3 Stocks to Buy Before They Announce Earnings Beats

Once investors see their powerful earnings growth they will flock to these three stocks, so buy shares now before they report earnings and watch their stock prices jump.

Stocks hit a new low last week before rallying at week’s end on the strength of oil prices and the belief (in some circles) that equities are now oversold and primed for big moves ahead. I am not prepared to make such a pronouncement, however, I strongly believe that stock valuations will now be impacted by earnings growth prospects for 2016, rather than macroeconomic issues. With that in mind, it is time to turn your attention to stocks trading below their earnings growth rates that have a history of beating earnings per share (EPS) estimates.

BMC Stock Holdings, Inc. (NASDAQ: STCK)

BMC Stock Holdings is one of the nation’s leading providers of diversified building products and services to professional builders and contractors in the residential housing market. The company’s product and service offerings span building materials, including millwork and structural component manufacturing capabilities, along with consultative services. BMC Stock Holdings has enjoyed meaningful top-line and bottom-line growth due to the fact that the company almost exclusively serves markets in the fast-growing South and West regions.

The company is projected to grow EPS in 2016 by 32% to $0.94, as compared to $0.71 in 2015. Moreover, although the first quarter of the year is typically a difficult one, as evidenced by the loss per share of $0.01 last year, Wall Street projects positive earnings per share of $0.07 for Q1 2016. At current levels, the stock trades around 15x its estimated 2016 EPS.  My target price of $18 reflects a reasonable 19x multiple and is substantially below the estimated EPS growth rate for this year.

CEVA Inc. (NASDAQ: CEVA)

CEVA is what is known in technology circles as a fabless semiconductor company as it does not really produce any hardware. However, it has a tremendous Intellectual Property (IP) team that designs some of the most important applications used by semiconductor companies in their production of digital signal processors, especially in the mobile device market. In fact, the company is the leading licensor of signal processing IP and offers the most widely used IPs for Bluetooth applications.

Against this backdrop, it is no surprise that the company is expected to enjoy huge EPS growth this year when compared with 2015. The Wall Street consensus $0.73 EPS forecast compares with $0.53 last year. Moreover, the first quarter EPS forecast of $0.16 is double the $0.08 achieved in the first quarter of 2015. Considering that CEVA has beaten estimates for three of the last four quarters, investors can expect out-performance and higher stock prices ahead.  Since industry-leader CEVA is essentially a software company, it historically carries a high P/E multiple. Therefore, my price target is $24, which is in line with the segment’s typical valuation.

Hemisphere Media Group, Inc. (NASDAQ: HMTV)

Hemisphere bills itself as the only publicly-traded pure-play U.S. media company targeting the high-growth Spanish-language television and cable networks business in the U.S. and Latin America. The company owns and operates five leading U.S. Hispanic cable networks, two Latin American cable networks, and the leading broadcast television network in Puerto Rico. On a combined basis, these properties are distributed to an estimated 40 million+ subscribers.

Clearly, the current demographic shift in the U.S. has played a significant role in Hemisphere’s growth and forecasts remains strong. EPS is projected to grow by more than 30% from $0.16 in 2015 to $0.31 this year on 12% top-line growth. Separately, it should be noted that this big EPS grower has weathered the recent stock downturn like a champ, which should lend further confidence in the company’s prospects. With EPS estimates on the rise in recent months and a history of beating quarterly estimates, my price target for Hemisphere’s shares is $18.