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3 Smart Buys Ahead of Earnings Season

Posted on Saturday, July 11th, 2020 by Sean Sechler

3 Smart Buys Ahead of Earnings Season

As earnings season approaches, investors are on the lookout for companies that offer a good entry point with the potential to head higher on positive results. The truth is that it can be quite difficult to trade earnings since you have to be right on how the market reacts to the release as well as the direction the stock moves. That’s why it’s best to keep things simple and focus on buying quality companies that have strong short term and long term growth potential as well as attractive entry points before their earnings reports.

With the impact of the global pandemic and all of the uncertainty in the economy, many companies have pulled their forward guidance or aren’t expected to deliver great results this quarter. That also means there are some great stocks out there that are potentially mispriced and offer solid buying opportunities. Although trading around earnings season can be tricky, if you are interested in buying shares of quality companies at attractive prices it could reward you handsomely. Here are 3 smart buys to consider ahead of the earnings season.  

Alphabet Inc. (NASDAQ: GOOGL)

The technology sector has been extremely strong as of late, with major players like Microsoft, Facebook, and Apple hitting all-time highs and showing serious relative strength. However, one tech giant hasn’t hit all-time highs yet during this rally and looks like a great stock to buy ahead of its earnings report. We all know how innovative and useful Alphabet Inc’s products like its infamous search engine Google are. The company is obviously doing something right as it has grown over the years to become a member of the trillion-dollar market cap club.

With this stock, you get exposure to groundbreaking tech like the rapidly rising cloud computing industry, a company with one of the best balance sheets in the business, and strong revenue from one of the lowest cost and highest ROI social network advertising platforms. Although the company has dealt with some negative headlines related to Anti-Trust issues, it continues to add high-profile clients to its cloud computing business such as Deutsche Bank AG and Renault SA. Alphabet Inc. reports its Q2 earnings on July 23rd and if it can break through previous all-time highs of $1530.74 the stock has a lot of room to run.

Cigna Corporation (NYSE: CI)

Cigna Corporation is one of the largest employee benefits organizations in the U.S. and is a great buy ahead of its earnings report. Q1 was strong for the health care company and it has grown its Adjusted EPS by 17% over the last 5 years. The fact that the company maintained its 2020 earnings guidance even with the global pandemic occurring tells us that management is confident in the company’s ability to execute this year. Another big plus for this company is the recent acquisition of Express Scripts, which is the largest pharmacy benefit, manager. This acquisition has improved the company’s competitive position and it should see nice increases in EPS and free cash flows going forward.

If you are interested in a value buy in the health care sector this earnings season, it’s safe to say that Cigna is a great choice. Another plus for this stock is the fact that the company has a partnership and equity stake in MDLive for telehealth services. Telehealth has tons of potential and you can expect a shift towards prescription fulfillment through the mail as more and more people start using it. That means Cigna’s Express Scripts business will benefit directly. Q2 earnings for Cigna will be announced on July 30th before the market open.

Mastercard Inc (NYSE: MA)

Credit card providers took a financial hit when social-distancing rules were in effect, but it appears there has been a rebound in credit card use as the country reopened. Mastercard is a renowned name in the financial services and digital payments industry that some investors are writing off for earnings season due to the recent dips in transaction volume. However, adding shares of this industry-leader could be a smart choice at this time.

This company has a nice streak of beating earnings estimates and is continuously pushing towards becoming a global payments leader. The recent acquisition of Finicity tells us that the company remains strong financially and is focused on its strategy of dominating the digital payments space. With consumers consistently moving away from physical cash, stocks with fintech exposure are poised to pay off massively in the coming years. If you are concerned about credit card loan defaults, you can rest easy knowing that Mastercard does not make money by extending credit but rather by facilitating electronic payments. Mastercard is scheduled to report its Q2 earnings on August 4th.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Alphabet (GOOGL)1.8$1,498.37-0.4%N/A32.95Buy$1,663.26
Cigna (CI)2.6$178.19+3.0%0.02%12.68Buy$244.19
Mastercard (MA)1.9$328.02-0.6%0.49%45.37Buy$333.34
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