You never know what earnings season will bring, but one thing's for sure: It will bring a few surprises. A good earnings report can give a sleepy stock a big boost, while a bad one can send the price tumbling. But if you want to invest $3,000 before earnings season, which stocks should you be looking at?
We asked this question to three of our Motley Fool contributors. They came back with Darling Ingredients (DAR -1.27%), Yamana Gold (AUY), and Brunswick (BC -0.89%). Here's why they think these stocks are worth getting into before their upcoming earnings reports.
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Third time's the charm
John Bromels (Darling Ingredients): Can grease-trap recycler Darling Ingredients pull a hat trick? The refiner of scrap fats and proteins delighted the market twice this year with its first- and second-quarter earnings reports, both of which were better than expected, particularly considering the effects the pandemic has had on restaurants, one of Darling's main sources of fats to recycle.
Wall Street certainly seems to think so: Darling has been a market darling in recent weeks, with shares up 25% in the lead-up to its expected third-quarter earnings release date in early November. Darling hasn't released much news during that time, although it did extend the terms of a revolving credit facility through 2025 ahead of schedule.
Darling's shares popped in May after its Q1 2020 revenue and earnings not only exceeded analysts' expectations, but topped Q1 2019's results. Another pop came in August as Darling again outperformed, with adjusted EBITDA up 22.5% year over year in what CEO Randall Stuewe called the best quarter from the company's feed segment in three years.
A few months ago, Darling was looking dirt cheap, trading at less than 14 times earnings. With the stock's recent rise, it's up to about 17.5 times earnings, which is still a bargain at the low end of the company's historical range.
Time to lode up on this gold stock
Scott Levine (Yamana Gold): With earnings season ramping up in the coming weeks, one stock that offers investors a lustrous opportunity is Yamana Gold. Operating five assets located throughout the Americas, Yamana is a leading precious metals producer that has an extensive pipeline of projects in varying phases of development. As the price of gold has retreated more than 7% from the all-time high of $2,067 it reached in August, shares of Yamana, unsurprisingly, have also dipped lower -- about 14% from its year-to-date high of $7.02 -- providing investors with a chance to pick up shares at a more attractive price than over the summer.
Although Yamana hasn't set a date for its third-quarter earnings report, it has offered investors a peek at what they'll find when the company does report. Last week, for example, Yamana stated in a preliminary earnings report that it achieved gold production of about 202,000 ounces and silver production of 3.04 million ounces. Based on the overall performance of the company's assets -- performances that have exceeded expectations -- Yamana has raised its 2020 gold equivalent production forecast from 890,000 ounces to 915,000 ounces.
Another alluring aspect of Yamana is its recent attention to its dividend. With the company executing its strategy to reduce its reliance on leverage, thus improving its financial health, Yamana has rewarded shareholders with consistent increases to the dividend.
AUY Financial Debt To EBITDA (Annual) data by YCharts.
How substantial have the dividend raises been? With the recent 50% increase from $0.0175 per share in Q3 to the $0.02625 for Q4, the company's dividend is 425% higher than it was 18 months ago. While there's no guarantee of future dividend raises, there are indications that the company's commitment to rewarding shareholders won't wane in the coming months. Management, for example, has established a cash reserve fund which currently has enough cash to support dividend payouts at the recently raised level for three years even if the price of gold should tumble.
Beyond the Q3 earnings report, the completion of feasibility studies for Agua Rica and the phase 2 expansion project at Jacobina (both expected in 2021) represent catalysts that could catapult the stock higher. Therefore, now seems like an especially auspicious time to pick up shares of this leading precious metals producer.
Boating is seeing strong growth during the COVID-19 pandemic
Lee Samaha (Brunswick): The COVID-19 pandemic has created some highly unusual dynamics in the global economy. One of them has been the shift in consumer discretionary spending as a result of stay-at-home and social isolation measures. As such, there's been clear and discernible shift toward spending on the home and related activities, and that's something likely to help recreational boat, marine engine, and aftermarket company Brunswick.
For examples of this shift in spending, consider that Stanley Black & Decker has significantly upgraded guidance on the back of demand for DIY tools, high-end furnishings company RH's stock has soared due to customer willingness to buy its luxury home products, and paint companies have seen strong demand for architectural paint.
Brunswick is also seeing strong growth. In the second-quarter earnings report management outlined how U.S. marine retail demand surged in May and June. In fact, management said June was a record retail month for almost all of its brands since the last financial crisis. It's great news for Brunswick because its new boat sales will surely lead to aftermarket and marine engine sales over time.
The positive momentum appears to have extended at least into the summer with the National Marine Manufacturers Association (NMMA) reporting a July survey revealed "Marine CEO sentiment was much more optimistic in Q2, returning to levels pre-pandemic." The NMMA reported another strong month for powerboat sales in August.
It all points to Brunswick reporting a strong set of third-quarter earnings, and with the stock trading at just 12.3 times estimated 2021 earnings, it looks like a good buy right now.
