Buy Ahead Of Earnings: 2 Banks, 2 Oil Companies And Coca-Cola

Includes: BAC, C, HAL, KO, SLB
by: Richard Saintvilus

By Richard Saintvilus

With the second quarter earnings season upon us, it's time to press to reset button. There were stocks that we've missed upon by buying and there were others that we've missed because they were ignored.

With the Dow and S&P maintaining their lofty levels, investors are also unsure of how long portfolios can maintain these gains without a meaningful correction. As such, here are some stocks that should outperform over the next three quarters of the year.

Citigroup (NYSE:C) - Target $50

Citigroup, which will report earnings on April 15, is beginning to show signs of a good turnaround story. But that's not to say that the bank has not been a tough name to figure out. Analysts want to love the company, but there are still some risks that have prevented investors from diving in head first. However, though, the bank is coming off a better-than-expected quarter, during which Citi posted net income of $1.2 billion, or 38 cents per share on revenue of $18.7 billion.

Bears will argue that Citi missed on both top and bottom lines as analysts were expecting revenue of $18.82 billion. But let's have some perspective. Although the performance does not match up well with JPMorgan's (NYSE:JPM), relative to expectations it was pretty good. And when excluding items, the bank earned 69 cents per share.

Plus, considering the adverse impact of the legal charges and foreclosure settlements, Citi actually outperformed both Bank of America and Wells Fargo. Bears also argued that Citi's revenue arrived pretty light. But 9% growth in a tough economy shouldn't be discounted, either. The company was able to do this despite several legal battles and charges, including payments of $2.32 billion related to layoffs and lawsuits.

Investors have to realize that Citi is changing. To that end, management has a clear plan to turn things around - remarkably, much quicker than analysts might expect. Even better, risks are being lowered. The stock is attractive relative to its books value and if Citi can continue to grow profits in the mid-20% range, the stock should eclipse $50 by the second half of the year.

Bank of America (NYSE:BAC) - Target $15

Bank of America will report earnings on April 17. And if fourth-quarter earnings were any indication, investors should expect the stock to make more 52-week highs as the quarter continues. Bank of America is coming off an excellent fourth quarter, which resulted in $367 million in net income, or 3 cents per share, on revenue of $18.66 billion.

While these numbers were not great in first glance, at least not on a sequential basis, but when excluding debt valuation and other impacts, revenue actually arrived at $22.6 billion - beating estimates of $21.03 billion. While the profit drop should be cause for concern, it was not a surprise.

The bank recently reached a $10.4 billion settlement with Fannie Mae that chipped away a significant chunk of its earnings. Even then, Bank of America still managed to beat EPS estimates by 1 penny. The bank has every right to feel confident heading into the first quarter report to the extent that its board of directors recently approved a stock buyback program valued up to $5 billion in its common stock and $5.5 billion in its preferred stock.

This comes after BofA successfully passing its stress test. While Bank of America is not out of the woods yet from previous mistakes, the bank has been working hard to clean up its messes. As it stands, these shares are still discounted to the bank's tangible book value. While it is clear that Bank of America is not getting the benefit of the doubt here, it is also very evident that progress is being made.

Schlumberger (NYSE:SLB) - Target $85

It's hard to not like the prospects of Schlumberger, which has been "pumping out" one good quarter after the next. But management has not rested on its laurels. Instead, the company is pushing heavily in sub-sea areas to position itself as a leader in global shale exploration. I do worry, though, that at some point competition will begin to apply pricing pressure - they have to in order to survive.

Nevertheless, in the most recent quarter, there was no indication that these threats are imminent. Revenue advanced 5% sequentially coming in at $11.17 billion. This was enough to top last year's mark by 1.46% and beat Street estimates of $10.82. Net income arrived at $1.08 per share, also topping Street estimates by 1 penny. Oilfield Services revenue arrived at $11.17 billion.

This represents an increase of 8% year-over-year while advancing 5% sequentially. Likewise, operating income grew 1% sequentially to $2.2 billion. The company is clearly operating on all cylinders. The company has also begun to address key growth markets and has previously laid out steps to outperform rivals.

These include growing market share in various oil service lines, growing EPS faster than revenue, establishing the highest margins in North America while continuing its strong share buyback and dividend policy. Investors would be wise to consider one of the best operating companies, not only in the oil sector, but within the entire market.

Halliburton (NYSE:HAL) - Target $45

Halliburton will report earnings on April 22. The oil giant energizes the Street in the fourth quarter by beating on both top and bottom line estimate -- posting adjusted earnings of 67 cents per share on revenues of $7.3 billion. Despite the low expectations due to a sluggish oil industry, Halliburton managed to grow sales 3.2% sequentially.

Even more impressive, this was the company's highest quarterly revenue performance in its history. This is despite the lower rate of growth at 2.5% year-over-year. But even with the better than expected performance, the Street is not so certain about Halliburton's ability for this current quarter. Average EPS estimates have declined by 4 cents from a profit of 63 cents per share to 50 cents.

Likewise, for the full fiscal year, earnings have been trimmed to $2.97 per share from prior estimates of $3.00 - all within the past three months. The company has been working hard to improve internationally. And if Halliburton can maintain the overseas growth momentum of 20% that it logged in the last quarter, the stock should do well, especially since international markets contributed to 39% of Halliburton's overall profit growth.

This proves that this new international growth strategy is working well - remarkably, much quicker than even the company expected. This now presents the company an advantage that it didn't have before. This means that the prolonged North American weakness due to the glut of natural gas can now be offset by strong demand in international markets. Investors should expect shares to reach $45 by the second half of the year.

Coca-Cola (NYSE:KO) - Target $45

Coca-Cola will report earnings on April 16. It sounds trite to say "have a coke and a smile," but this has been how Coca-cola investors have felt for a while. However, though, the beverage giant is not coming off a great fourth quarter. With expectations having come down of late, the company should be able to show significant improvement.

Investors were a little disappointed with that management hinted at soft revenue growth for 2013. But this was not reflective of operational struggles. Management was not very optimistic that the global economy and currency adjustments would significantly improve. That said, some of the struggles seen in the fourth quarter were no surprises.

Revenue increased about 4% with almost all of that growth coming from volume gains, which was different from various regions. But that's typically the case. North America was pretty soft, up 1%, while Latin America was up 5%. Europe and Asia were disappointing, down 5% and up 2% respectively. Then again, the competition has not performed much better, either.

Nevertheless, there's still a lot to like with this company. While investors may struggle with appraising where the value is, the safety and security that Coca-Cola offers is unmatched. While the stock is far from cheap at a P/E of 20, I think shares can reach the $45 level by the second half of the year. Granted, it's not an impressive premium. But with Coca-Cola's dividend yield of 2.70%, which is one of the best in the market, investors should have a coke and smile.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. SaintsSense is a team of financial writers. This article was written by Richard Saintvilus, the founder of SaintsSense. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.