Introduction

Goldman Sachs believes that the current negative sentiment in stocks presents a favorable opportunity for investors heading into earnings reporting season. The firm suggests buying call options for individual companies’ reports, referring to these trades as its top “tactical” choices for earnings.

Increased Potential for Relief Rallies

Goldman Sachs analyst John Marshall points out that option implied earnings day moves are elevated, indicating investor nervousness about upcoming earnings reports. However, this nervousness could actually lead to relief rallies for stocks on their earnings days.

Concerns and Headwinds

Investors face several challenges, including persistent inflation, interest rates at 16-year highs, and the recent conflict between Israel and Hamas, which has added to worries about the tight oil market.

Finding Mispriced Earnings Expectations

Goldman Sachs utilized a proprietary model to identify attractively priced call options with potential upside moves. All the stocks on the Goldman list have received a buy rating. Furthermore, analysts at Goldman are more optimistic about these companies’ earnings compared to the consensus estimates on Wall Street.

Highlighted Stocks

Cenovus Energy

Goldman Sachs forecasts a 5.3% implied move for Canadian oil and natural gas company Cenovus Energy ahead of its third-quarter results. The firm expects the earnings report to surpass consensus estimates by at least 20%. Cenovus stock has already increased by over 6% since the beginning of the year. Goldman recommends buying call options for the November term with a $21 strike on Cenovus.

FedEx

Shipping giant FedEx is projected to have a nearly 6% earnings day implied move according to Goldman Sachs. Analysts at the firm anticipate earnings per share to be at least 20% higher in the upcoming quarterly report compared to Wall Street estimates. FedEx stock has surged by nearly 46% since the start of the year. Goldman suggests considering call options for the January term with a $260 strike for FedEx.

Nvidia

Chipmaker and artificial intelligence beneficiary Nvidia is also included on the Goldman list with a 9.2% implied move after reporting third-quarter results. Goldman Sachs analysts forecast that earnings per share could be 3% higher than the current Wall Street estimates. Nvidia has already outperformed analyst expectations twice in 2023. Goldman recommends call options for the December term with a $470 strike for Nvidia.