3 Q2 Earnings Plays with Good Upside

According to Factset, second-quarter earnings growth is expected to be above 60% for S&P 500 companies. If analysts’ prediction holds true to form, it would be the best profit growth since the fourth quarter of 2009.

Mid and small-cap companies are also expected to deliver some stellar year-over-year growth albeit compared to the pandemic-ravaged period of last Spring. Still, this means we could be in for some big results this earnings season—and if the recent trend continues, a lot of positive surprises.

While this is great news for long-term buy-and-hold investors, it also presents shorter-term traders with an opportunity to bank some quick gains. Here are a few of the companies that look well-positioned to exceed market expectations and turn into nice earnings plays in the coming days.

 Will Cleveland-Cliffs Beat Q2 EPS Estimates?

Iron-ore miner Cleveland-Cliffs (NYSE:CLF) is scheduled to report its Q2 performance tomorrow (July 22^nd) morning. The Street will be looking for earnings per share (EPS) of $1.48 on revenue of $5.1 billion.

Last quarter the company posted EPS of $0.35 which topped the consensus forecast by two pennies. The strong start to the year gave management the confidence to raise its full-year adjusted EBITDA outlook from $3.5 billion to $4.0 billion. President & CEO Lourenco Gonclaves commented, “the best will come through during the balance of 2021”.

As a supplier of iron ore pellets to the North American steel market, Cleveland-Cliffs has been benefitting from higher commodity prices. It also enjoying increased scale following the acquisition of the U.S. operations of the world’s largest steel company ArcelorMittal USA.

After the better-than-expected Q1 result, Cleveland-Cliffs went on a four-day run, something it hasn’t done since. Look for the company to beat the consensus EPS for Q2 and have a similar climb up the mountain.

Is Schlumberger a Pre-Earnings Buy?

Schlumberger (NYSE:SLB) reports pre-market on Friday July, 23^rd. After hitting a major oil slick during the pandemic, the world’s top provider of oil and gas drilling technology is finally seeing the light at the end of the tunnel.

With the global economy restarting its engine, a sharp recovery in crude prices is spurring increased drilling activity—and increased demand for Schlumberger’s oilfield services. Last quarter the company beat on the top and bottom lines. Although revenue was still 30% below prior-year levels, investors lauded management’s plan to divest underperforming businesses and focus on less capital-intensive businesses that can produce higher profit margins.

This time around the market will be expecting $5.5 billion in revenue and EPS of $0.25. In addition to continued progress with the strategic transformation, Schlumberger’s international business holds the potential to drive a meaningful earnings beat. International operations have recovered nicely especially in the Middle East where increased drilling activity and higher service prices were responsible for much of the Q1 beat.

The strong Q1 report sent Schlumberger shares on a big run from roughly $25 to $35. The stock has since pulled back to the mid-$20’s yet the fundamental growth story is unchanged. It has started to move higher ahead of the Q2 report and is likely to continue doing so when the results are released.

Is Freeport-McMoran Stock a Buy?

Freeport-McMoran (NYSE:FCX) is another company benefitting from the rally in commodity prices. The world’s leading copper producer is seeing higher realized selling prices and profits thanks to a 43% surge in copper prices over the last 12 months.  

The resurgence in copper prices may just be getting started. That’s partly because the performance of copper is closely related to inflation which has been trending higher during the economic recovery. More importantly, strong demand from China is expected to keep copper prices elevated as the country invests mightily in electric vehicles. Strong EV ambitions along with the launch of infrastructure and clean energy projects globally are also expected to feed the world’s appetite for copper.

For Freeport-McMoran this means that better times are ahead. We’ve already seen a sharp turnaround in the company’s financial performances and stock. Last year the stock nearly doubled and is up another 28% year-to-date.

After finishing higher in 13 of 14 months since the March 2020 bottom, Freeport-McMoran is now on a two-month losing streak. This is good news for investors that missed the incredible ride from $4.82 to $46.10.

Now unreasonably in bear market territory around $33 per share, Freeport-McMoran is a screaming buy for investors looking to play the long-term copper bull market. In the near term, the stock also has good upside if the company can surpass the Street’s Q2 estimates of $5.9 billion in revenue and EPS of $0.73.

It may not even take an earnings beat in this case. Last quarter’s results were in-line and yet an upbeat outlook propelled the stock to a new 52-week high. The copper miner’s share price has looked dulled in recent weeks but expect this long-term winner to deliver some shiny returns going forward.