Investing

The 9 Dow Stocks That Could Have the Best Earnings Reactions

Intel took on 10 or more downgrades in July when it reported earnings, it has moved to make up some of its lost ground. Its consensus price target of $56.50 signals that any continued demand and any improvement are just not priced into the stock, even if there are zero guarantees that these are to be expected.

IBM Out of the Ginni Bottle

International Business Machines Corp. (NYSE: IBM) now has Arvind Krishna as its CEO and Jim Whitehurst as president. With the combination of Red Hat, IBM is now much more focused on the cloud and other strategic imperatives, while the legacy IT-services business dribbles off. IBM is a stock that has managed to keep disappointing in good times and bad, but the new leadership and the new focus offer a very strong potential win for shareholders.

IBM’s core valuation of about 10 times earnings also should keep even a disappointing earnings report from destroying shareholders. Analysts and investors alike have been burned trying to get behind IBM for the better part of a decade, but the 5.3% dividend yield still has plenty of coverage as IBM looks to press its next wave of growth.

At $123.50 a share, IBM is down about 9% year to date, but it is still up over 20% from the March lows. The $135.19 consensus price target has very low earnings valuations, and independent research firm Argus and Credit Suisse both have set $155 price targets on IBM over the summer. Any good news at all likely would create more upside than downside here.

Microsoft Floating in the Cloud

One tech stock that has performed well in 2020 (though not at the same rate as Apple and Salesforce) is Microsoft Corp. (NASDAQ: MSFT). Satya Nadella and the team there have been on a strong rise since the panic-selling lows of March through the peak at the start of September. Since then, the stock has traded mostly sideways in a range of $200 to $210. This tight band sets Microsoft up for a springboard effect in either direction if the company is muted or excited about earnings and guidance.

Microsoft’s valuation at about 28 times forward earnings is not unreasonable, but it is higher than it used to be. Nadella had led the cloud migration like a champion, with the growth of Azure and Office 365, and there is now the Teams effort that may act as a binding agent keeping its Office 365 clients paying. Microsoft still has robust traditional software sales from the recent explosion of PC demand, and it has the upcoming refresh of the Xbox video game console. The JEDI contract also now looks all but set for Microsoft over Amazon as well.

Microsoft’s consensus target price is close to $230, and multiple analysts are calling for it to go to $250 or even $260.

3M’s Turnaround

3M Co. (NYSE: MMM) was still down about 8% year to date, but the stock is now up over 5% from a year ago. Despite strong demand for many of its PPE products due to the pandemic, 3M still has been struggling to get sales growth up in 2020. The stock peaked just above $170 in September before pulling back to $165.

The consensus target price has remained low at $166.93, and very few analysts have been willing to endorse Buy ratings and much higher targets. One firm that did stick its neck out was Credit Suisse, with a $197 price target and an expectation that the coming years would look better than the disappointments from before the pandemic was even here. Jim Cramer also has been talking up 3M and its monthly numbers for a turnaround.