UBS says some stocks have upside to Q4 earnings as reports ramp up

Published Thu, Jan 19 202312:54 PM EST

Though UBS has warned stocks in the S & P 500 are poised for a tough earnings season, it still sees some that could positively surprise Wall Street. The broad index's stocks are on track to end a seven-quarter streak of growth and fall 2.7% in the fourth quarter of 2022, according to UBS strategist Keith Parker. That comes as investors increasingly monitor earnings to see if and how corporate America has felt economic tightening from the Federal Reserve's series of interest rate hikes. To get more granular, Parker expects 14 of 20 industries to see fourth-quarter earnings decline on a year-over-year basis. Two of the 20 are expected to perform around the same as the fourth quarter a year before, while the remaining four sectors are poised to see relatively higher earnings. Meanwhile, S & P 500 revenue is expected to grow at what Parker called a "moderate" pace of 4.6% compared with the same quarter a year ago, which would mark a notable slowdown from growth rates of more than 12% seen in prior quarters. Despite the pessimistic sentiment for the broader market, Parker found 32 stocks that the firm thinks could have positive earnings surprises. Here are 10 that made the list: Las Vegas Sands , which reports Jan. 25, is expected to see continued EBITDA growth in its Singapore business. Like other casino operators, Parker said the stock should also be helped by China's reopening given its leading hotel capacity in Macao, a major gambling destination. The stock gained almost 28% in 2022 coming off two years of suppressed travel volume given the pandemic. It's up another 13.5% since the start of 2023. UBS analyst Robin Farley upgraded the casino stock to buy from neutral on Wednesday , citing new gambling regulations in Macao that could also benefit the stock. "We believe the new gaming law significantly lowers risk for LVS: Six concessions are preserved, and the 10-year term would make it less attractive for any new entrants to invest in building a new resort," Farley wrote in a note to clients. "The phasing out of satellite casinos will also reduce competition - we estimate that satellite casinos make up between 15-20% of total tables in Macau. And importantly, the law draft does not contain dividend payout restrictions." Hershey should also perform better than expected when it reports Feb. 2. The company instituted a 14% price increase this quarter that should impact roughly 50% of its confection business. Though price hikes run the risk of consumers pulling back, Parker said data has shown volume elasticity has remained steady. The stock has given up nearly 7% since the start of 2023. In 2022, however, it outperformed with a nearly 22% gain. Mastercard and Visa should both be helped by the rebound in travel coming out of the pandemic. Visa should get an additional boost as the dollar eases against foreign currencies given its international use, UBS said. Mastercard, which shed just over 3% in 2022 but has gained more than 5% since the start of the new year, reports earnings Jan. 26. Visa, which is also up just over 5% this year after shedding 4% in 2022, reports a day later. W. R. Berkley also made the list as Parker expects continued premium growth and strong performance in its insurance business. He said the business could also benefit from the "hardening" property insurance and re-insurance landscape. The company also reports Jan. 27. Its stock surged 32% in 2022 but has eased 3% since the start of the year. — CNBC's Michael Bloom contributed reporting.