- Q2 earnings season, retail sales data in focus.
- Netflix stocks are a buy with positive subscriber growth on deck.
- Goldman Sachs will underperform on weak earnings and sluggish outlook.
Stocks on Wall Street closed mostly lower Friday as investors continued to assess the outlook for the economy, inflation, interest rates and corporate earnings.
Despite Friday’s dismal performance, all three major US stock indices posted impressive weekly gains as declining inflation data allayed fears of higher interest rates.
For the week, the blue-chip rose 2.3%, its biggest weekly gain since March. The and the , meanwhile, stuck at 2.4% and 3.3% respectively.
The week ahead is expected to be another busy one as the second quarter earnings season kicks into high gear, with reports expected from several high-profile companies including Tesla (NASDAQ:), IBM (NYSE:), Bank of America (NYSE:), Morgan Stanley (NYSE:), American Express (NYSE:), Johnson & Johnson (NYSE:), American Airlines (NASDAQ:), United Airlines (NASDAQ:) and Taiwan Semiconductor (NYSE:).
Next to earnings, June’s Tuesday is the most important on the economic calendar, with economists estimating an overall increase of +0.5% after sales rose +0.3% in the previous month.
Meanwhile, Federal Reserve officials are in a blackout period ahead of the U.S. central bank’s policy meeting scheduled for July 25-26.
As of Sunday morning, financial markets are counting on a 97% chance of a rate hike of 25 basis points at this month’s meeting, according to Investing.com.
Fed Rate Monitor tool.
Regardless of which direction the market is headed, below I’ll highlight a stock that is likely to be in high demand and another stock that could fall even more.
However, remember that my timetable is just now for the next week, July 17-21.
Stock to buy: Netflix
I think Netflix’s (NASDAQ:) stock will do better in the coming week as the streaming giant’s Q2 earnings report will positively surprise in my opinion, thanks to improving consumer demand trends and favorable fundamental outlook.
Netflix plans to release its second quarter results after the closing bell on Wednesday, July 19 at 4:00 PM ET. Options trading on Netflix implies a stock price swing of about 9% after the report.
In my view, Netflix’s Q2 sales and subscriber growth numbers will beat expectations as it benefits from the launch of a lower-cost, ad-supported basic service tier and amid increasing efforts to crack down on illegal password sharing.
Wall Street sees the Los Gatos, California-based company earning $2.86 per share, down 10.6% from earnings per share of $3.20 in the prior year period amid increased spending for contents.
However, revenue is expected to grow 3.9% annually to $8.28 billion as the streaming giant takes advantage of its restructured business model, including the addition of an ad-supported subscription tier and an ongoing crackdown on password sharing.
Perhaps more importantly, all eyes will be on Netflix’s second-quarter subscriber count, with Wall Street analysts expecting the Internet television network to add 1.8 million new subscribers in the June quarter.
Looking ahead, I believe the streaming video pioneer will provide optimistic guidance to reflect improving operating margins from its ad-supported streaming video service, as well as ongoing initiatives to limit account sharing and reduce costs.
NFLX stock closed Friday at a new 2023 high of $441.91, giving the company a valuation of about $196 billion.
Shares of the streaming leader are up 49.8% year-to-date, nearly tripling the S&P 500’s 17.3% gain over the same period.
Despite strong gains since the start of the year, it should be noted that according to various valuation models on InvestingPro, Netflix’s stock still appears extremely undervalued.
The average ‘Fair Value’ price target for NFLX stands at $533.99, a potential 20.8% increase from the current market value.
Stock to sell: Goldman Sachs
I think Goldman Sachs (NYSE:) shares will have a rough week as the Wall Street powerhouse’s latest earnings report is likely to reveal a sharp drop in both earnings and revenue growth due to the challenging economic environment.
Goldman’s second quarter financial results are expected before the opening bell on Wednesday, July 19 at 7:15 a.m. ET and are likely to again bear the brunt of a significant slowdown in both its core investment banking and asset management businesses . as well as a sharp drop in deal making.
Options trading implies about a 4% swing for GS stock after the update drops.
An InvestingPro survey of analyst earnings revisions highlights several headwinds Goldman Sachs is facing against the current backdrop and points to increasing pessimism leading up to the report, with 13 of 14 analysts lowering their EPS estimates in the past 90 days.
Consensus calls for Goldman Sachs to report earnings per share of $4.04, down 47.7% from earnings per share of $7.73 in the same period last year.
Revenue expectations are equally concerning, with sales forecast to grow 9.5% year-over-year to $10.73 billion amid ongoing macroeconomic challenges.
The financial services company is expected to post a 32% year-over-year revenue decline and a 17% trade decline, according to analyst estimates.
As such, I think David Solomon, CEO of Goldman Sachs, will be cautious about forecasting earnings growth for the coming months as the bank grapples with the negative impact of a slump in global deal closings, mergers and IPO acceptances. amid higher interest rates and continued economic uncertainty.
Global M&A revenue for the first half of 2023 fell 38% compared to the same period last year, according to data from Refinitiv, marking the weakest first half for deal closing since 2020, when the Covid crisis hit major damage to the global economy.
GS shares ended Friday’s session at $326.19, giving the New York-based investment banking giant a valuation of $86.2 billion.
Stocks have struggled this year, falling 5% so far in 2023, significantly underperforming the broader market. By comparison, the financial sector’s leading ETF – the Financial Select Sector SPDR® Fund (NYSE:) – is up 0.2% year-to-date.
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Revelation: At the time of writing, I am long on the S&P 500 and the NASDAQ 100 through the SDR S&P 500 ETF (SPY) and the Invesco QQQ Trust ETF (QQQ). I’m also on the road for a long time Technology Select Sector SPDR ETF (NYSE:). I regularly rebalance my portfolio of individual stocks and ETFs based on an ongoing risk assessment of both the macroeconomic environment and companies’ financials. The views expressed in this article are the sole opinion of the author and should not be construed as investment advice.
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