Goldman's top trades for earnings season: Firm says buy call options on these stocks into results

Published Thu, Oct 12 20231:57 PM EDTUpdated Thu, Oct 12 20233:28 PM EDT

Goldman Sachs believes the negative sentiment in stocks these days is setting up a winning trade in a multitude of companies heading into earnings reporting season, which begins this week. The firm recommends buying call options into the individual companies' reports in what it calls its top "tactical" trades for earnings. "Option implied earnings day moves are elevated suggesting investors are nervous regarding upcoming earnings reports," Goldman analyst John Marshall wrote Thursday. "This nervousness increases the potential for relief rallies for stocks on their earnings days." Investors are contending with several headwinds that are making them uneasy into earnings results. The benchmark S & P 500 has shed 2% in the past three months amid data showing persistent inflation and interest rates at 16-year highs. The outbreak of war between Israel and Hamas from Saturday has also stoked worry over an already tight oil market. To take advantage of nervousness that is spurring mispriced earnings expectations, Goldman used a proprietary model to find attractively priced call options with potential moves to the upside. All the stocks on the Goldman list have earned a buy rating. What's most important, however, is that analysts at Goldman are more bullish on these companies' earnings relative to the Wall Street consensus estimates. Goldman forecasts a 5.3% implied move for Canadian oil and natural gas company Cenovus Energy ahead of third-quarter results Nov. 1. Goldman forecasts an earnings report well above consensus estimates and expects at least 20% upside to earnings per share predictions. Cenovus stock has ticked up more than 6% from the start of the year. CVE YTD mountain Cenovus Energy stock. Goldman recommends buying call options for the November term with a $21 strike on Cenovus. Elsewhere, shipping giant FedEx has a nearly 6% earnings day implied move according to Goldman, and the firm will report second-quarter results Dec. 19. Shares of the shipping giant have surged nearly 46% from the start of the year. Analysts at Goldman think earnings per share could come in at least 20% higher in the forthcoming quarterly report compared with Wall Street estimates. FedEx is coming off a first-quarter beat on both the top and bottom lines. FDX YTD mountain FedEx stock. Goldman is eyeing call options for the January term with a $260 strike for FedEx. Chipmaker and artificial intelligence beneficiary Nvidia also made the Goldman list with a 9.2% implied move after reporting third-quarter results Nov. 21. Analysts at Goldman forecast earnings per share could be 3% higher compared to current Wall Street estimates. Nvidia has already surpassed analysts' expectations twice in 2023 with back-to-back blowout quarters. NVDA YTD mountain Nvidia stock. The firm says call options for the December term with a $470 strike are the play ahead of Nvidia's results.