NFLX - Stocks to watch out for in Communication Services sector ahead of earnings
2024-01-12 10:48:59 ET
As we look back to the S&P 500’s Communication Services ( NYSEARCA: XLC ) ahead of the fourth-quarter earnings, the sector gained nearly 10% in the last three months, falling behind the broader market.
Even as growth fell short of the broader market's, the sector, which boasts of big names including Alphabet ( GOOG ), Meta Platforms ( META ) and Netflix ( NFLX ), made a comeback last year with a gain of 49% after declining over 30% in 2022.
According to Seeking Alpha's Quant Rating system, the communication services sector has an average health score of 3.66. The system awards grades based on quantitative measures, like valuation, earnings growth and recent stock performance. The highest possible score for any individual company is a 5.
Looking in to individual companies in the sector, nine out of 23 stocks are rated as "buy" or higher based on their Quant Ratings, 12 stocks are rated "neutral", while one is considered "sell".
Meta Platforms and Comcast ( CMCSA ) are leading with the highest Quant score of 4.99 out of 5. High score for profitability is boosting the ratings for both the stocks.
The Facebook parent, which more than doubled in value in the last one year, reported better than expected results during its third quarter earnings, showing signs of ongoing ad market recovery. Meta is expected to report its fourth quarter earnings on Feb. 1 after markets close.
Similarly, a boost from streaming and theme parks business, helped Comcast to top Q3 expectations , even as the media giant saw an unexpected decline in broadband subscribers.
Alphabet has a Quant score of 4.98. The Google parent’s strong quarterly earnings driven by AI-driven innovations for its various services impressed investors, helping the stock grow 57% last year.
“I believe XLC will be a strong performer this year, fueled by Meta and Alphabet,” pointed out Seeking Alpha analyst Josh Arnold, adding that from a seasonality perspective, it doesn’t get any better than January when it comes to the XLC.
Netflix and Disney - two other stocks in the sector with a market valuation of over $300 billion together, has a Quant Rating of "hold", dragged down mostly by the valuation metrics.
Fox ( FOXA ) has the lowest Quant score of 2.11 in the sector. The Rupert Murdoch-controlled media company, which fell nearly 2% in 2022, holds a Quant rating of Hold.
S&P 500 companies EPS is expected to rise 3% in the fourth quarter, with Communication services expected to grow 36%, according to S&P Global.
More on Communication Services Select Sector SPDR Fund
- XLC: The Time To Buy Is Now
- XLC: Communication Services Getting Stronger Despite Alphabet's Fall
- Nine buy-rated stocks in the Communication Services sector - Citi
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Stocks to watch out for in Communication Services sector ahead of earnings