Instant Alert: 16 stocks neglected by large investors that are poised to smash earnings expectations, according to Bank of America

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16 stocks neglected by large investors that are poised to smash earnings expectations, according to Bank of America

by Akin Oyedele on Jul 2, 2018, 10:51 AM

Earnings season provides some of the best opportunities for investors to outperform their benchmarks, as companies get massively rewarded or punished in the stock market based on their results.
Bank of America Merrill Lynch has highlighted companies it expects to outperform expectations the most, which are also underowned by fund managers.

Earnings season is almost here again.

The first quarter was the best for corporate America in seven years, based on earnings-per-share growth. For Q2, analysts forecast a slowdown to $39.19, a 20% year-on-year growth rate versus 23% in the first quarter, according to Bank of America Merrill Lynch.

Yet, that's no good reason to sell out of the stock market, said Savita Subramanian, the bank's head of US equity and quant strategy, in a recent note. In fact, the busiest reporting period from July 23-26 and July 30-August 1 present a good opportunity for investors to rake in returns. That's because stocks make larger-than-usual moves based on whether they beat or miss expectations.

"Watch crowded stocks by active funds: those that miss tend to get hit harder," Subramanian said. "In 1Q, the most overweight stocks that missed on EPS and/or sales underperformed by 40-150 bp more, suggesting that even with low dispersion, positioning can add alpha."

The list below shows the buy-rated stocks that Bank of America expects to outperform expectations the most, which are also underowned by fund managers. It is ranked in ascending order of Z-scores, or how much more bullish BAML's analysts are compared to consensus.