Equities
Wolfe Research warns of potential earnings 'blowups' in stocks like Tesla, Rivian, and Pinterest amid first-quarter earnings season.
By Barry Stearns
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First-quarter earnings season has commenced, with significant attention on the performance of major banks and companies across various sectors. Reports from Morgan Stanley, Bank of America, and major health insurers like UnitedHealth have already been released, marking the beginning of a critical period for investors. Wolfe Research has highlighted a group of stocks at risk of profit "blowups," identifying potential short ideas based on earnings quality and market performance. This list includes companies from diverse industries, indicating a broad concern over earnings quality as the season progresses.
Wolfe Research's analysis presents a "short hits list," featuring companies like Tesla, Rivian Automotive, and Pinterest, among others, that have shown vulnerability in their market performance and earnings quality. Tesla, for example, has seen a significant drop in its stock value, attributed to challenges in China and domestic demand, alongside plans to reduce its workforce. Rivian Automotive and Pinterest also face similar scrutiny, with their stock prices tumbling and earnings quality scores raising red flags for investors. This diverse list of companies underscores the varied challenges across the technology, consumer discretionary, and other sectors.
As the earnings season unfolds, certain companies are poised for potentially sharp market movements post-earnings announcements. High expectations are set for companies like Netflix and United Airlines, with significant implied moves based on options market activity. Semiconductor companies ASML and Taiwan Semiconductor are also in the spotlight, driven by AI demand. Financial institutions and consumer brands are not exempt from this volatility, with firms like Blackstone and McDonald’s facing critical earnings reports that could sway their market positions.
The emergence of the "death cross" chart pattern in stocks such as McDonald’s and Lululemon indicates a bearish outlook from investors. This pattern, characterized by the 50-day moving average falling below the 200-day moving average, suggests weakening momentum and growing investor concerns. Despite analyst optimism for these companies, the market sentiment and recent performance paint a cautious picture. Other companies like Crown Castle and American Tower also exhibit this worrying trend, highlighting broader market apprehensions.
"The basket includes stocks that show up most often in the firm’s short screens and filters companies based on earnings quality with 0 the worst and 100 the best."
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