Leading growth stocks are under pressure along with the broad market, but not Meta Platforms (META), which will report earnings in the coming week. Meta stock has a relative strength line near its highs and is one of four Magnificent Seven stocks on the earnings calendar, along with Microsoft (MSFT), Google-parent Alphabet (GOOGL) and Tesla (TSLA).
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Tesla stock has been far from magnificent amid slowing growth and increased competition. Tesla is now about 50% off its high after a brutal sell-off that started in late December.
Earlier this month, Tesla said it delivered 386,810 vehicles in the first quarter, well below estimates and the lowest quarterly deliveries since the second quarter of 2022.
So the Street doesn’t expect results will be pretty when Tesla reports Tuesday after the close. Analyst polled by Zacks Investment Research expect adjusted profit of 46 cents a share, down 46% year over year.
Revenue is projected to fall 5% to $22.17 billion. Analysts say annual earnings will likely fall 15% this year, with growth ramping back up in 2025, up 37%.
Meta Stock Holds Strong
Several top-performing growth stocks have violated key support levels in recent days, but not Meta stock. A big reason is strong fundamentals.
Meta stock gapped up powerfully in early February after the company reported its second straight quarter of triple-digit earnings growth and another quarter of accelerating revenue growth. Digital ad sales made up the bulk of revenue, rising 24% to $38.7 billion.
Meta’s family of apps — which includes Facebook, Instagram WhatsApp, Reels and Threads — delivered $21 billion in income, nearly double the $10.7 billion generated in the year-ago period.
Expenses fell 8% to $23 billion, while operating margin jumped to 41% from 20% in the year-ago quarter. Monthly active users edged higher to 3.07 billion. The company also raised its revenue outlook and initiated a dividend of 50 cents a share.
Earlier this week, UBS reiterated a buy rating for the stock and lifted Meta’s price target to 610 from 530. UBS cited the potential for newer initiatives, including ad revenue from Meta’s Reels short-video products and the company’s AI-powered Advantage+ ad sales platform. The UBS note comes on the heels of positive comments from Piper Sandler, which raised Meta’s price target to 600 from 525.
Results are due Wednesday after the close. Look for first-quarter profit to be up 64% to $4.32 a share. Revenue growth is expected to accelerate again, up 26% to $36.22 billion.
Leaderboard Earnings
Meta Platforms is a longtime member of Leaderboard after first joining the model portfolio in March last year.
Two other Leaderboard stocks — Weatherford International (WFRD) and Dexcom (DXCM) are also on the earnings calendar.
Weatherford is testing its 10-week moving average for the first time after clearing a consolidation in February. The company provides equipment used in the drilling of oil and natural gas wells.
Weatherford shows impressive bottom-line and top-line growth in recent quarters. After reporting a 70% jump in fourth-quarter profit in early February along with a 13% revenue increase, Q1 profit is expected to rise 45% to $1.41 a share, with revenue up 12% to $1.33 billion. Results are due Wednesday before the open.
More than 600 funds had a position in Weatherford at the end of the first quarter, up sharply from 472 in the year-ago period.
Dexcom Well Positioned
Dexcom, meanwhile, also sports outstanding fundamentals and is well positioned for continued growth, just like Weatherford.
The stock is holding in a buy zone from a 132.03 buy point after clearing an alternate entry of 137.93 on March 25.
The company makes continuous glucose monitoring systems used by diabetics. Shares soared on March 6 after the company received clearance from the Food and Drug Administration for the first over-the-counter glucose sensor in the U.S. The device, Stelo, was approved for the 25 million people in the U.S. who have Type 2 diabetes but don’t use insulin.
Dexcom offers a compelling growth story thanks to strong demographics. The obesity rate in adults has more than doubled over the past three decades, according to a study published in February by The Lancet, a medical journal. The study also said that more than 1 billion people around the world are defined as obese.
Earnings are due Thursday after the market close. Adjusted profit is expected to jump 59% to 27 cents a share, with revenue up 23% to $911.2 million.
Options Trading Strategy
A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the option trading strategy works, and what a call-option trade recently looked like for Meta stock.
First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others already might have broken out and are getting support at their 10-week lines for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.
A call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.
Once you’ve identified a bullish setup in the earnings calendar, check strike prices with your online trading platform, or at cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask.
Look for a strike price just above the underlying stock price — that’s out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
Meta Stock Option Trade
When Meta stock traded around 504.50, a slightly out-of-the-money weekly call option with a 505 strike price and an April 26 expiration came with a premium of around $23.25 per contract. That was 4.6% of the underlying stock price at the time.
One contract gave the holder the right to buy 100 shares of Meta at 505 per share. The most that could be lost was $2,325 — the amount paid for the 100-share contract. To break even, Meta would need to rise to 528.25, factoring in the premium paid.
The expected move in the options market for Meta stock, based on the at-the-money strike price of 502.50, is about 46 points up or down. That’s found by adding the at-the-money call premium and put premium for the April 26 contract.
Keep in mind that this is not a trade for a small portfolio because buying 100 shares of Meta in the above trade would cost $50,500.
Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.
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