If there’s any time to be a stock picker, it’s during earnings season, according to Bank of America Merrill Lynch.
As S&P 500 companies roll out their first-quarter reports over the coming weeks, analysts are expecting the first year-over-year decline in earnings-per-share growth since 2016. For the diligent stock picker, the next few weeks will provide many opportunities to profit from the gains that accrue from companies that beat earnings expectations.
It also helps that analysts hesitate to publish earnings estimates that stray far away from what their peers expect. According to BAML, so-called consensus-estimate dispersion for the S&P 500 sits at 5.7%, below its long-term average of 9.6%. This means out-of-consensus calls that turn out to be right can be disproportionately rewarded.
As always, there’s also the risk of big losses if companies disappoint, which is why BAML’s equity strategists advice clients to understand the fundamentals of a company before making investing decisions timed around earnings reporting.
They’ve nonetheless provided a starting point by identifying the buy-rated companies that their analysts expect to beat earnings by more than the Street forecasts. In a recent note to clients, they further singled out the companies that are underowned by over 400 active funds with $1.5 trillion in assets under management.
The list below showcases companies that are underowned among funds, and which BAML analysts expect to outpace consensus earnings forecasts to the greatest degree. It is ranked in ascending order of their earnings-per-share Z-scores — or how much more bullish BAML’s analysts are compared to their peers.
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