The second week of January rang in the fourth-quarter earnings season, and Wall Street’s expectations are positive but not super-bullish.
The analysts’ consensus is for Q4 earnings per share to come in at 3% year over year, a slowdown from 4% in Q3, according to a Bank of America note from January 10. That’s partly because they expect to see the lowest profit margins since the final quarter of 2020.
But Bank of America’s team, led by the chief US equity and quant strategist Savita Subramanian, thinks otherwise: Accelerating sales will cause Q4 EPS to rise above expectations and come in at 6%.
Six of the seven magnificent seven names are pegged to be the main earnings beneficiaries, with expectations that they’ll be up by 56% year over year. They include Nvidia, Amazon, Meta, Alphabet, Microsoft, and Apple. Tesla is expected to be down by 39% for the same period.
Regarding quarter-over-quarter winners and losers, the communication services sector is expected to see the most EPS growth from the previous quarter. In contrast, consumer discretionary is expected to lag most from Q3.
For sector-specific details, analysts at Bank of America note that online advertising is expected to see an uptick, and software is expected to outperform. As for food and retail, consumers are expected to have prioritized value and affordability, building products are expected to be dampened by elevated mortgage rates, and transportation remains in freight-recession territory.
All told, earnings season remains an opportune time to buy single stocks that beat expectations and get rewarded. The average performance dispersion between S&P 500 stocks rises in tandem with the number of companies reporting earnings on any given day, Bank of America found.
Below is the list of eight buy-rated stocks Bank of America says are most likely to beat expectations. All the companies beat on earnings and sales in Q3.