Goldman: Beware of earnings season

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The market is likely to fall during earnings season due to poor results, meager guidance and lack of stock buybacks, according to Goldman Sachs. So what are the stocks that can outperform in such an environment?

"(We expect) a disappointing first-quarter earnings season," Goldman Sachs' chief U.S. equity strategist, David Kostin, wrote in a note to clients Friday. "Analysts continue to wear rose-colored glasses despite decades of evidence that they are consistently too optimistic regarding profit growth."

The strategist doesn't like the risk-reward for the market as the firm's year-end price target is 2,100, which is only 2 percent upside from current levels. Due to a "poor operating environment" for bank and energy companies, he believes the market's first-quarter earnings may be down as much as 9 percent year over year.

Kostin also anticipates weaker-than-expected second-quarter guidance as the economy looks worse than it was one quarter ago. The firm estimates first-quarter GDP growth of 0.9 percent versus the 1.4 percent in 2015's fourth quarter.

Another negative factor is companies aren't allowed to execute "discretionary" stock buyback programs during their earnings blackout periods, which are in effect for most companies until May. During such blackout periods trading flows are 33 percent lower than normal, according to Goldman Sachs' buyback desk.

Even with a tepid earnings season and lack of market upside, there are stocks that can do better than the market.