By Jacob Sonenshine
The market has soared since last fall, with the S&P 500 up 26% since hitting a low point in late October and up 9% for the year.
That can make it hard to find stocks that look like bargains.
One solid strategy is to look for laggards that report earnings soon and have seen earnings forecasts rise, something Evercore strategists did in a recent screen.
The team searched for companies that have underperformed the S&P 500 for the year. The firms must have beaten earnings estimates in most of the past eight quarters, and for analysts to have raised estimates this year by a larger percentage than their peers. The companies also must have analyst expectations for 2024 earnings to grow faster than their sectors.
Stocks that made the list include PepsiCo, Mondelez, Zscaler, and Paylocity Holding.
Another is PPG Industries, the $32.7 billion maker of industrial coatings and paints. The stock is down about 7% this year and the company has beaten earnings estimates for more than eight consecutive quarters. Analysts have lifted 2024 earnings per share estimates by about 0.6% this year, according to FactSet, while peers have seen downward revisions.
Analysts expect PPG to produce just over 2% sales growth this year to $18.6 billion. That comes as the company mentioned on its fourth- quarter earnings call in January that it expects to continue moderate price increases. It is also winning new customers in its automotive segment.
The cost of raw materials shouldn't rise significantly and other operating expenses can rise more slowly than sales if the company can successfully execute its cost discipline program. That is why analysts see profit margins rising this year, powering EPS to grow just over 10% this year, growth that would outpace peers. The company reports earnings on April 19.
There is also the $11.1 billion chip maker, Qorvo. The stock is up just over 2% this year. Profit results have surpassed expectations in six of the past eight quarters. Analysts have increased 2024 EPS forecasts by almost 8% this year, while aggregate EPS expectations for U.S. semiconductor firms have dipped.
Qorvo is expected to report earnings around the end of April or early May. The company -- which sells chips to consumer electronics makers, makers of smart home and internet of things products, electric vehicle manufacturers, and other customers -- is expected to see sales grow 9% to $4 billion this year. Growth in its advanced cellular group segment, which comprises a majority of revenue, should lead the growth.
The hope is consumer electronics end markets will see an uptick in demand and the company can reduce inventory as it did in the fourth quarter.
The cost of goods will rise only moderately and the company should see stable fixed costs, such as depreciation and interest expenses, so profit margins can expand and EPS can grow 21%.
Buying these names just ahead of earnings isn't a bad idea.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 08, 2024 14:20 ET (18:20 GMT)
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