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Apple Earnings Loom: Are These Stocks Poised for a Surge?

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Morgan Stanley Identifies Top Stocks to Buy Ahead of Earnings Season

As earnings season kicks into high gear, investors are eagerly anticipating company reports that will shed light on the state of the economy and corporate performance. Morgan Stanley has pinpointed several stocks that it believes present compelling buying opportunities ahead of their upcoming earnings releases, citing a combination of strong fundamentals, positive catalysts, and attractive valuations.

Key Takeaways:

  • Morgan Stanley has identified several stocks with an "overweight" rating ahead of their earnings releases.
  • Positive catalysts and strong fundamentals underpin the firm’s bullish outlook for these companies.
  • The analysts see potential for share price appreciation and long-term growth in these stocks.

Colgate-Palmolive: Pricing Power and Share Gains Fuel Growth

Colgate-Palmolive (CL), a leading consumer products company, is scheduled to report its second-quarter earnings on July 26th. Analyst Dara Mohsenian believes that the company’s strong performance will be driven by factors including pricing power, market share gains, and a thriving pet business (Hill’s Pet Nutrition).

"Corporate visibility is also high given recent strong balance in CL’s results, which gives us more confidence in sustainability, as well as CL’s greater defensiveness than peers.However, more so than just Q2 where the bar is already high, our enthusiasm for the stock comes from increasing visibility that CL’s LT [long term] structural advantage is building vs peers, which should continue in H2 and beyond." – Dara Mohsenian, Morgan Stanley

Despite a 23% stock price increase in 2024, Mohsenian believes Colgate-Palmolive has ample room for growth, particularly driven by the expanding pet market. He points to the company’s strong track record and its ability to navigate challenging economic environments as key factors supporting its future performance.

Apple: Apple Intelligence Fuels Record Upgrades

Tech giant Apple (AAPL) has been elevated to top pick status by Morgan Stanley analyst Erik Woodring, who sees the company’s Apple Intelligence, its foray into generative artificial intelligence, as a significant driver of growth in the coming months.

"Apple Intelligence is set to drive record device upgrades.However, what we had previously underestimated, and what the market still underappreciates today, is just how material the impending upgrade cycle can be." – Erik Woodring, Morgan Stanley

Woodring argues that the market has underestimated the potential impact of Apple Intelligence on iPhone and iPad sales, with the company poised for a record upgrade cycle. He believes that Apple Intelligence will serve as a key catalyst for device innovation and consumer demand. Apple is scheduled to report its fiscal third-quarter results on August 1st.

Datadog: Executing Well in a Tight Spending Environment

Cloud-scale applications software provider Datadog (DDOG) has seen its share price dip this year, down nearly 2% in 2024. However, Morgan Stanley analyst Sanjit Singh advises investors to view this dip as a buying opportunity ahead of the company’s quarterly earnings report, scheduled for August 8th.

"Our intra-quarter conversations suggest that DDOG is executing well in a tight spend environment which we see as translating to sustained growth.While NT risk-reward screens less compelling, we see a LT share gain opportunity that should deliver sustained growth and attractive margins.Datadog continues to be positioned as the best house in a tough infrastructure software neighborhood." – Sanjit Singh, Morgan Stanley

Singh acknowledges the recent downward pressure on Datadog’s valuation, but emphasizes the company’s strong execution and long-term growth potential. He sees the company’s ability to navigate a challenging spending environment as evidence of its resilience and future prospects.

Spotify Technology: Price Increases Drive Growth

Morgan Stanley has raised its estimates for Spotify Technology (SPOT), recognizing the positive impact of recent price increases in the United States. Analyst [Name of Analyst] notes that these price hikes have resulted in higher-than-expected margins and strong user growth.

" We raise estimates to incorporate the earlier and larger than expected US price increases and the higher than expected incremental margins on these increases. Our OW thesis remains Spotify’s 1) long runway ahead for user growth, 2) leading product position, and 3) underappreciated earnings power." – [Name of Analyst], Morgan Stanley

The analyst remains bullish on Spotify’s long-term prospects, highlighting the company’s significant user growth potential, its leading position in the music streaming market, and its underappreciated earnings potential. Pricing power and sustained user growth are key drivers of the analyst’s positive outlook.

Nu Holdings: Brazilian FinTech Poised for Growth

Nu Holdings (NU), a Brazilian fintech company, has caught the attention of Morgan Stanley analysts, with a particularly optimistic outlook from [Name of Analyst]. After a recent meeting with the company, the analyst has become even more confident in the company’s future.

"We came away from our meeting with even more confidence in our bullish view — Nubank could reach US$100 billion valuation by 2026. The payroll loan book in Brazil is poised to accelerate meaningfully later this year, the Mexico story seems to be progressing nicely, and the Open Finance agenda — if executed well — can allow for even faster market share gains at NU. At the same time, consensus is still underestimating the opportunity ahead, in our opinion." – [Name of Analyst], Morgan Stanley

The analyst believes that Nu Holdings is poised for significant growth, driven by factors such as its expanding payroll loan book in Brazil, its successful expansion into Mexico, and its participation in the Open Finance agenda. The analyst sees a favorable market environment and a significant undervaluation of the company’s potential, leading to a bullish valuation target of $100 billion by 2026.

These companies are all expected to report their earnings in the coming weeks, and investors will be closely watching to see if the companies can deliver on the strong expectations set by Morgan Stanley analysts. The stocks identified by the firm offer a range of opportunities across different sectors, and investors may be interested in adding them to their portfolios based on their individual investment objectives and risk tolerance.

Article Reference

Sarah Thompson
Sarah Thompson
Sarah Thompson is a seasoned journalist with over a decade of experience in breaking news and current affairs.

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