The economy has been facing severe headwinds, with only a few sectors holding firm. Earlier this year, several technology stocks were doused in red ink after their Q4 earnings calls. However, as more companies start reporting their third quarter earnings for this year, here are some of the top stocks to watch.
The post-pandemic boom of last year is undoubtedly over, and many investors are sticking to less volatile industries and dividend stocks. However, inflation is far from capitulating, and the labor market is still hot. As a result, consumer demand is still high, making investors confident about consumer staples and the retail industry.
Unfortunately, the industries mentioned above are not invulnerable to volatility in the broader economy. For example, Americans’ credit card debt has risen to $887 billion as of Q2 2022, and the variable interest rates are also heading higher. With these prospects, consumer spending will likely decline. Therefore some companies could report a worse Q3, leading to significant selloffs. On the contrary, some investors will find it worthwhile to buy up some cheap stock.
Leading their respective industries, these are the following seven stocks to watch as they report their third quarter earnings.
| TSLA | Tesla | $223.28 |
| TSM | Taiwan Semiconductor | $62.99 |
| O | Realty Income | $58.01 |
| PEP | PepsiCo | $163.43 |
| VZ | Verizon | $36.36 |
| BA | Boeing | $132.52 |
| AMD | Advanced Micro Devices | $57.16 |
Tesla (TSLA)
One of the top stocks to watch is Tesla (NASDAQ:TSLA). which is down nearly 27% this month alone. While analysts expected the electric vehicle manufacturer to deliver 364,660 vehicles in Q3, the company delivered 343,000 despite producing 365,000. This led to a TSLA sell off last week, and the stock had its worst week since March 2020.
Of course, the sell off may look like an overreaction due to the small margin between expected and actual deliveries. However, it is essential to remember that demand for Tesla vehicles was through the roof last year, and delivery times were far longer. In the same quarter in 2021, the company made 241,300 deliveries while producing 237,823 vehicles. Compare the supply and demand to this year, and there is definitely something wrong here.
Tesla is expected to release their Q3 earnings report on Oct 19, and there is a significant risk of a sell off in the short term if it disappoints analysts. In addition, Tesla’s price-earnings ratio is also at 86. Trading at such a premium may no longer be justified in the current economic situation. Still, there is much to like about the company, and many investors are far from selling their TSLA stock. That doesn’t mean there is no risk. Thus, it makes the list as one of the risky stocks to watch for Q3.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor (NYSE:TSM) is one of the important stocks to watch after a recent Ethereum (ETH-USD) upgrade. Last year’s boom in crypto led to miners purchasing graphics processing units (or GPUs) in massive numbers, increasing the demand for chips and causing a shortage. While the shortage was terrible for consumers and other industries, Taiwan Semiconductor saw an explosion in profits.
Things are different this year, and crypto mining is no longer profitable due to high energy prices. In addition, the Ethereum upgrade made mining on the network impossible. As a result, demand is down the drain, and things may not be so rosy for Taiwan Semiconductor. Scalpers are no longer selling GPUs for thousands, and mining GPUs are flooding the market. Thus, this could lead to disappointing financials for TSMC.
Of course, there is still an automotive chip shortage. But unfortunately, that is unlikely to be enough for Taiwan Semiconductor to hold onto its profits in the long run. Once the demand for vehicles starts to fall, TSM could see itself in trouble. Moreover, the CHIPS act will discourage imports from Taiwan Semiconductor and could end its chip monopoly, making its long-term anticipations troublesome.
Realty Income (O)
With a P/E ratio of 58, Realty Income (NYSE:O) continues to trade at a premium despite its recent downturn. The company has seen its quarterly revenue almost double in the past 12 months due to the boom in the housing market. However, Realty Income could find itself in trouble as mortgage rates continue to rise and home sales decline.
Despite having a year-over-year (or YoY) quarterly revenue growth rate of 75% in Q2 this year, the quarter-over-quarter growth has flatlined and could decline in Q3. Combine that with the current bearish outlook on real estate, and you can find many investors willing to jump ship.
