Stocks to watch in Q3 earnings season

Stocks to watch in Q3 earnings season

Earnings season is underway gets going properly next week with the big bank updates. For Q3, analysts expect S&P 500 companies to report year-over-year earnings decline of -0.1% and a year-over-year revenue growth of 1.6%. For Q4 2023, earnings growth of +8.3% and revenue growth of +3.9%, is expected.

Tech stocks are among the most hotly-tip/instrument/upro/ped after a significant pullback for the Magnificent Seven since the summer highs. The top 7 stocks are Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Nvidia (NVDA), Tesla (TSLA) and Meta Platforms (META).

The top 7 are well off their July peak and now trading 1.3x higher than their price, earnings per share, and long-term growth (PEG), which is below the average S&P 500 stock's 1.9x ratio. It's a level reached only five times in the past decade, and the largest discount since 2017, says Goldman Sachs.

Nvidia: Goldman Sachs added the chipmaker to its Americas conviction list for October. It has a buy rating and a price target of $605, implying upside of around 40%.

GS expects NVDA to “maintain its status as the accelerated computing industry standard for the foreseeable future,” highlighting the competitive moat and the demand for increasingly complex artificial intelligence models. The bank also said the data centre business remains strong.

Nvidia has been the market leader in 2023, up more than 200% YTD and a key plank in the S&P 500 performance this year.

Based on 40 Wall Street analysts offering 12-month price targets for Nvidia, the average price target is $644.69 with a Street high forecast of $1,100 and a low forecast of $560. GS also added Okta and Cintas to its conviction list and removed Dow component Salesforce (CRM).

Meanwhile Wells Fargo added Microsoft to its top picks list. “With MSFT shares down recently, we now see a favorable path forming ahead of an improving ROY [return on yield] model trajectory with several key catalysts ahead,” analysts at the bank wrote.

But whilst megacap tech stocks have led the rally in 2023, some are more sanguine about the future.

Bernstein analyst Toni Sacconaghi suggests now might be the time to take profits on this year’s market leaders. “Our analysis of historical periods of very concentrated market performance reveals that performance of the broader market holds up ok, but that the strongest contributors typically underperform, suggesting that investors may want to selectively look to take profits on this year’s leading contributors,” he wrote in a note to clients on Monday.

Away from big tech, JPMorgan updated its list of top names for October on Monday to include DraftKings (DKNG), Boston Scientific (BSX) and Wynn Resorts (WYNN). The Macau recovery is “still intact despite extreme negative sentiment from China disrupting the share price performance" analysts at the bank wrote. General Motors (GM) also returned to the list, with analyst Ryan Brinkman’s $56 target price implying shares could rise nearly 70%. Domino’s Pizza (DPZ) and Amazon (AMZN) are among the other names on the list.