This earnings season promises to be an interesting one. A lot is hinging on upcoming earnings, considering company reports set the stage for 2024 while acting as an official close to 2023’s holiday shopping season. For that reason – shopping season uncertainty – retail stocks are ones to avoid this earnings season if you’re even slightly risk-averse. Even a hint of poor holiday performance could send solid retail stocks into a tailspin, as we saw with Target’s (NYSE:TGT) disastrous 2022 earnings.
But that doesn’t mean there aren’t a handful of worthy stocks to buy before earnings. If you’re looking to tilt the odds in your favor, find stocks with strong tailwinds that capitalize on current market and economic forces. Better yet, focus on a few core sectors displaying outsized strength: niche financials (not banks, yet), nuts-and-bolts tech (not SaaS), and healthcare (a perennial favorite as the best companies break free from the post-pandemic slump).
Intuitive Surgical (ISRG)
Earnings Date: Tuesday, January 23rd – After Hours
Intuitive Surgical (NASDAQ:ISRG) is a bit of a unique earnings play, considering the company posted preliminary results earlier last week. Shares popped 10% on the heels of the preliminary report’s strength – so the downside to adding ISRG to a list of stocks to buy before earnings is that some of the good news is already baked in.
The upside? ISRG’s stellar preliminary report points to continued dominance for the robotics and automation company, making it a HealthTech stock worth holding forever, even if next week’s actual earnings report doesn’t send shares much higher.
In its preliminary report, ISRG’s 4th quarter revenue climbed 17% year-over-year (YoY) to $1.93 billion, with projected annual revenue hitting a 14% YoY jump to $7.12 billion. Better yet, ISRG’s top-line growth is more than just increasing product pricing; its innovative da Vinci surgical platform saw robotic tech procedures increase 22% globally, with more expansion on the horizon.
There are a few caveats to ISRG’s prospects moving forward, though – and both center on China. The preliminary report indicates that a COVID-19 resurgence in the region had greater effects on ISRG’s planned procedure rate than expected as hospitals cut down on non-emergent surgery. This points to a continued COVID-19 threat for medical stocks, especially in regions like China that adhere to an FFTIS-centric approach.
But, more concerning for ISRG’s long-term strength is China’s increased pivot towards homegrown surgical robotics rather than continued reliance on da Vinci. This cuts into ISRG’s regional market share but could threaten the company globally if China expands its healthcare automation footprint abroad.
Stocks to Buy Before Earnings: DR Horton (DHI)
Earnings Date: Tuesday, January 23rd – Pre-Market
After a series of dips, “new starts” in residential housing are climbing back to pre-pandemic levels, though still a hair below what we saw amid the pandemic’s ZIRP-mania. DR Horton’s (NYSE:DHI) upcoming earnings could prove the housing market has reached stability, inspiring investor confidence and potentially sending shares soaring.
The residential builder’s stock had a banger 2023, with shares climbing more than 60% even amid economic clampdown and slightly slowed housing starts. It’s important to note that because of nuances in revenue recognition, homebuilder earnings reports tend to lag slightly. So, for example, financial figures within a Q4 earnings report are sometimes more reflective of what actually happened in Q2 or Q3 the same year.
That latency is why other metrics are just as important to gauge homebuilder viability, and DHI is meeting the mark in that respect. Cancellations (buyers pulling out of a new home contract before closing) are one of those metrics that also serve as an overall economic bellwether. While cancellations are still fairly high, DHI reported that the overall rate fell from 32% to 21% in its most recent calculation. At the same time, DHI is making lemonade out of canceled contract lemons by getting into the long-term rental game with its inventory – and that business segment brought $217.2 million worth of profit into the company’s coffers in its last financial filing.
Fair Isaac Corp (FICO)
Earnings Date: Thursday, January 26th – Time TBD
Credit-scoring monolith Fair Isaac Corp (NYSE:FICO) is on a run of its own, and its upcoming earnings could easily inflate the company’s stock, which has already climbed nearly 100% over the past year. As the credit crunch continues, of course, FICO’s credit-scoring services are increasingly in demand. That’s why FICO remains the gold standard of credit scoring, with 95% of all asset-backed securitizations using FICO scores as a core metric to vet and judge risk.
But lest you assume FICO’s national dominance marks the top for the company’s position in a saturated market, FICO is running the global game to open new income avenues. Late last year, FICO broke into India with a handful of banks adopting the FICO platform’s AI and automation opportunities to increase loan origination and streamline their lending processes. As India stands as one of the fastest-growing emerging markets economically, there’s an increased need for borrowing to fuel local business growth. And FICO tapped that market just in time. Investors should keep their ears open during the earnings call to see what management says about the state of FICO’s global operations – because that segment is what could send the company into the next growth tier.
