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1 Stock to Buy, 1 Stock to Dump This Week: Netflix, Goldman Sachs

Published 01/16/2023, 09:01 AM
Updated 11/14/2023, 07:35 AM
  • U.S. earnings season, retail sales, housing data, PPI inflation in focus
  • Netflix stock is a buy with earnings on deck
  • Goldman Sachs shares set to underperform amid weak Q4 results

Stocks on Wall Street rose on Friday to end at a one-month high as investors cheered signs that inflation may be peaking, raising hopes the Federal Reserve will be less aggressive on interest-rate hikes.

For the week, the blue-chip Dow Jones Industrial Average rose 2%, while the benchmark S&P 500 and technology-heavy Nasdaq Composite advanced 2.7% and 4.8%, respectively to notch their best weekly performance since November.S&P 500 Vs. Dow Vs. Nasdaq Price Chart

Source: Investing.com

The holiday-shortened week ahead - U.S. markets are closed Monday for Martin Luther King Jr. Day - is expected to be another busy one as Q4 earnings shift into high gear, with reports expected from notable names like Procter & Gamble (NYSE:PG), Morgan Stanley (NYSE:MS), United Airlines (NASDAQ:UAL), and Schlumberger (NYSE:SLB).

In addition to earnings, retail sales and housing data (housing starts, existing home sales, building permits, and the NAHB housing market index) are highlights of the economic calendar. The December producer price inflation report will also be closely watched after CPI data last week showed some moderation in inflation.

Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another that could see further downside.

Remember, our time frame is just for the upcoming week.

Stock To Buy: Netflix

After ending at its strongest level since mid-April on Friday, I expect Netflix (NASDAQ:NFLX) stock to extend its rally in the coming week, as I believe the streaming giant’s fourth-quarter earnings will surprise to the upside thanks to an improving fundamental outlook.

As per moves in the options market, traders expect a sizable swing in NFLX shares following the results, due after the bell on Thursday, Jan. 19, with a possible implied move of 10% in either direction.

Netflix Quarterly Earnings

Source: Investing.com

Consensus estimates call for the Los Gatos, California-based company to post a fourth-quarter profit of $0.59 per share, falling nearly 56% from EPS of $1.33 in the year-ago period. Meanwhile, revenue is forecast to accelerate by about 2% year over year to $7.84 billion.

Perhaps of greater importance, all eyes will be on the company's subscriber tally. Netflix previously said it expects to add 4.5 million paid subscribers in the December quarter, compared with 2.41 million net subscribers in Q3.

In my opinion, Netflix’s earnings, sales, and subscriber growth will all top expectations as it benefits from the recent launch of its new $6.99-per-month ad-supported basic subscription tier and from recent efforts to crack down on illegal password-sharing, the latter of which has cost the streaming giant billions of dollars.

A strong slate of content during the period, including breakout hits “Wednesday,” “Glass Onion,” “Dahmer,” and "Harry & Meghan," should also help Netflix surprise to the upside.

Taking that into consideration, I believe Netflix’s management will provide strong sales guidance to reflect improving operating margins thanks to its promising ad-supported video-on-demand service, as well as new initiatives to curtail account-sharing.Netflix Daily Chart

Source: Investing.com

NFLX closed at $332.82 on Friday, more than 100% above its bear market low of $162.71 touched in May 2022. At current levels, Netflix, which is still 52% away from its all-time high of $700.99 from November 2021, has a market cap of $148.1 billion.

Shares of the streaming leader have soared 12.9% so far in 2023, compared with the S&P 500’s 4.2% increase over the same time frame.

Stock To Dump: Goldman Sachs

I believe shares of Goldman Sachs (NYSE:GS) will underperform in the week ahead as investors position themselves for a disappointing earnings report from the Wall Street powerhouse.

Goldman’s financial results are due on Tuesday, Jan. 17, ahead of the opening bell and are once again likely to take a hit from a significant slowdown both in the firm's key investment-banking unit and in its wealth-management-services business.

Unsurprisingly, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of Goldman's report, with analysts cutting their EPS estimates 15 times in the last 90 days.

Goldman Sachs EPS Estimates

Source: InvestingPro

Consensus calls for fourth-quarter earnings per share to plunge 46.6% from a year earlier to $5.77/share, according to Investing.com. If that is true, it will mark Goldman’s sixth consecutive quarter of declining earnings and the lowest since Q1 2020, when the economy was reeling from the effects of the COVID pandemic.

Meanwhile, revenue is forecast to dip 13.7% year over year to $10.9 billion, underscoring the firm's several challenges amid the uncertain economic environment.

As a result, I believe Goldman Sachs CEO David Solomon will show caution about forecasting income growth for the months ahead as the bank prepares for a possible recession, echoing similar comments made by JPMorgan's (NYSE:JPM) Jamie Dimon and Bank of America's (NYSE:BAC) Brian Moynihan last week.

Based on moves in the options market, traders are pricing in a possible implied move of 3% in either direction in Goldman’s shares following the update.

Goldman Sachs Daily Chart

Source: Investing.com

GS stock ended Friday’s session at $374, its highest close since Dec. 13, earning the banking giant a valuation of $128.6 billion.

Shares, which have rallied to start the new year along with the major stock indices, are up 8.9% so far in 2023. In comparison, the financial sector’s main ETF - the Financial Select SPDR Fund (NYSE:XLF) - has gained 5.6% year to date.

Notwithstanding the recent turnaround, GS stock remains roughly 12% below its November 2021 peak of $426.16.

Disclosure: At the time of writing, I am long on the S&P 500 and Nasdaq via the SPDR S&P 500 ETF (NYSE:SPY) and Invesco QQQ ETF (NASDAQ:QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).

The views discussed in this article are solely the author's opinion and should not be taken as investment advice.

Latest comments

This dude nailed Netflix big time, great call
Netflix is currently 30x PE. There is no fundamentals to justify that, since it's growing slower and the discount rate for the DCF must be higher with the risk free paying near 5%y... for me the stock is making lower lows and the only thing that could make it higher is this completely criminal options market. Dark pool tell big money sold, hence...
Own both.  Will add on severe downturn if it happens. Both are not going out of business.
Think Netflix will fall post Q Results (or in Q2 results). Its new advert paid sub seems like an ok way to go but it will take a while longer to embed. Should a recession hit as most expect or inflation rebound - luxuries such as Netflix will be one of the first cuts on most household budgets. It is also seeing a lot more competition. So can see it fall back to $220 - $230 before rebounding long term.
I agree netflix is a brave buy call with the current macroeconomic conditions, I think it's more likely people downgrade to ad tire instead of drawing in much new customers. given covid lockdowns was the best possible macro environment netflix could of ask for there is a chance subs numbers fall in the future
Harry and Meghan a blockbuster? No a total flop
whoever bought Netflix in April they are up 100 percent they doubled their money . (I would not buy it stock is up 100 percent in 9-10 months.
hey
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