- Earnings season is both a leading and a lagging indicator.
- However, earnings growth is the leading predictor of future stock price growth.
- With contradictory economic reports making the state of the economy unclear, these four stocks may help clarify things for investors.
Investors are about 10 days from the start of the third quarter earnings season. This can be volatile for stocks as companies provide their financial data for the prior quarter and offer guidance for future quarters.
In this way, earnings reports can be both a leading and a lagging indicator. They’re a lagging indicator because the financial results have already occurred.
However, they can predict future growth, making them a leading indicator. This is particularly important because earnings growth is the leading predictor of stock price growth.
Right now, investors are hoping for a positive earnings cycle to provide clarity to an economy that gives them as many reasons to buy as it does to sell. Here are four names to watch closely heading into earnings season.
1. This Magnificent 7 Stock Is Going to Hit on All Cylinders
Technology stocks have been hit-and-miss in 2024. Some of that is due to sector rotation, and some of it is due to investors taking a pause after strong sector growth has made the valuations of many tech stocks uncomfortably high.
However, one of the names to watch closely this earnings season is Amazon.com (NASDAQ:AMZN).
Much is made of the company’s Amazon Web Services (AWS) business. However, if lower interest rates have their desired effect, consumers may be willing to spend more in the fourth quarter. That could start with Amazon’s Prime Big Deal Days on October 8 and 9.
Sales from that event won’t be part of the topline number Amazon provides with its earnings on October 24. However, investors will likely hear about the company’s sales for that event and what it means for future earnings.
Analysts are currently forecasting 20% earnings growth for Amazon, but a strong forecast could send that number and future price targets much higher.
2. Investing in Data Centers Is a Solid Long-Term Play
Keeping investing simple means taking the opportunities that are hiding in plain sight. In 2024, that means investing in data center stocks. Fortunately, there’s still time to invest in this sector. And Pure Storage (NYSE:PSTG) is an attractive option.
The company provides data storage and management technologies, products, and services such as part of its enterprise-class data services. Data centers are becoming an increasingly important part of the company’s revenue mix as demand for artificial intelligence applications continues to grow.
PSTG stock has been down approximately 19% since it reported earnings on August 28. The concern came from the company’s guidance. However, that guidance may be conservative. NVIDIA (NASDAQ:NVDA) CEO Jensen Yuang clarified in his company’s earnings report that he expects data centers and hyperscalers to continue spending on AI.
That would be bullish for Pure Storage. Analysts are already forecasting 65% earnings growth for the company and that may move significantly higher with an improved earnings outlook.
3. The Growth in Metal Stocks Is Likely to Continue
The surge in the spot price of gold and silver is becoming too big for investors to ignore. However, as is usually the case with commodity stocks, mining stocks lag behind. But recent price action suggests that may be changing. Freeport-McMoRan (NYSE:FCX) is an attractive basic materials stock to watch heading into earnings season.
FCX stock is up 20.6% in 2024, but much of that growth came in September when the stock climbed more than 17%. Investors should note that the company is one of the biggest miners of copper. Demand for copper is expected to surge for the rest of the decade, and data centers will be a significant growth driver.
Analysts are projecting 37% earnings growth for FCX stock. Although the consensus price target is only about 3% above the stock’s closing price on September 27, analysts have been bidding the stock higher.
4. Watch What Caterpillar Has to Say About Guidance
Caterpillar (NYSE:CAT) was already considered one of the stocks to watch in the fourth quarter.
The company is likely to benefit from interest rate cuts and the economic expansion brought about by infrastructure spending.
With the recent damage caused by Hurricane Helene, more public money will flow into the economy, which is another bullish reason to own CAT stock.