Q2 Earnings Optimism Lifts S&P 500 to 5-Month High: 5 Gainers

On Jun 11, U.S. stocks closed in the black for the fourth successive session. Once again, optimism over the second-quarter earnings season triumphed over trade tensions. Investors widely expect upcoming results to sustain the strong momentum created during the first-quarter earnings season.

Recently released economic data have added to investors’ enthusiasm. Further, these are providing a firm basis for companies to deliver strong results. This is why it makes good sense to invest in companies reporting over the next few days that are likely to outperform their earnings estimates and have gained substantially year to date.   

Earnings Optimism Boosts S&P 500, Negates Trade Concerns

On Tuesday, the S&P 500 gained 0.4% to close at its highest level since Feb 1. Additionally, the Dow gained 0.6%, posting a four-session long winning streak for the first time since Jun 11. The Dow, S&P 500 and Nasdaq are now up 0.8%, 4.5% and 12.4%, respectively year to date. And though the Russell 2000 finished in the red, it hit an intra-day peak earlier in the session.

The rise and rise of U.S. markets over recent sessions indicates that investors are choosing to ignore trade tensions. Optimism surrounding the second-quarter earnings season is successfully outweighing trade worries. Strong jobs data for June and consumer credit data for May have also buoyed sentiment. Further, the data provide a strong basis for the upcoming earnings results.

Can Q2 Earnings Replicate Q1’s Success?

Earnings growth in the last earnings season (Q1 2018) reached its highest level in more than seven years at 24.6% on 8.7% revenue gains. Already, the second-quarter earnings season has the makings of something spectacular.

As of Jul 5, total earnings for the 20 S&P 500 members that have reported fiscal May-quarter results (part of our Q2 tally) are up 32.3% on 13.6% higher revenues. The proportion of these early reporters beating EPS and revenue estimates is tracking above other recent periods. (Read: Q2 Earnings Season Preview)

As of Jul 6, total Q2 earnings are expected to be up 19% from the same period last year on 8.2% higher revenues, with double-digit earnings growth for 11 of the 16 Zacks sectors. (Read: What's Keeping Bank Stocks Down?)

Our Choices

U.S. markets are on a winning streak, fueled by expectations of a strong earnings season and bullish economic data. At this point, projections are bearing out investor optimism, with earnings likely to come in strong. This is why it makes good sense to bet on companies reporting over the next few days that are projected to beat their earnings estimates and have increased significantly year to date.  

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows 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’re reported with our Earnings ESP Filter.

You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Progressive Corp. PGR is one of the major auto insurers in the United States.

Progressive Corp. has beaten the Zacks Consensus Estimate for earnings in three of the last four quarters, with an average positive earnings surprise of 6.2%.

Powered with the right combination of the two key ingredients — an Earnings ESP of +7.88% and a Zacks Rank of 1 — our proven model shows that an earnings beat is expected for Progressive Corp. in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on Jul 17 and is up 5.9% year to date.

Mellanox Technologies, Ltd. MLNX is a fabless semiconductor company which is a designer, manufacturer and seller of interconnect products and solutions on a global basis.

Mellanox Technologies has beaten the Zacks Consensus Estimate for earnings in each of the last four quarters, with an average positive earnings surprise of 13%.

Powered with the right combination of the two key ingredients — an Earnings ESP of +4.44% and a Zacks Rank of 1 — our proven model shows that an earnings beat is likely for Mellanox Technologies in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on Jul 17 and is up 32.1% year to date.

CSX Corp. CSX is one of the United States' leading transportation suppliers.

CSX Corp. has surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, with an average positive earnings surprise of 10.2%.

Powered with the right combination of the two key ingredients — an Earnings ESP of +1.72% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for CSX Corp. in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on Jul 17 and is up 20% year to date.

Celanese Corp. CE is a global hybrid chemical company.

Celanese has beaten the Zacks Consensus Estimate for earnings in each of the last four quarters, with an average positive earnings surprise of 7%.

Powered with the right combination of the two key ingredients — an Earnings ESP of +4.80% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Celanese in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on Jul 19 and is up 6.5% year to date.

GATX Corporation GATX leases, operates and manages long-lasting, widely used assets in rail, marine and industrial equipment markets.

GATX Corp has beaten the Zacks Consensus Estimate in three of the last four quarters, with an average positive earnings surprise of 27.5%.

Powered with the right combination of the two key ingredients — an Earnings ESP of +2.17% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for GATX Corp in the to-be-reported quarter as well.

The company is expected to report fourth-quarter fiscal 2018 results on Jul 19 is up 21.7% year to date.

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GATX Corporation (GATX) : Free Stock Analysis Report
 
CSX Corporation (CSX) : Free Stock Analysis Report
 
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