Stocks to Buy Before Earnings: American Express (AXP)
Earnings Date: Friday, January 26th – Pre-Market
Betting on broad financial stocks during this earnings season is tough but, if you have to pick one, American Express (NYSE:AXP) is the easy answer. Compared to peers like Citigroup (NYSE:C), which fired thousands of workers just before Christmas, AXP is having a top-tier year as its net income climbed 30% in its last earnings report. The question of course, is whether AXP can continue the momentum next week on the heels of a questionable holiday shopping season.
Early signs point to yes. The previous quarter marked the company’s sixth consecutive quarter of record revenue, and even a modest sales season could maintain the credit spending trend. More importantly, unlike the retail stocks I referenced above, AXP is agnostic to any specific company performance and, instead, rides on the wave of overall consumer spending. And, after falling in 2023’s first quarter, credit card utilization rates ticked back up towards the end of the year. Combined with (slightly) rosier overall economic prospects, this indicates renewed consumer confidence more than over-leveraged households struggling to stay afloat.
That perspective is further evidenced by credit card delinquencies flatlining, which, in the words of one analyst, is “a sign we could be approaching peak normalization.” That statement came back in November, and if trends hold, we should see seasonality return to credit card borrowing – just in time for holiday shopping (and AXP’s earnings report next week).
Logitech International (LOGI)
Earnings Date: Monday, January 22nd – After Hours
Logitech International (NASDAQ:LOGI) struggled more than most hardware tech companies in the past year, but its Q3 earnings pointed to renewed strength that, if the renewed consumer sentiment thesis holds, could maintain momentum in next week’s earnings report. Last October’s earnings marked a reversal as the company posted its first earnings increase after eight consecutive declining quarters.
Analysts tend to be cool toward LOGI, with most recommending investors Hold and pinning the current price as slightly overvalued. Still, some of the biggest names in the business – including Barclays and JP Morgan – rate LOGI as a Buy and rate the current per-share pricing at or slightly below fair value. These factors combine to make Logitech somewhat of a dark horse earnings play, but there’s more upside than downside in this case. If the company’s earnings fall flat, then it stands broadly in line with expectations (barring any catastrophic news). But if LOGI closes another profitable quarter, then shares could surge on the beat.
Stocks to Buy Before Earnings: Texas Instruments (TXN)
Earnings Date: Tuesday, January 23rd – After Hours
Semiconductors remain a hot commodity, but among all the Nvidia (NASDAQ:NVDA) hype, homegrown chipmaker Texas Instruments (NASDAQ:TXN) went largely unacknowledged in recent years. That could change, though, as the company’s rapid inroads into automotive chipmaking represent a major inflection point for the stock that offers an upside for its upcoming earnings report.
Notably, rather than focusing on high-end chips, TXN focuses on low-end analog and embedded chips. While this might seem counterintuitive to growth prospects, the emphasis on this sector protects TXN from wider competition – particularly ongoing battles between Chinese companies battling high-end chipmakers like Nvidia and Taiwan Semiconductor (NYSE:TSM). There’s value in keeping things low-key as others fight for dominance in saturated, sophisticated markets, and TXN has that segment locked down.
Better yet, TXN’s focused on process improvements in recent months rather than pure cost-cutting, which could have downstream effects that include production cost reductions as high as 40%. Ultimately, TXN is an “old reliable” that might not post stellar earnings but still maintains strength and stability that keeps your portfolio afloat amid wider volatility.
Teledyne Technologies (TDY)
Earnings Date: Wednesday, January 24th – Time TBD
If you want a cast a wide net, conglomerate Teledyne Technologies (NYSE:TDY) is the earnings play for you. The company owns and operates dozens of companies across instrumentation, imaging, aerospace, defense, and engineering sectors. In fact, the company’s products are so widespread that they boast the company “enables many of the products and services you use every day.” Better yet, each of its segments is firmly within a defensive (from a stock perspective) industry less affected by economic volatility than others.
In its last report, the company posted a solid earnings beat of $5.05 per share compared to analyst expectations of around $4.75 per share. Over the past five years, TDY marked a 14% compound earnings per share growth, and there’s little indication the upcoming earnings report will deviate from the trend.
One capital management firm summed up TDY’s bull thesis well, saying the company offers “Highly engineered, premium priced, critical technologies sold across a diverse range of end markets.” Likewise, the report pointed to TDY’s strong free cash flow and improved balance sheet as indications its current per-share pricing remains undervalued. Other analysts widely agree, with 71% of polled responders calling the stock a Buy before next week’s earnings.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.