Goldman Sachs Top 5 Expected Earnings Surprise Winners

Jon C. Ogg

In a report out this week, the Goldman Sachs options research team listed its top 25 tactical trades for earning season. While the report includes many names, the trick is to identify the best of the best calls, rather than just taking a blanket approach covering each and every call.

The firm’s analyst, John Marshall, said that option-implied earnings moves are currently at their lowest level in eight years. His take is that this makes option buying an exceptionally efficient strategy for investors to position themselves for earnings surprises in the coming weeks of this second-quarter earnings season, which is just getting underway.

Again, covering 25 names is simply too broad of a sword for us to cover for our readers. That being said, there were five picks in the report that were shown to be the most attractive with upside expected in their earnings reports.

Cisco Systems Inc. (NASDAQ: CSCO) was the top tech pick expected to have an earnings beat. We would warn readers that the options action here would have to be much longer-dated because Cisco’s earnings are more than a month out due to its off-calendar fiscal reporting. Cisco did recently beat earnings and get its momentum back, and Goldman Sachs expects that to continue. We recently highlighted how analysts decided to chase Cisco’s price targets higher after the most recent earnings report in May, and Goldman Sachs lifted its target to $28 at that time.

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Capital One Financial Corp. (NYSE: COF) was the top financial sector pick expected to beat earnings. Shares are currently around $84, but that is less than $1 from its high. The consensus estimates are $1.79 in earnings per share (EPS), and note that this is actually lower than the $1.87 per share posted a year ago. As a reminder, Goldman Sachs added this stock to the Conviction Buy List with a $90 price target back in January. The consensus price target is around $85.50, and the highest price target is $95.00.