Wall Street To See Terrific Q2 Earnings: 5 Top Gainers

Double-digit gains among the biggest Internet stocks on the Wall Street have raised overvaluation concerns, while increased uncertainty over President Trump’s agenda could trigger a market pullback in the second half of this year. An overly aggressive Fed and a further decline in oil prices might lead to a correction of 10% or more this year.

However, over the next few weeks, Wall Street is likely to focus less on such concerns and more on Corporate America, which is certainly poised to be in a healthy shape mostly from an earnings perspective. Consistent earnings growth enthralls almost everyone, right from the top brass to research analysts. This is simply because earnings are a measure of the money a company is making.

This could be an excellent earnings season for the S&P 500, which in turn will boost its operating earnings per share for the trailing 12 months. Improved second-quarter economic growth, strong manufacturing and service surveys, and a moderate uptick in wage growth are expected to help Corporate America post relatively high profit margins in Q2.

Earnings growth is expected to be led by energy, financials and information technology. Hence, let us keep an eye on stocks that are likely to make the most of the second-quarter earnings season. Here, we should also bear in mind that better-than-expected earnings performances generally lead to a rally in the share price.

Q2 Earnings Season Takes the Spotlight

According to estimates, total second-quarter earnings for the S&P 500 cohort are expected to be up 5.8% from same period last year on 4.5% higher revenues. This would follow earnings growth of 13.3% in Q1 on 7% revenue growth, the highest in at least two years. Sam Stovall, chief investment strategist at CFRA Research, further added that history shows the final tally will be better in Q2 “as actual EPS exceeded initial estimates in each of the last 21 quarters and have done so by an average of 3.6 percentage points.”

If we move beyond Q2, total earnings for the S&P 500 cohort are anticipated to increase 6.3% on 4.5% higher revenues in Q3 and gain by 9.8% on 5.3% higher revenues in Q4. For the entire year, total earnings for the index are expected to be up 7.4% on 4.2% higher revenues. This will be way more than 1.1% earnings growth on 2.1% higher revenues recorded last year (read more: Start of the Q2 Earnings Season).

Potential Gainer of Q2

Energy is expected to be the biggest contributor to the overall earnings growth in the second quarter. Even though oil prices slipped from late May through late June, Corporate America is expected to fight such headwinds, with energy sectors earnings growth expected at over 300%. Other sectors likely to see double-digit earnings growth in Q2 are Aerospace, Construction and Industrial Products sectors, with gains of 48.8%, 15.7% and 11.9%, respectively.

The two biggest sectors in the S&P 500 Index, Finance and Technology, are also projected to put up a stellar show. Despite a flattening yield curve, financials will post strong revenue growth from capital markets since investment banking got a boost in advisory fees for IPOs, while M&A saw continuous growth. To top it, encouraging annual “stress test” results, Fed forging on with the 25-basis point (bps) rate hike amid inflation worries and the Trump administration expected to push for lesser banking regulations are some of the positives that bode well for the financial sector. For Finance, earnings are expected to be up 5.8% (read more: Have Bank Stocks Finally Turned Around?).

The technology sector is expected to register 10.1% earnings growth. Semiconductor industry earnings gains are estimated to drive the biggest share of an increase in technology sector earnings.

Tech has come a long way, evolving from the dot-com catastrophe to becoming a safety trade and are now favored by active managers. While tech companies being less sensitive to both taxes and interest rates bode well for them, one-time tax on trillions of dollars held overseas will provide a necessary windfall for such companies who have hoarded money outside the U.S (read more: Silicon Valley Is Richer Than Ever: 4 Hot Tech Picks).

The table below shows what is expected from the different sectors in Q2, compared with what was achieved in the preceding quarter.

5 Stocks to Buy for Explosive Earnings Growth

Corporate America is expected to deliver stellar earnings growth in the second quarter, given solid economic data, strong rebound in energy sector profits and stable earnings gains in the aerospace, construction, industrial products, financial and technology sectors. This calls for investing in five companies from the aforesaid sectors, which are expected to report a significant uptick in second-quarter earnings.

These stocks have a positive Earnings ESP. This is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Such stocks, in the meanwhile, also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM score of ‘A’ or ‘B’. Here ‘V’ stands for Value, ‘G’ for Growth and ‘M’ for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Baker Hughes, a GE company (NYSE:BHGE) is engaged in the oilfield and process industries. The company conducts certain of its operations through joint ventures, partnerships or alliances. It has a Zacks Rank #2 and a VGM score of ‘B’. The company, with an Earnings ESP of +9.09%, is expected to report earnings results for the quarter ending June on Jul 28.

Artisan Partners Asset Management Inc (NYSE:APAM) is an investment management company. The company provides investment management services to separate accounts, mutual funds and other pooled investment vehicles. It has a Zacks Rank #1 and a VGM score of ‘A’. The company, with an Earnings ESP of +3.45%, is expected to report earnings for the quarter ending June on Jul 24.

Wintrust Financial Corp (NASDAQ:WTFC) is a financial holding company. The company conducts its businesses through three segments: community banking, specialty finance and wealth management. It has a Zacks Rank #2 and a VGM score of ‘B’. The company, expected to report its earnings results for the quarter ending June on Jul 18, has an Earnings ESP of +1.02%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Century Aluminum Co (NASDAQ:CENX) is a producer of primary aluminum and operates aluminum reduction facilities, or smelters. The company operates through the primary aluminum segment. It has a Zacks Rank #2 and a VGM score of ‘B’. The company is expected to report its earnings results for the quarter ending June on Jul 27. It has an Earnings ESP of +14.29%.

Owens Corning (NYSE:OC) is engaged in the business of composite and building materials systems, delivering a range of products and services. The company has a Zacks Rank #1 and a VGM score of ‘B’. It is expected to report earnings for the quarter ending June on Jul 26. It has an Earnings ESP of +10.78%.

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