14 stocks expected to move sharply after posting results

Strong reactions to results by Netflix Inc (NASDAQ:NFLX), Citigroup Inc (NYSE:C) and The Goldman Sachs Group Inc (NYSE:GS) have fuelled expectations that the current US earnings season will be another stock picker’s market.

Bank of America said companies reporting in the first week moved by 6.1% on average, continuing the trend of the previous quarter after a 5.3% move represented the best since at least 2014.

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Companies that beat expectations for both sales and earnings in the early part of this results season were rewarded with 334 basis points of outperformance versus the S&P 500 index the next day. That compares with the historical average of 150 basis points.

Citigroup and Goldman Sachs were among the strong performers in the first week after their shares rose 6%, while Netflix last night closed 10% higher after reporting the biggest quarterly jump in subscriber numbers in the streaming giant’s history.

Earnings are scheduled to broaden next week to include several of the Magnificent Seven, with Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc Class A (NASDAQ:META) and Tesla Inc (NASDAQ:TSLA) among those reporting.

UBS said this morning that it expects a narrowing gap between AI revenues and capital expenditure to drive Big Tech’s 25% earnings growth for the December quarter.

The Wall Street consensus across the S&P 500 index shows earnings up 11% year-on-year, based on sales growth of 3%.

14 shares that could make a meaningful move

Morgan Stanley told clients yesterday that it expects a relatively wide dispersion of earnings per share revisions to create a favourable stock-picking environment.

It highlights the impact of a 9% rise for the dollar index between September and the year-end.

The bank said: “Given the stock level importance we think dollar strength will lead to higher performance dispersion across the market this earnings season. High dispersion typically fosters a robust stock-picking environment.”

It said key questions for executives will include the outlook for further margin expansion when the bar is already set high for companies heading into 2025.

The bank will also be looking to see how rate-sensitive business lines are faring given the delay to Federal Reserve monetary policy easing. Consumer spending patterns since the election and the potential for supply chain changes to mitigate tariffs are also in focus.

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Against this backdrop, the bank has highlighted 14 names for which its analysts expect a near-term catalyst that should drive a meaningful move in each stock.

The 10 where it expects an upward move are Axon Enterprise Inc (NASDAQ:AXON), Cloudflare Inc (NYSE:NET), Moelis & Co Class A (NYSE:MC), Prosperity Bancshares Inc (NYSE:PB), Synchrony Financial (NYSE:SYF), Vertex Inc Class A (NASDAQ:VERX), W.W. Grainger Inc (NYSE:GWW), The Walt Disney Co (NYSE:DIS), Western Digital Corp (NASDAQ:WDC) and Zebra Technologies Corp Class A (NASDAQ:ZBRA).

Disney shares have weakened since November, but the bank sees a near-term re-rating opportunity anchored by accelerating operating income growth at its Experiences segment. The company’s earnings are due for release on 5 February.

On Cloudflare, it believes 2025 could be a breakout year for the cloud-solutions business as sales productivity and emerging AI tailwinds drive more meaningful upward estimates.

Four stocks where the bank sees downside risk on earnings are Caterpillar Inc (NYSE:CAT), Fortinet Inc (NASDAQ:FTNT), Paramount Group, and Teradyne Inc (NASDAQ:TER).