- Third-quarter earnings will begin rolling in this week, with big banks kicking things off on Friday.
- Goldman Sachs recently revealed what to watch for, plus how the market will trend next year.
- The firm says these 40 stocks will enjoy stronger earnings than the rest of the market in 2024.
As summer gives way to fall, the calendar year’s final earnings season has begun — and not a moment too soon, according to some on Wall Street.
The S&P 500 has retraced its steps after rising 17% in the first half of the year, falling 5% since the end of July. Fears of a recession fueled by the Fed’s higher-for-longer monetary policy, better bond alternatives, and now a new geopolitical conflict have given investors plenty to think about, and many have sold stocks to lock in profits.
However, a new earnings season could give markets a boost. Strong third-quarter results may just give stocks the boost they need to kick off 2024 on the right foot, and Goldman Sachs analysts are optimistic about earnings in the coming weeks.
Here’s what the firm is looking for as third-quarter earnings season begins, which sectors should outperform, and which stocks are poised for big bottom-line growth next year.
Expectations for third-quarter earnings are high.
In a recent note to clients, chief US equity strategist David Kostin outlined the market’s expectations for how stocks will perform during the upcoming earnings season — and at first glance, investors may believe things are not looking good.
“Consensus expects the aggregate S&P 500 index will post 0% year/year profit growth in 3Q 2023,” Kostin wrote in a note. “The median stock is expected to grow EPS by 2%.”
However, this is not as bad as it has been in recent quarters.
“Analysts were pessimistic heading into the first and second quarter earnings seasons, with 1Q EPS estimates falling by 7% and 2Q estimates falling by 4% prior to the start of previous reporting seasons.” EPS estimates for the third quarter, fourth quarter, and 2024, on the other hand, have remained roughly flat,” Kostin wrote.
According to Wall Street experts, the communication services sector will see the strongest bottom-line growth this quarter, while energy will take the biggest hit due to oil prices remaining lower than a year ago.
However, consensus estimates indicate that the market’s worst days may be behind it. Wall Street believes that EPS growth has peaked in the second quarter, which Kostin concurs with — especially when looking ahead to next year.
“We maintain our 2023 S&P 500 EPS estimate of $224 (+1% year/year growth),” Kostin said in a statement. He followed up with the following statement: “We reiterate our 2024 S&P 500 EPS estimate of $237 (+5% growth) and view risks as balanced.”
40 stocks poised for earnings growth
While any improvement in market bottom lines is welcome, investors do not have to settle for market-matching EPS growth. Instead, Kostin can assist them in achieving market-beating earnings growth.
Kostin revealed the 40 stocks that Goldman Sachs believes will outperform the market in terms of earnings growth next year in a separate note published earlier this month.
All 40 are listed below, in descending order of estimated EPS growth in 2024. Each stock is accompanied by its ticker, 2023 estimated EPS growth, and 2024 estimated EPS growth.