Corporate earnings have come into sharp focus ahead of second-quarter results, with market watchers anticipating further stock pullbacks as companies report lower earnings and guidance. This earnings season is seen by many as a barometer of the state of the economy, after a series of interest rate hikes by the Federal Reserve — including a 75 basis point hike in June that rocked equity markets — prompted fears of an economic slowdown. Trevor Greetham, head of multi-asset at Royal London Asset Management, said earnings will be the “next problem” for markets . He warned an “earnings recession” is coming, which could drag on for some time. Meanwhile, Goldman Sachs strategist Ben Snider noted that earnings estimates are higher now than they were at the start of the year — and he expects more earnings downgrades ahead. Stock screener Against this backdrop, CNBC Pro sought to find stocks with a proven track record of growing their earnings per share (EPS) and which have seen more analyst upgrades than downgrades this year. We used FactSet data to screen for MSCI World stocks with EPS growth of more than 20% over the past 5 years. The list is then whittled down to include only those which analysts have given more EPS upgrades than downgrades to this year. These stocks are also buy-rated by the majority of analysts, with average potential upside of at least 20% based on consensus price targets, according to FactSet data. Stocks that made the screen A raft of semiconductor stocks made the screen. The sector — one of the biggest winners of the stock market bull run last year — has taken a drubbing this year amid concerns over an inventory glut and slowing sales of consumer electronics. But the longer-term outlook for the sector remains bright given chips’ wide variety of applications — from PCs and smartphones, to household appliances and electric vehicles. They also play an essential role in the development of artificial intelligence and quantum technologies. Chip stocks that turned up on the screen include Advanced Micro Devices (AMD), STMicroelectronics , ASM International , Synopsys and Taiwan’s Unimicron Technology . AMD grew its EPS by a whopping 92.1% over the past 5 years, according to FactSet data. Analysts have given the stock average potential upside of 26.1%. Several financial stocks made the screen too. They include India’s ICICI Bank , British private equity firm 3i Group , Connecticut-based insurer W. R. Berkley and French investment group Eurazeo . Financial stocks were one of 2021’s standout performers, as bumper corporate deal-making resulted in higher investment fees while a recovering economy led to fewer bad loans than was expected during the height of the pandemic. Financial stocks also generally do well in a rising interest rate environment as the interest income earned by banks from loans and investments rises faster than what they pay for funding. A host of energy names also popped up on the screen. The energy sector has been the best performing sector by a mile this year on the back of a sharp rise in oil prices. Read more Wall Street believes these beaten-down global stocks are set for a rebound How to trade mounting recession risks, according to Goldman Sachs, Wells Fargo and more ‘Dividend aristocrats’: Strategists name high-yielding stocks to ride out a bear market The energy stocks that turned up on the screen include ConocoPhillips , Devon Energy , Cheniere Energy , and Pioneer Natural Resources in the U.S. Brazilian state-owned firm Petroleo Brasileiro , Canadian Natural Resources and Chinese state-owned firm PetroChina also made the list. Devon Energy has the highest potential upside at 122.5%, according to analysts’ estimates. The company has grown its EPS by 28% over the last 5 years. A number of industrial stocks also turned up on CNBC Pro’s screen. They include Danish shipping giant AP Moller-Maersk , Japanese shipping firm Nippon Yusen and Texas-based energy infrastructure services firm Quanta Services . Hong Kong-listed Orient Overseas International also made the list. The company is the parent of Orient Overseas Container Line, one of the world’s largest container shipping companies. Car parts and equipment retailer AutoZone also appeared on the list. The company has historically outperformed during bear markets and Goldman Sachs believes the company is “defensively positioned” to weather inflation due to its ability to pass through inflationary cost increases. Fertilizer stocks Nutrien and Corteva made the screen too. Both stocks are expected to benefit from supply challenges through 2023 and beyond, according to Barclays . The bank described Nutrien as a “best-in-class” operator that will continue to generate steady earnings from its retail business. It also sees Corteva as an “attractive” way to gain exposure to the broader agriculture sector with limited downside.
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