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Wall Street is expecting a lackluster first-quarter earnings season, which kicks off next week with results from JPMorgan Chase (JPM) and other major US banks. But more than a dozen Club holdings, including Amazon (AMZN) and Caterpillar (CAT), are expected to reverse the trend and boost profits. Earnings per share for the S&P 500 in the first quarter are expected to fall 7% from the year-ago period, Goldman Sachs said in a note to clients Wednesday. That would be a “significant deterioration” from the broad index’s fourth-quarter EPS decline of 1%, the company said, and the biggest year-over-year decline since the third quarter of 2020. Goldman sees margin squeeze as the main driver of the decline. The earnings picture will, of course, vary under the hood. That’s why we’re spending less time worrying about what the S&P 500 will do and focusing more on the performance of individual companies. Some S&P 500 sectors, such as consumer discretionary and energy, are poised to increase earnings from 2022, according to Goldman. Materials and healthcare, meanwhile, are expected to experience the largest BPA contraction. The healthcare part is interesting, as the industry is generally seen as stable earnings growth. But keep in mind that many companies are overselling Covid sales from last year. Within the Club’s portfolio, we found 14 companies that are expected to post positive earnings growth this season, according to FactSet estimates. We’ve ranked them by expected percentage increase. Our list does not include Wynn Resorts (WYNN) as the casino operator is expected to remain unprofitable in the quarter. However, analysts expect its loss per share to decline to 17 cents from $1.21 a year ago as its business in Macau recovers from strict Covid controls in China. However, it is still important to highlight Wynn, as the improvement in bottom line is encouraging. In fact, Wynn’s second quarter ending in June is expected to be Wynn’s first period with positive EPS since September 2019, following more than three years of Covid disruptions to operations. What it means Earnings growth is what investors want to see in the short and long term. And given the short-term outlook for the S&P 500, we are pleased that a good portion of the companies in our portfolio should show earnings growth this coming season. At the same time, Wall Street is growing increasingly concerned that the economy is just starting to show cracks and that a major downturn could be on the horizon. This means that investors will pay close attention to company forecasts and comments. How do management teams view the economy and its impact on their respective businesses? Did they notice any changes in customer behavior that began to appear after the reporting period ended? Consider Wells Fargo (WFC), which will release its report next Friday, April 14. It is understood that its first quarter 2023 results will benefit from favorable comparisons to a year ago, as interest rates were virtually zero for most of the first quarter of 2022. For banks, in particular, what investors want really know is what companies see in the future, after the US banking sector – and the economy as a whole – was thrown into turmoil by the collapse of three lending institutions in March. In a note to clients on Wednesday, Morgan Stanley banking analysts made this point early on: “April earnings will be about outlook, not results.” To be clear, this does not mean that in the overall market quarterly figures are irrelevant. For example, results from Halliburton (HAL) will show how oil and gas drilling activity held up this year through March despite falling crude prices. Figures from Microsoft (MSFT) could shed light on the immediate financial impact of the AI hype throughout the first quarter. The impression from Ford Motor (F) will show how the automaker has taken steps to overcome its very lousy fourth quarter. As always, we will analyze the earnings reports of our two companies and consider their guidance to ensure that our investment logic is still intact. (See here for a full list of Jim Cramer’s Charitable Trust stocks) As a CNBC Investing Club subscriber with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
An Amazon Prime truck is pictured as it crosses the George Washington Bridge on Interstate Route 95 during Amazon’s two-day “Prime Early Access Sale” shopping event for Amazon members in New York, on October 11, 2022.
Mike Segar | Reuters
Wall Street expects a lackluster first-quarter earnings season, kicking off next week with results from JPMorgan Chase (JPM) and other major US banks. But more than a dozen Club appearances, including Amazon (AMZN) and caterpillar (CAT), should reverse the trend and increase profits.