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5 Favorite Sectors of Q4 Earnings & Their Top Stocks

The Q4 earnings season is set to kick off this week with the banking sector slated to report numbers. Although Q4 earnings growth is expected to decelerate significantly from the last two quarters due to rising cost pressures and supply chain disruptions, the earnings picture remains strong.

While most of the stocks are expected to outperform this earnings season, we have zeroed in on the best stocks of the sectors that have a high chance of surprising in their upcoming releases. These stocks — Murphy USA MUSA, Genco Shipping & Trading Limited GNK, Embraer S.A ERJ, CF Industries CF and Ralph Lauren RL — could make great plays as the Q4 earnings season unfolds and will likely lead higher in the days to come.

Q4 Earnings Trend

Total S&P 500 earnings are expected to be up 19.8% from the same period last year on 11.6% higher revenues. This would follow the 41.5% rise in earnings in Q3 and 95.1% growth in Q2.

Of the 16 Zacks sectors, 11 are expected to earn more relative to the year-ago quarter. Energy, transportation & aerospace will likely see huge earnings growth from the year-ago-quarter as aerospace incurred loss while energy and transportation barely reported earnings. The other eight sectors are expected to witness year-over-year earnings growth. Basic materials is expected to be the biggest contributor to S&P 500 earnings with 80.3% growth. This is likely to be followed by consumer discretionary (46.5%), construction (22.2%) and medical (16.9%).

How to Choose Stocks?

Earnings beat will definitely inspire investors’ confidence and propel the price of these sector stocks higher. Picking the star performers would be easy if we go by our proprietary methodology that selects stocks with a combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive Zacks Earnings ESP.

You can see the complete list of today’s Zacks #1 Rank  stocks here.

Earnings ESP is our proprietary methodology to identify stocks that have the maximum chance to surprise with their upcoming earnings announcements. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Let’s delve deeper into the sectors of the five stocks chosen above:

Energy

Murphy USA from the energy space is a leading independent retailer of motor fuel and convenience merchandise in the United States. It has a Zacks Rank #1 and an Earnings ESP of +21.86%. The Zacks Consensus Estimate for the yet-to-be reported quarter has been revised upward by 51 cents to $2.36 over the past 30 days, representing growth of 9.3%.

Murphy USA delivered an earnings surprise of 20.88% in the last four quarters. It is scheduled to report earnings on Feb 2 after market close.

Transportation

Genco Shipping is a ship owning company that transports iron ore, coal, grain, steel products and other drybulk cargoes along shipping routes. It has a Zacks Rank #2 and an Earnings ESP of +10.27%. Genco Shipping saw positive earnings estimate revision of a penny over the past 30 days for the fourth quarter, indicating whopping growth of 772.7%.

Genco Shipping delivered a positive earnings surprise of 42.60% in the past four quarters. The company is slated to release earnings results on Feb 23.

Aerospace

Embraer designs, manufactures and sells aircraft and aviation-related structural parts to the world’s commercial aviation, executive aviation and defense markets. It is one of the leaders in the commercial aircraft space with a seating capacity of up to 130 and has produced over 5000 jets. Embraer has a Zacks Rank #3 and an Earnings ESP of +17.65%.

In the past month, the stock has seen positive earnings estimate revision of a couple of cents for the yet-to-be-reported quarter and has an expected growth rate of 228.6%. Embraer has delivered a positive earnings surprise of 42.2% in the past four quarters and is slated to release earnings results on Mar 18.

Basic Materials

CF Industries is one of the largest manufacturers and distributors of nitrogenous fertilizer and other nitrogen products globally. It is a leading nitrogen fertilizer producer in North America. CF Industries has a Zacks Rank #1 and an Earnings ESP of +19.21%. The stock has seen solid earnings estimate revision of 72 cents over the past month for the to-be-reported quarter and has an expected earnings growth rate of 662.5%.

CF Industries delivered average earnings surprise of 97.82% in the last four quarters. The company is slated to release earnings results on Feb 16.

Consumer Discretionary

Ralph Lauren is a major designer, marketer and distributor of premium lifestyle products in North America, Europe, Asia and internationally. It offers products in the apparel, footwear, accessories, home furnishings, and other licensed product categories. Ralph Lauren has a Zacks Rank #2 and an Earnings ESP of +3.91%.

Ralph Lauren saw positive earnings estimate revision of four cents for the yet-to-be-reported quarter in the past month and has an expected growth rate of 30.5%. It has delivered a positive earnings surprise of 86.03% in the past four quarters. Ralph Lauren is slated to release earnings results on Feb 3.


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EmbraerEmpresa Brasileira de Aeronautica (ERJ): Free Stock Analysis Report
 
CF Industries Holdings, Inc. (CF): Free Stock Analysis Report
 
Ralph Lauren Corporation (RL): Free Stock Analysis Report
 
Genco Shipping & Trading Limited (GNK): Free Stock Analysis Report
 
Murphy USA Inc. (MUSA): Free Stock Analysis Report
 
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