We're so used to being fearful that companies won't report strong quarters that, for days on end, we've been selling stocks, including early in the session today when the market got severely oversold. No one wants to own a stock unless it can report a BTE, Wall Street's abbreviation for a better than expected quarter. The tyranny of BTE is so harsh, the penalty so great, that it's been too dangerous to own many stocks.
But now that the actual earnings season has started with a report from PepsiCo (PEP) , I am beginning to think that many stocks have fallen so far that we may have the wrong concern. Maybe we should be thinking about reports that are Not as Bad as Feared, or NABAF. Two days ago Wall Street was fearing that PepsiCo would not have a better than expected quarter and the stock plummeted from $137 to $133.
Why not? If PepsiCo missed the quarter, if there was any degradation in Frito Lay, if there was any share loss to Coca-Cola you were going to experience a seal like clubbing.
But it turns out that PepsiCo reported a NABAF or a Not as Bad as Feared quarter where sales were strong in both food and drink. Importantly PepsiCo did not raise forecast, something that might have caused the stock to fall from $139 to $130 a few days ago. Now, though, because of its tumble, it didn't matter that the forecast was just in-line. That's NABAF for certain.
It gets better. The company's got some divisions that are truly on fire. Gatorade seems to be returning to its old growth. New Frito Lay products, the hotter the more craved, particularly by millennials, allow for a stepped up rate of growth that should, eventually, prove to give PepsiCo shareholders that Better than Expected quarter that a stronger stock market might demand.
Now PepsiCo's stock was able to go to an all-time high not just because of the NABAF. As I said last night when you have an oversold market you've got a true coiled spring that can rally beyond where it might ordinary go on good news.
Which begs the question, who else can do a NABAF before stocks get away from us. Who else is in position to "do the number?"
First, I expect that JPMorgan Chase (JPM) will give you a better than expected quarter when it reports next week. The Fed funds rate may have been cut, the yield curve may not be perfect, but this is JPMorgan's time. It's gigantic deposit base and its advisory business and its plain old credit lending should be very strong. As banks are more and more able to generate fee streams I am confident that JPMorgan will be able to raise numbers, which would be Much Better Than Feared.
Second, I think that American Express (AXP) , which has been eviscerated here, going from $128 to $112, will not report a better than expected quarter but doesn't have to given the excruciating decline. The rap here is that business has slowed worldwide because of the tariff wars but American Express hasn't been able to crack into China in any meaningful way and the company's been reinvigorated under CEO Stephen Squeri. This self-effacing man is remaking Express, as it is called on Wall Street, from a spotty episodic reporter into a company that produces smooth numbers, like the ones we have learned to count on from Mastercard (MA) and Visa (V) .
Miles White is one of the longest tenured CEOs in the business and his Abbott Labs (ABT) has delivered the second best performance of the longest-tenured chief executives. Members of the Action Alerts PLUS club know we have been buying it for our charitable trust because of its incredible consistency and yet the stock's down 10% from its high. It's got a new, revolutionary diabetes monitoring device that the company can crow about. Best of all it's a device company and device companies fly under the radar from the politicians who are united - yep both sides - in antagonism of big pharma.
It's not down 10% and it is big pharma, but I would take advantage of the drug company that I believe has tremendous momentum: Merck (MRK) which reports on October 29. The decline in the stock gives investors a chance to benefit from what should be a forecast raise because of the incredible growth of Keytruda, the multi-faceted anti-cancer drug.
It doesn't report to the 30th of October, but Starbucks (SBUX) has seen its stock be eviscerated from $99 to $84, a casualty of a combination of too much enthusiasm and an odd, one-time related shade down that made traders feel like chumps and they've been dumping it ever since. That might have made sense in the high $90s. But it the low $80s? It's a buy.
The stock had a big run today but it only takes one riposte from one politician to knock down Facebook's (FB) equity. The stock's been crushed by a combination of a FAANG rebellion and myriad government investigations. I know the long knives are out for Facebook but these days the hatred by the press and the pols is diluted by equal opportunity attacks to the rest of big technology. Meanwhile, no matter what - including a call from the attorney general to limit encryption - users still can't get enough of it and the consumer packaged goods companies I deal with, and I deal with almost all of them, still love it because Instagram is indispensable to reaching viewers who control the house's purse strings. I do a Facebook video program daily and I can tell you that ROI, or the bang for the buck, so to speak, is pretty insane.
Like the other companies that report at the second to last day of the month, there will be plenty of downward dog days that you can use to pick up some stock.
In a domestic slowdown you still go to the drug store. To me that means the stock of CVS (CVS) should be bought ahead of its November 6 reporting date. The stock has been creeping up as a function of analysts who are warming up to its merger with Aetna. The company's spewing cash enabling debt pay down and it yields more than 3%.
Finally there's Shopify (SHOP) . This is the ultimate empowerment story, where thousands of people each week join the ranks of Spotify and are able to live out their dreams within their lifetime. The company reports October 24 and I know I have sold the stock about 80 points higher, it just doesn't seem to want to come down enough to sink your teeth into the Canadian colossus for a second dip.
There are dozens of other stocks that have been shelled that could work here and I can't tell if we are done going down although I sure felt that when the market collapsed in the first two hours, we've seen an important capitulation. I am sure, no matter there will be some sellers off of the employment numbers. To me that's the chance to pick up some of these stocks that I think will report NABAF numbers.
(PepsiCo, JPMorgan Chase, Mastercard, Abbott Labs, Facebook and CVS are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)