These tactical trades are some of Goldman's favorite ways to play earnings season

Published Sun, Jan 15 20237:21 AM EST

Jesse Pound @/in/jesse-pound @jesserpound

Investors may need to dig deep to find upside plays during the fourth quarter earnings season, but there are still likely winners to be found, according to Goldman Sachs. In a note to clients on Thursday, managing director John Marshall said the options market suggests Wall Street will need to be blown away for companies to get rewarded this earnings season. "Unlike most quarters where we are focused on call buying, we recommend taking a directionally-balanced approach to earnings events this quarter as low implied moves suggest lower than normal probability of relief rallies on earnings days," Marshall said. Still, there are some individual stocks where Goldman analysts feel especially confident, and those could be candidates for upside bets either through buying shares outright or using call options. Investors can use call options to play earnings season by buying contracts that expire after the report with a slightly higher strike price than the current market price. If the stock rises above the strike price after the report comes out, the investor can then use the call option to buy the stock at a discount, or sell the option at a profit. The following stocks have buy ratings from Goldman analysts, where the firm expects a healthy earnings beat. One stock on this list that Goldman analysts are particularly bullish on for not just the upcoming earnings report but the entire year ahead is agricultural company Bunge . Goldman projects that Bunge will beat Wall Street earnings estimates by more than 20% over the next four quarters. Bunge, along with mining stock Freeport-McMoRan , is also on Goldman's conviction list. Another industrial name on the list is Caterpillar , which is off to a hot start in 2023. The stock hit an all-time high on Friday and is up 7.7% year to date. CAT 1Y mountain Caterpillar's stock hit a 52-week high on Friday. Caterpillar is not the only hot stock on the list. Expedia , which has surged 21% so far this year, is also well-liked by Goldman analysts. Conversely, there are other stocks that look like negative outliers to Goldman. Cheesecake Factory and Western Digital have earnings downsides of more than 20% in their upcoming reports, according to Goldman. To play these stocks, investors could use put options. That trade uses the same structure as call options but in reverse, and serves as a bet that the stock will fall. A benefit to both call and put options is that the potential loss on the trade is limited to the price paid upfront to purchase the options contracts. — CNBC's Michael Bloom contributed to this report.