Harley-Davidson’ recommendation: Buy before the earnings release

Review

California Governor Gavin Newsom ordered Monday to close indoor operations in all counties for many businesses, including restaurants, bars, movie theaters and museums, as Covid-19 cases continue to soar. The businesses will be allowed to operate outdoors, if possible, he said.

Stocks were off their highs on Monday as a rally in Big Tech — which briefly pushed the S&P 500 into positive territory for the year — died out in the final hour of trading. Earlier in the day, the broader market index rallied more than 1% and was briefly up about 0.1% for 2020. Monday marked the first time since early June that the SP 500 traded positive year to date.

Facebook, Amazon, Netflix, Alphabet and Microsoft all traded down in the range between 1.5% to 4.2% – the latter plunge was for long time investors’ darling Netflix. Earlier in the day, these stocks were sharply higher. These names are some of the market stalwarts this year, as investors keep betting they will perform well during the pandemic.

Trends

Earnings season for second quarter kick-starts today as major U.S. banks report results from the past three months that were slammed by the coronavirus. Collective earnings of S&P 500 companies are expected to decline by a whopping 44.6% year-over-year, marking the biggest decline since the final quarter of 2008, when earnings fell 70% during the financial crisis. Writeoffs and other expenses will likely be forgiven due to the extenuating circumstances, though investors will be judging what companies’ CEOs have to say about the current quarter or the full year after they withdrew most of their guidances.

Company

At the end of the first quarter of 2020, Harley-Davidson had $1.47 billion of cash on the balance sheet, and management is cutting costs to get through the pandemic, but Harley-Davidson may see full-year demand fall even further than it has in previous years. High unemployment isn't likely to put consumers in the position to spend on a consumer discretionary device like a motorcycle, and that slower spending could last for a while.

However, technically Harley-Davidson stock is looking very strong and poised to make at least 5% up before its scheduled quarterly earnings release on July 21 since its EPS estimate of $0.08 is notably lower than both its $1.23 per share a year ago and $0.45 last quarter. Recommendation: buybefore the earnings release.