Avoid these possible earnings blowups as reporting season begins, Wolfe Research says
There are some names this upcoming earnings season investors may want to steer clear from, according to Wolfe Research. The reporting period kicks off in earnest Friday, with JPMorgan Chase , Bank of America and Citigroup among the companies slated to post fourth-quarter results. Data from FactSet shows that S & P 500 earnings are forecast to have increased 1.3% in the fourth quarter. For the full year, earnings are expected to be flat. As the season gets started, Wolfe Research advised clients to stay away from companies with a low earnings quality score. To find these names, the firm uses a proprietary metric that factors in seven financial ratios along with sentiment and valuation measures. The score ranges from 0 to 100, with the latter being stocks of the highest-quality names. “We expect low quality stocks to underperform again starting in 2024,” chief investment strategist Chris Senyek wrote Wednesday. The firm has a basket of low earnings quality names that can help investors “avoid potential blow-ups in the portfolio.” Here’s a look at some of the stocks that made Wolfe’s list. Tesla is among the weakest stocks on the list with an earnings quality rating of 0. The electric vehicle company missed on the top and bottom line for the third quarter . CEO Elon Musk was also cautious toward the overall state of the economy moving forward and issued an elongated forecast as to when the Cybertruck would contribute to Tesla’s cash flow. Tesla will report fourth-quarter results on Jan. 24, and analysts polled by FactSet forecast an adjusted 72 cents per share on revenue of $25.5 billion. TSLA 1Y mountain Tesla stock. C3.ai also made Wolfe’s list with an earnings quality rating of 1. The stock benefited from the massive uptick in investor interest toward artificial intelligence in 2023. Shares rallied 156.6% last year but the company has missed earnings forecasts in the previous two quarters. AI YTD mountain C3.ai stock. C3.ai is expected to report fiscal third-quarter results between late February and early March, according to FactSet. Analysts surveyed by FactSet expect an adjusted loss of 28 cents per share and $76.1 million in revenue for the quarter. Other notable names on the list include clothing company Levi Strauss and toy maker Hasbro . — CNBC’s Michael Bloom contributed reporting.
