared to the year-ago period.
Meanwhile, carmakers, electronic goods makers and chemical companies were exposed to supply chain interruptions. And these companies owe a lot to creditors, which surely made banks more susceptible to risks in the said quarter.
However, many businesses were able to avoid loan defaults in the second quarter by participating in the Paycheck Protection Program, which will reflect on their quarterly net interest income. The unemployment benefits provided by the government might have also to some extent reduced consumer debt.
Notably, banks’ loan forbearances and deferred payments due to the pandemic have stretched the credit cycle beyond the second quarter. So, the impact of defaults, if any, won’t get much reflected on second-quarter results. Nonetheless, total Q2 earnings for the Zacks Major Banks industry, including JPMorgan, Bank of America, Wells Fargo and other major industry players are expected to fall 65.1% from the same period last year on 2.1% lower revenues.
Meanwhile, coronavirus roiled energy markets in the second quarter. Record-low demand for oil and gas, and massive asset write-downs have deeply impacted energy players, with many analysts expecting the industry to never return to its pre-crisis level.
The sectors that stands out for having a lower earnings decline expectation compared to other sectors are technology, healthcare and utility. In case of tech, investors saw these companies gaining immensely from secular trends like cloud computing and robust telecommunications infrastructure — demand for which skyrocketed amid the health crisis.
Chief executive officer at DigitalOcean, a cloud infrastructure company, Yancey Spruill said that “the clear winners are enterprise technology companies whose infrastructure or software supports the shift to remote work environments and deliver services to customers in a low-friction manner through an internet-based interface.”
Further, with majority of the population trapped at home with an Internet connection, trends like streaming media, video chats with friends and online connections with co-workers have picked up. These trends, in turn, have bolstered the need for newer technologies.
Healthcare and utility stocks are also best positioned to trounce Wall Street expectations as investors pulled money out of cyclical sectors and invested in defensive stocks to protect their portfolio from market gyrations amid the pandemic.
Health has no doubt been a priority and consumers continued to avail healthcare products and services in such trying times. Not many people will be willing to live without electricity, gas and water, so the demand for utility products remained intact as well.
5 Stocks to Buy in Coronavirus-Battered Q2 Earnings Season
It will be prudent to invest in companies from the aforesaid sectors, which are expected to have suffered less compared to others. What’s more, such stocks flaunt a positive Earnings ESP — our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. At the same time, these stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Etsy, Inc. ETSY offers e-commerce services. It provides online and offline marketplaces to buy and sell goods. The Zacks Rank #1 company is expected to report earnings results for the quarter ending June 2020 on Aug 6. Etsy has an Earnings ESP of +23.66%. The company’s expected earnings growth rate for the current year is 46.1%.
TMobile US, Inc. TMUS is a national wireless service provider. The Zacks Rank #1 company is expected to report earnings results for the quarter ending June 2020 on Jul 23. TMobile has an Earnings ESP of +30.89%. The company’s expected earnings growth rate for the next year is 42.1%.
Anthem, Inc. ANTM offers a spectrum of network-based managed care health benefit plans to large and small group, individual, Medicaid, and Medicare markets. The Zacks Rank #2 company is expected to report earnings results for the quarter ending June 2020 on Jul 29. Anthem has an Earnings ESP of +7.61%. The company’s expected earnings growth rate for the current year is 15.1%.
Novavax, Inc. NVAX is a biotechnology company engaged in the development of innovative vaccines to prevent serious infectious diseases. The Zacks Rank #2 company is expected to report earnings results for the quarter ending June 2020 on Aug 5. Novavax has an Earnings ESP of +297.56%. The company’s expected earnings growth rate for the current quarter is 120.4%.
Southwest Gas Holdings, Inc. SWX purchases, distributes, and transports natural gas in Arizona, Nevada, and California. The company operates in two segments, Natural Gas Operations and Utility Infrastructure Services. The Zacks Rank #2 company is expected to report earnings results for the quarter ending June 2020 on Aug 4. Southwest Gas has an Earnings ESP of +41.77%. The company’s expected earnings growth rate for the current quarter is 30%.
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