Earnings season is about to kick off, and investors will find out a lot about how companies are shaping up for the post-pandemic environment. In that line of thought, I think Raytheon Technologies (NYSE:RTX), Rockwell Automation (NYSE:ROK), and 3M (NYSE:MMM) are stocks to watch closely. All three will give second-quarter earnings in July, and what they say will resonate across the whole of the investment world.

Summer air travellers

Raytheon Technologies is hoping the summer will bring a strong recovery in air travel. Image source: Getty Images.

Raytheon Technologies

Sentiment matters a lot in investing. Just take a look at the commercial aviation industry. On the one hand, it continues to face depressed end markets as routes remain closed and airlines battle to get over the financial stresses created by the pandemic. On the other hand, the reality is that 2020 will mark a multi-year trough in the industry, and aerospace investors can look forward to a few strong years of year-over-year growth.

I think sentiment will slowly shift toward the more optimistic viewpoint, and Raytheon's earnings report will prove a catalyst. The point is that the second quarter will be the first that Raytheon will come up against easy comparisons with 2020. The first quarter of 2020 occurred before the pandemic had spread globally. As a result, the full impact on commercial air travel, and Raytheon's commercial aerospace-focused businesses, was first felt in the second quarter of 2020.

The dynamic of Raytheon's improving year-over-year sales trajectory can be seen in the outlook for organic sales growth of 8% to 12% in the second quarter -- compared to a 16% decline in the first quarter. Moreover, at the start of the year, Raytheon's management forecasted organic sales would rise 7% to 10% in the second-quarter to fourth-quarter period compared to the same period last year.

With the clarity of an improving year-over-year sales growth momentum, it wouldn't be surprising to see more investors taking the glass half full approach outlined above, and that makes Raytheon Technologies an aerospace stock to watch.

Auto production

Investors are hoping the second quarter will mark the worst of the semiconductor shortage on auto production. Image source: Getty Images.

3M

The industrial giant has so many fingers in so many different pies that its earnings report will make fascinating reading for 3M and just about every other investor in the market.

The case for buying the stock rests on the idea that 3M's prodigious cash flow generation will make it easy for CEO Mike Roman to restructure the business (particularly the healthcare and consumer segments) and get the company back on a mid-single-digit revenue growth track.

Of course, the pandemic has only served to complicate matters, and the question is, how will 3M emerge from the pandemic? In addition, there are several near-term questions that investors have around 3M.

  • Rising raw material cost headwinds forced 3M to raise its estimate for full-year negative impact on earnings per share (EPS) from $0.20 to $0.30 to $0.50 on the first-quarter earnings report. What will management say on the matter now?
  • 3M's healthcare business suffered a hit in 2020 as non-elective procedures were postponed due to COVID-19, but they should be bouncing back strongly now.
  • The semiconductor shortage caused a curtailment of auto production. Still, with most observers seeing the second quarter as the worst hit, 3M should have some positive things to say about improving the third quarter.
  • 3M benefited from surging respirator sales and burgeoning home products sales during the pandemic, but what will the outlook be now that global conditions are easing?

While all this is going on, investors are trying to gauge the success of the company's restructuring efforts.

On balance, I think the potential positives outweigh the potential negatives here and would expect 3M to report improving conditions in automotive, healthcare, and its industrial businesses. Moreover, given the company's low valuation -- trading on less than 17 times current free cash flow -- that makes 3M a stock to watch in June. Moreover, if management can demonstrate progress on its restructuring efforts, there's plenty of upside potential.

Rockwell Automation

When companies are feeling confident about growth, they commit more money to so-called growth capital spending. As such, spending on Rockwell's automation solutions is a key bellwether of the industrial economy. In addition, the company might find itself emerging from the pandemic stronger than when it entered it due to the willingness of companies to spend on automation and digitizing their assets.

Factory atomation.

Image source: Getty Images.

The overall improvement in Rockwell's outlook for 2021 is shown in the change in full-year guidance shown below. Given the semiconductor shortages, it's no surprise to see a strengthening there, and there's been a general improvement in the outlook for the industrial sector in general.

Unfortunately, the outlook for Rockwell's process solutions has gotten worse through April. Nevertheless, I think there are two reasons for optimism overall. First, the price of oil is now above $75 a barrel and this should cause some more discretionary capital spending in the oil and gas sector. Second, suppose the second quarter marks the worst of the impact of semiconductor shortages on automotive production. In that case, automotive manufacturers may well step up spending for the rest of the year.

 

April Guidance

January Guidance

November Guidance

Notes on guidance

Organic revenue growth

5.5%-8.5%

4.5%-7.5%

3.5%-6.5%

Quarterly improvement

Adjusted EPS

$8.95-$9.35

$8.70-$9.10

$8.45-$8.85

Quarterly improvement

Discrete

Up 15%

Up 10%

Up mid-single digits

Automotive guidance steady at 10% growth, significant ramping in semiconductor growth guidance to up mid-teens.

Hybrid

Up 10%

Up high- single digits

Up mid-single digits

Steady improvement in food & beverage, life sciences, and tire guidance

Process

Down mid-single digits

flat

Up low-single digits

Chemicals and mining/aggregates/cement outlook has been stable, oil and gas outlook has worsened from flat in November to down mid-teens in April

Data source: Rockwell Automation presentations.

Get ready for July

All told, Raytheon, 3M, and Rockwell will give extensive color on conditions in the industrial economy in July. Moreover, they are all stocks with significant exposure to an improving economy. As such, don't be surprised if Raytheon and Rockwell Automation, in particular, end up raising guidance.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.