Nonetheless, even though the short-term may be worrisome for Realty Income, I believe a significant selloff is a great buy opportunity if it happens. Real estate still has an excellent long-term outlook, and it won’t be changing anytime soon, thanks to zoning in the U.S.
PepsiCo (PEP)
PepsiCo (NASDAQ:PEP) is often considered a safe stock due to its historical performance. However, with revenue growth slowing down for the past two quarters, there can still be catalysts. For example, Walmart (NYSE:WMT) had a sell off earlier this year due to a gloomy earnings report.
I believe there is a risk for PEP stock due to its weakening financials. In Q2, PepsiCo’s quarterly net income declined by 39.4% YoY, while its quarterly net profit margin declined by 42.4% YoY. Moreover, while many of its peers had selloffs this year, the company’s stock is only down 6.45% year-to-date, which leaves lots of room for a correction.
Therefore, despite the long-term stability, I believe PepsiCo is among the top stocks to watch. If the Q3 earnings show net income continuing to decline, or worse, revenue falling, it may send a gloomy message to PEP shareholders. However, I believe that PEP stock will undoubtedly bring a buying opportunity if such a correction does happen. Consumer staples are a safe industry and will continue to grow long term. There is very little to worry about when considering PepsiCo’s future.
Verizon (VZ)
Verizon (NYSE:VZ) stock has stayed essentially flat for the past decade, changing hands at around $45 to $60 with very little volatility. However, for the past six months, VZ has been facing a massive selloff, down 32%, which seems to be worsening. The stock is now trading at around $36, a low not seen since 2011.
Furthermore, Verizon’s YoY quarterly growth rate was last reported at 0.07%, a decline from 2.1% in Q1. Should that turn negative, things could get even worse for Verizon. For example, its main competitor AT&T (NYSE:T), is also in rapid decline after the company’s Q2 earnings sent T stock lower. If Verizon’s earnings disappoint analysts, something similar will likely happen to VZ.
While that might be true, I believe such a selloff will make VZ stock a must-buy. Even at its current price, the stock is quite tempting due to its high dividend yield and long-term potential. However, it is still better to wait for the earnings call on Oct 21 as stocks could go for even more of a discount.
Boeing (BA)
Boeing (NYSE:BA), a leader in the aerospace manufacturing industry, is one of the top stocks to watch for Q3. BA stock has been very turbulent post-pandemic, and its prices are unlikely to see much upside despite the 737 Max resuming commercial flights.
The company is still in regulatory trouble and hasn’t yet recovered from the coronavirus pandemic. Add another recession, and things can get stormy for the company. For the current quarter, analysts expect revenue of $17.8 billion this quarter, up from $16.7 billion. If Boeing misses these expectations, BA stock might see more selloffs in the short term. Of course, the most significant risk for this company is a deep recession. For Europe, that is almost a given as inflation runs rampant, and there are fears of gas shortages in winter. The chances of a recession in the U.S. is also as high as 96% within the next 12 months due to the Fed’s commitment to lowering inflation.
As a result, I’d recommend avoiding this risky stock at all costs. Leisure and travel will be on the bottom of the average consumers’ list when a recession hits, and Boeing is almost guaranteed to see its deliveries decline.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is an American semiconductor company. That may sound great due to the CHIPS act, but the company does not manufacture its own chips, at least not for now. AMD makes most of its revenue from selling GPUs and central processing units (or CPUs) and buys its chips from Taiwan Semiconductor.
As I’ve mentioned earlier, the demand for GPUs has fallen off a cliff, and demand for CPUs is also rapidly declining. The golden age of AMD is undoubtedly over, as crypto mining is no longer profitable, and the average consumer doesn’t have a stimulus check to purchase the latest GPU.
Thus, I believe AMD’s Q3 earnings will reflect precisely that, with its revenue facing a decline. Therefore, Advanced Micro Devices is one of the top risky stocks to watch before the Q3 earnings report.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.