Earnings are front and center for some of the largest US companies right now. Bank of America strategist Jill Carey Hall suggests investing in high-quality companies. She names a group of “Buy”-rated companies that look likely to report better-than-expected earnings. Earnings reports are driving some of the biggest moves on the stock market right now as the largest US companies announce their fourth-quarter results.
While Apple, Alphabet, and Amazon made headlines on Friday, reports will keep rolling in for weeks, contributing to outsize gains and losses for individual names.
Bank of America US Equity Strategist and Head of US Small and Mid Cap Strategy Jill Carey Hall says one route to success right now is focusing on quality, which means buying companies that have a combination of consistently good earnings and a healthy balance sheet. But how to find those?
She suggests looking at companies with improving operating margins.
“We think amid sticky but easing cost inflation, this factor will continue to be rewarded based on stocks that still have pricing power (a growing challenge) or stocks that previously saw margins hit hard by inflation and are now seeing margins expand as cost pressures ease,” Hall wrote in a recent note to clients.
Hall says quality is typically the best-performing stock factor during periods like this one, when the economy is slipping from the end of an expansion into a downturn.
“Beyond January we would still prefer Quality (the most consistent small cap factor in Downturns/Recessions as well as in Late Cycle),” she wrote.
Hall and her team say the following small- and mid-size companies are ripe for a strong earnings season. They all have “Buy” ratings from her firm’s analysts and reported better-than-expected earnings and sales last quarter. Bank of America expects them to top expectations in the current period as well.
The companies are organized below based on when they are expected to report their results for the last fiscal quarter.