Key EPS Themes for January

Ultimately, earnings drive stocks in both the short and long-term time frames. For this reason, investors should pay attention to when earnings season comes around. Earnings season refers to the month following the end of a quarter, so January is often a busy time for earnings season. Earnings season is important to watch because earnings reports:

·      Are binary events. In other words, if you’re holding a stock through earnings, it will likely move more than usual in one direction or another.

·      Can give investors an idea of an industry’s strength. For example, if an oil stock such as Exxon Mobile XOM beats on earnings, it can be a good sign for the industry and industry peers such as Chevron CVX.

·      Drive the overall market indexes.

During earnings season, investors and analysts watch the reports closely to determine how successfully the company operates and most importantly what forward expectations are. From this information, analysts determine their own estimates for the coming quarters. Zack’s data team then aggregates this information and computes a Zack’s Rating from 1 (best possible) to 5 (worst possible). Below, we will go over some key earnings reports and themes for the month of January:

Housing, Building, and Related

Acuity Brands AYI

Expected EPS Date: 1/9

Acuity Brands is a market leader in industrial technologies, particularly in the lighting business. The earnings report and subsequent reaction will give investors a better understanding of the overall demand for building for both commercial and residential properties. Investors will be watching to see if the upcoming report moves the stock out of its current digestion phase. For now, the price action in the stock is choppy.

KB Home KBH

Expected EPS Date: 1/11

KB Homes is engaged in constructing single-family homes in eight states across the United States. Contrarian investors may want to pay close attention to KB because the stock has been acting in a manner that few predicted. Even as interest rates have spiked higher in recent months, KB and other homebuilders like Lennar (LEN) have been bucking the current market weakness and building higher highs and higher lows. Investors should watch what KBH management says about the demand for new construction. Though overall demand for housing has slowed, supply is very low.


Image Source: Zacks Investment Research

Pictured: Despite interest rate hikes, homebuilders like LEN have performed well.

Banking & Finance

Bank of America BAC, JP Morgan JPM

Expected EPS Date: 1/13

Several of the world’s banking juggernauts, such as BAC, JPM, Goldman Sachs GS (reports 1/17), and Citigroup C (reports 1/17), are slated to report in January. Typically, investors would expect higher interest rates to benefit banks because the banks can charge higher interest rates to borrowers, which can translate to more profits. Furthermore, rate hikes can lead to an increase in demand for loans. That said, higher rates can also lead to increased loan defaults. So far, banks have responded little to the recent rate hikes, and most have been running into strong resistance at the underside of their 200-day moving averages. Can January’s slew of banking numbers turn them around?

Zacks Investment Research
Image Source: Zacks Investment Research

Pictured: BAC continues to encounter resistance at its 200-day MA.

Wells Fargo WFC

Expected EPS Date: 1/13

Unlike the previously mentioned banks, mortgage loans make up the lion’s share of Wells Fargo’s business. Earnings next week should give investors a glimpse into how that business is going.

Charles Schwab SCHW

Expected EPS Date:

Charles Schwab is one of the leading stockbrokers. The stock has acted stronger than traditional banks and is nearing highs. Can Schwab’s earnings induce a breakout?

Semiconductors

Taiwan Semiconductors TSM

Expected EPS Date: 1/12

Taiwan Semiconductors should provide investors with more clarity about the health of the semiconductor industry. Stocks such as Advanced Micro Devices AMD and Nvidia NVDA were some of the biggest winners of the previous bull cycle and have now morphed into some of the biggest losers. At present, TSM holds better than AMD and NVDA. Will this batch of earnings translate into the next leg down in semis, or will it help carve out the bottoming process?

Healthcare

United Health Group Inc UNH

United Health, a provider of a wide range of healthcare products and services, is one of the best barometers in the healthcare industry. Recently, the stock sliced through its 200-day moving average on heavy volume. Can earnings help the stock recover, or is this the beginning of a topping process?

Zacks Investment Research
Image Source: Zacks Investment Research

Pictured: UNH sliced through its 200-day MA prior to its upcoming EPS release.

Summary

Unsurprisingly, most stocks mentioned in this piece and the stocks that are reporting this month have poor Zack’s Rankings, are in downtrends, and are financially succumbing to a weak macro environment. With that said, the stock market is a forward-looking indicator. While it rarely pays to gamble on earnings blindly, investors should continue to pay close attention to key earnings reports so they can be prepared when the market finally does turn. Remember that patience is critical – “if they don’t scare you out, they’ll wear you out.” Have patience, and most importantly, don’t get discouraged!

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Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report

Chevron Corporation (CVX) : Free Stock Analysis Report

UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

Exxon Mobil Corporation (XOM) : Free Stock Analysis Report

The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report

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