During the week of February 12-16, we talked about three stocks to watch, Deere & Co (NYSE:DE), Coca Cola (NYSE:KO) and Airbnb (NASDAQ:ABNB), to gain insights into broader market trends and potentially benefit. As the earnings season peaks, we explore three stocks to buy this week, and we explain the reasons behind it.
The relatively heavy economic data published last week, including the U.S. CPI and Retail Sales figures, has added market volatility. It also seemed that the U.S. economy would avoid a recession, a positive catalyst for those looking for stocks to buy this week. Both events bolstered investor sentiment despite rising bond yields.
Last week also caught the market somewhat broadening out beyond its largest constituents. The Russell 2000 index of smaller companies gained strong momentum, implying overall optimism. This provided another sign for those risk-on investors looking for stocks to buy in the small-cap space.
The February 19 – 23 earnings calendar may be fairly light, leaving direction in the hands of the remainder of corporate earnings reports. A primary focus for those scouting stocks to buy will be tech giant Nvidia’s (NASDAQ:NVDA) widely anticipated earnings release. Investors may secure some of their profits ahead or post-announcement, inducing downward pressure on its stock price. However, a solid quarterly report would probably help lift the broader market.
In addition to Nvidia, where earnings could prompt upward or downward momentum, a few other stocks to buy could present interesting opportunities. Solid earnings may help offset potential increased volatility should the last of the Magnificent 7 fail to catalyze further upside across markets.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX), the prominent coffee company, could be one of the stocks to buy this week. The company presents an interesting investment opportunity during a week anticipated to focus substantially on tech news. Despite the company’s earnings results at the beginning of February missing analyst estimates, investors initially helped push the stock price higher. Yet, during the subsequent period following the release, its stock price declined below the level it stood at during the announcement. However, SBUX’s retracement has not coincided with any adjustment to its underlying fundamentals.
The company reported increased profits of 20% year-on-year (YOY) and maintained a generous dividend policy. This suggests its stock price may stabilise as investors refocus beyond the immediate post-earnings reaction.
Starbucks currently trades on a price-to-earnings (P/E) ratio of 22.9x, below the 27.2x of the S&P 500 Index. Analysts have established an average price target of $107.15, representing a 15% potential upside.
Palo Alto Networks (PANW)
For those interested in artificial intelligence (AI) and machine learning (ML) stocks to buy, Palo Alto (NASDAQ:PANW) could be one of the more intriguing opportunities this week as optimism in the tech sector remains buoyant. The company is scheduled to report its quarterly results after the close of trading on Tuesday. Its stock price has risen in anticipation of the earnings release, and if the optimism continues, it could still be one of the stocks to buy not just for this week but also the following.
Despite the bottom line growing some 66% in the previous quarter, the market reacted negatively to disappointing forward revenue guidance. Therefore, guidance will likely be a key focus this time around. Analysts forecast EPS growth of 24% to $1.30, with revenues increasing 19% to $1.97 billion. Notably, Palo Alto has a track record of exceeding analyst estimates by an average of 20% or more.
Lennar (LEN)
Homebuilder Lennar (NYSE:LEN) could be the last of the stocks to buy this week after seeing its share price drop in the wake of the CPI data released last week. It suggested that the Federal Reserve (Fed) may maintain higher interest rates and, therefore, mortgage prices would increase. However, with easing yields, its stock price could stage a rebound.
An even bigger catalyst for the construction company may be Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) upcoming earnings report at the end of the week. This is because Warren Buffett, the Oracle of Omaha, has been accumulating homebuilder stock lately, including a $21.4 million stake in Lennar. While a small portion of his overall investment portfolio, the renowned investor’s interest in the company implies it may have growth potential as the U.S. continues grappling with a sizable housing deficit of 3.1 million units.
Lennar currently trades at a P/E ratio of just 10.9x while holding a $6.3 billion cash reserve to invest in new opportunities. The company increased its cash holdings by $1.7 billion since last year, which makes it an even more compelling stock to buy this week.
On the date of publication, Stavros Tousios did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.