Morgan Stanley has identified several stocks to buy ahead of earnings season, citing attractive entry points and positive catalysts for these companies. The recommended stocks include Apple, Colgate-Palmolive, Datadog, Spotify Technology, and Nu Holdings. Each of these stocks has specific reasons for being deemed as potential buys based on upcoming earnings reports.
According to analyst Dara Mohsenian, Colgate-Palmolive is brimming with positive catalysts leading up to its second-quarter earnings report on July 26. The consumer products company has exhibited promising traits such as pricing power and share gains, leading to a 23% increase in its stock value in 2024. Mohsenian also highlighted the underappreciated potential of Colgate’s pet business, particularly its ownership of Hill’s Pet Nutrition. However, the sustainability of Colgate-Palmolive’s profitability and defensive position compared to peers have been called into question.
Analyst Erik Woodring has elevated Apple to a top pick status, emphasizing the potential impact of Apple Intelligence on the company’s upcoming iPad and iPhone cycle. Woodring predicts a surge in device upgrades driven by Apple Intelligence, a factor that he believes has been overlooked by investors. The impending upgrade cycle for Apple’s products has been underestimated, potentially leading to significant growth opportunities for the tech giant. Despite this positive outlook, concerns remain about the sustainability of Apple’s growth trajectory and market performance.
Datadog, a cloud-scale applications software company, has seen a slight decline in its stock value this year, making it an appealing buy ahead of its August 8 earnings report. Analyst Sanjit Singh recognizes the challenges posed by Datadog’s valuation and market performance but remains optimistic about its long-term growth prospects. Singh highlights Datadog’s execution in a competitive market environment and the potential for margin expansion and product innovation. However, the overall risk-reward profile of Datadog may not be as compelling in the short term, raising doubts about its ability to sustain growth across different market conditions.
In addition to Apple and Datadog, Morgan Stanley recommends Spotify Technology and Nu Holdings as potential investment opportunities. Spotify’s recent price increases and anticipated margin improvements have led to optimistic estimates by analysts. The company’s strong user growth trajectory, product positioning, and earnings potential are factors that underpin Morgan Stanley’s bullish stance on Spotify. Similarly, Nu Holdings, specifically Nubank, has the potential to reach a $100 billion valuation by 2026, driven by growth opportunities in Brazil and Mexico, as well as the Open Finance agenda. Despite these positive outlooks, concerns remain about the sustainability of earnings growth and market share gains for both Spotify and Nu Holdings.
Morgan Stanley’s recommendations for buying stocks ahead of earnings season offer insights into potential investment opportunities across various sectors. While the highlighted companies exhibit positive catalysts and growth potential, investors should exercise caution and conduct thorough research before making investment decisions. The outlook for these recommended stocks may be influenced by external market factors, industry trends, and the companies’ ability to deliver on their growth projections. By critically analyzing these recommendations, investors can make informed choices and navigate the complexities of the stock market more effectively.