Goldman Urges Clients to Buy Calls on Wells Fargo Ahead of Earnings Report

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Goldman Sachs analysts have issued a note to clients urging them to “Buy Options for July Preannouncement Season,” citing the potential for significant stock price movements around these unscheduled events. The analysis, released Wednesday, suggests that investors may be underestimating the volatility associated with preannouncements.

The note highlights historical data showing that preannouncements have occurred approximately 600 times year-to-date, with an average stock price movement of +/- 6.7% in the two days surrounding the announcement. Notably, 57% of these preannouncements have resulted in positive stock moves this year.

Goldman Sachs emphasizes that sectors such as Technology, Healthcare, and Consumer Discretionary typically see a high volume of preannouncements in July. “Given the mostly unscheduled nature of these events, we believe investors underestimate their associated volatility,” the analysts wrote.

To capitalize on this potential volatility, Goldman identified several stocks with a history of preannouncing earnings in July. They highlighted the upcoming Semicon West event (July 9-11) as a potential catalyst for semiconductor stocks, including Applied Materials (NASDAQ) and AMD (NASDAQ).

Beyond industry-wide trends, the report also details four specific “catalyst-based idiosyncratic trades”:

Starbucks (NASDAQ): Goldman suggests buying calls ahead of July 30th earnings. Analysts at the bank see an opportunity due to SBUX’s underperformance and expected growth momentum in the coming quarters.

Chipotle Mexican Grill (NYSE): Goldman recommends buying straddles ahead of July 24th earnings. While they acknowledge near-term sentiment concerns, they believe CMG can achieve strong long-term results.

Wells Fargo (NYSE): Goldman advises buying calls ahead of Wells Fargo’s July 12th earnings. The analysts see potential upside to WFC’s 2024 guidance due to loan/deposit growth and possible regulatory changes.

Goldman Sachs’ strategy reflects their belief that these upcoming events present significant trading opportunities for investors willing to leverage options to navigate the expected volatility.

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