With Alcoa on the tape with numbers on Monday, and two big banks out Wednesday, the avalanche of fourth-quarter earnings will really hit the market next week in full force. With most Wall Street firms reasonably positive on fourth-quarter results, many investors are looking for ideas to buy in front of earnings releases. An options research note from Goldman Sachs lists 25 tactical trading ideas to buy before earnings. Eighteen are for upside expected and seven are for downside expected.
While the Goldman analysts are suggesting purchasing call options in front of the data, investors not accustomed to the options markets can always purchase stock prior. We screened the tactical trades for the five ideas where the stocks may have more potential upside. Some were either out of favor, or have underperformed over the past year, or both.
Amazon.com Inc. (NASDAQ: AMZN) kicks off the list and could be primed to surprise. After a woeful 2014, with the stock now down over 25% from highs printed a year ago, a strong holiday selling season could help earnings blow past consensus. Investors discontent with CEO and founder Jeff Bezos added to the Internet retail giant’s woes. Amazon is expected to report earnings the last week of January.
The Thomson/First Call consensus price target for the stock is $357.16. Much higher than the Tuesday close at $294.74.
Cisco Systems Inc. (NASDAQ: CSCO) is an old-school tech stock that has struggled for well over a year to match index and sector gains, and it just now looks primed to make a move. With earnings reports that were alternating between good and bad, the networking giant’s stock has struggled to gain traction. While up sharply from 2014 lows, the stock recently burst through levels printed in the fall of 2013. Cisco is expected to report earnings on February 11.
The consensus price target for this now almost tech value stock is $27.15. Shares closed much higher at $28.09. So expectations are indeed low.
LinkedIn Corp. (NASDAQ: LNKD) is an Internet momentum stock that has also suffered from stiff volatility moves in the price over the past year. While the company continues to dominate the interconnecting of business professionals with over 300 million members worldwide, uneven earnings and some corporate missteps have turned the stock into a volatility victim. When the market sells off, LinkedIn shares rush down faster than others. An improving economy and demand for highly skilled workers may provide the impetus for an earnings surprise. The company should report on February 5.
The consensus price target is posted at $249.28. LinkedIn closed not too far from that Tuesday at $223.
Starbucks Corp. (NASDAQ: SBUX) dominates the retail coffee business in the United States, and the international growth is helping to boost earnings. The stock has been a very uneven performer over the past year, and it is just now getting back to the trading levels of back in November of 2013. With a rapid expansion in China, and what could have been an outstanding holiday selling season, an earnings surprise could be in the cards. Results are expected be released on January 22.
Starbucks shareholders are paid a 1.6% dividend. The consensus price target is $90.90. The stock closed Tuesday at $80.87 a share.
SolarCity Corp. (NASDAQ: SCTY) is a pure-play leader in the fast growth, roof-top solar as a service market, and the analysts feel the company has a balance sheet that will support growth in 2015 and beyond. Solar stocks have been battered as the price of oil has collapsed. The reasoning is, with fossil fuel prices so much lower, people will shy away from a solar alternative. The reality is more and more are moving to the technology. The company is scheduled to report between February 17 and 20.
The consensus price target for the stock is at a gigantic $87.70. SolarCity closed Tuesday at $51.11, up over 4%.
All the Goldman Sachs ideas make extremely good sense. Aggressive investors could do very well if there is an upside surprise. Conversely, given the stature and profile of these stocks, should results be just in line, Wall Street would seem unlikely to respond in a grossly negative manner.