These stocks may be primed for a bounce

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Earnings season does not look good, but are some stocks washed out and ready to bounce?

I've noted for weeks that we are in an earnings recession, with two consecutive declines now expected for profits in the S&P 500, according to FactSet. First-quarter earnings are expected to come in 4.7 percent lower, while second-quarter earnings are expected to come in 2.1 percent lower. Third-quarter earnings are expected to come in 1.6 percent higher.

Wall Street is gripped with this frenzy that earnings will be much weaker than expected even a month ago.

The good news is many stocks may be reflecting this disappointment already and may be ready to stabilize and even bounce.

This morning, Schnitzer Steel, a big recycler of scrap metal, reported a much greater loss than expected of 33 cents per share versus an expected loss of 6 cents with revenue also much lighter than expected. A loss is not surprising given the big decline in steel prices and the dollar strength, but the size of the loss is pretty big. The company also blamed the weather, and the usual cost reduction programs were announced.

Watch the stock today. The Street is well aware of the problems, as the stock has dropped to $16 this year from $22 per share.

Which brings me to my point: The downside risk to many stocks may be more limited than many think.

Overnight, Samsung said it saw profits declining 30 percent for the quarter ending March 31. That would be the sixth consecutive year-over-year fall in quarterly profit. Wow. However, it is an improvement over the 36-percent decline last quarter and a lot better than the 60 percent decline in the quarter before that. In other words, this is being greeted as generally good news, and the stock—after a very rocky 2014, is once again within striking distance of an historic high.

Yesterday, Emerson Electric reported that orders were down 10 percent for the three month period through February, much of it due to a stronger dollar. They are anticipating a sales decline of 7 percent for the just-completed quarter. March orders are expected to be roughly flat. Yet, the stock was up about 3 percent Monday. Macquarie Research said "we now believe the downside risk is limited" because the stock had gone almost straight down this year to $56 , from roughly $62 a share at the beginning of the year.

Last week, Monsanto also reported weak sales and a profit decline of 15 percent, yet the stock rose, after dropping to roughly $112 at the end of March from $125 a share at the beginning of the year.

Granted, it's early in the season, so there are not a lot of examples yet. But there's enough to make this an intriguing thesis.