Tuesday's Earnings: 2 Buys, 1 Hold, 2 To Consider

Includes: AVGO, GS, KO, LLTC, MCD
by: Richard Saintvilus

Several prominent companies will report earnings this week and investors are eager to see if corporate profits can propel the indexes higher. It seems regardless of news that would ordinarily bring fear to the market; whether Cyprus or the North Korean missile strike, investors are ready to buy on each dip. In this article, we will see if the fearless tenor can continue with the following names that will report on Tuesday.

Buy Goldman Sachs (GS)

Shares of investment bank Goldman Sachs are up 14% so far on the year. While the bank still has quite a bit of work to do to restore confidence in its brand, the stock still looks cheap - trading at a P/E of 10, which is two points below the industry average.

What's more, Goldman Sachs stacks up pretty well against some of the other giants on the market - carrying a forward P/E of 9.89, which is in-line with Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC), which are sporting P/Es of 9.61 and 9.29 respectively. And in terms of return-on-equity, Goldman Sachs' 10.10% is higher than both Bank of America and Citigroup (NYSE:C).

The bank will report first-quarter earnings on Tuesday, April 16. And analysts have become extremely bullish of late, given that consensus EPS estimates have moved up over the past three months by 17 cents to $3.75 per share. However, this would represent a year-over-year decline of more than 4%.

As with Wells Fargo and JPMorgan (NYSE:JPM), which have recently posted Q1 revenue declines, Goldman Sachs is expected to do the same. The Street is looking for revenue of $9.56 billion, which would represent year-over-year decline of almost 20% from the $11.8 billion posted a year ago. This is despite the fact that the bank is coming off a strong Q4, during which revenue arrived almost 40% higher.

To that end, three-quarters of the analyst that cover the stock have a hold recommendation. However, given the value metrics that I've cited above and the relative comparisons, I think Goldman Sachs remains a buy and the stock should continue to do well in the long term. With continued improvements in ROE, the stock should be able to approach $200 per share by this time next year.

Buy Coca-Cola (KO)

Beverage giant Coca-Cola will report first-quarter earnings on Tuesday, April 16. The Street is looking for earnings of 45 cents per share on revenue of $11.05 billion. While profitability is expected to tick up modestly by 2.3%, estimates have dropped by 2 cents over the past three months. Despite the fact that Coca-Cola posted revenue of $11.14 billion a year ago, sales are expected to decline by almost 1%.

However, that's not entirely a surprise, given that management has hinted at softer revenue growth for fiscal-year 2013. However, this has more to do with the global economic slowdown than it does with the company's inability to compete. In fact, this are the same issues that have impacted other large brands such as McDonald's (NYSE:MCD), which has similar international exposure.

That said, relative to expectations, Coca-Cola's fourth-quarter performance wasn't that bad, given that revenue increased about 4%. What's more, the Street doesn't seem all that concerned about the company's future. For that matter, I don't think investors should, either. Despite the fact that the stock is sitting at a 52-week high, 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. With expectations having come down of late, the company should be able to show significant improvement. Plus, with Coca-Cola's dividend yield of 2.70%, which is one of the best on the market, patient investors should be able to do well in the long term.

Consider McDonald's

To drive the bullish case forward for Coca-Cola, let's take a look at McDonald's. But keep in mind; I will cover McDonald's, which reports earnings on Friday, in more detail in a couple of days. As with Coca-Cola, McDonald's didn't have an exceptionally strong Q4 as revenue increased roughly 2% year over year - not a robust number. But as with Coca-Cola, not much more was expected.

The company posted system-wide sales that grew 5% as total comparable sales advanced 3.1% year over year. This is the metric that tracks sales performances for restaurants opened at least a year. However, for the quarter it was flat. And this is one of the reasons why the company is looking to adjust its menu items. But relative to expectations, McDonald's didn't perform that badly.

As with Coca-Cola, the company's ability to adapt continues to make a difference. Recently, McDonald's announced a 2% decline in global comps, with U.S. being the only one among the geographic regions showing growth. However, the stock is not cheap sitting at its 52-week high. But just as with Coca-Cola it doesn't imply lack of value given the improved margins and a stronger balance sheet going forward.

Hold Linear Technology (LLTC)

Linear Technology will report third-quarter earnings on Tuesday. The company is coming off a "mixed" fiscal second quarter report that saw revenue growth of almost 4% year-over-year. Unfortunately, revenue also dropped 9% sequentially, which missed analyst expectations.

The company is struggling from weak computing. Plus, management has not shown to have had an answer for the communications side of the business, which continues to show weakness. While I'm willing to excuse some of Linear's struggles due to issues related to the fiscal cliff, this issue had not impacted other high performance analog chip makers such as Avago (NASDAQ:AVGO) and Agilent (NYSE:A)

What's more, although margins have been solid, I'd like to see management improve areas like industrial, which was very weak in 2012. Nevertheless, on Tuesday, the Street will be looking for earnings of 43 cents per share, with revenue arriving at $316 million.

While analysts have been a bit more positive given that EPS estimates have risen by 1 cent from three months ago, revenue is expected to be flat. At best, revenue might arrive up less than half of a percent. Consequently, I'm not so bullish on the stock today. This is despite the fact that analysts have increased their buy ratings over the past three months.

Consider Broadcom (BRCM)

By contrast to Linear, I think investors would do better with a stock like Broadcom, which recently posted a 14% year-over-year increase in revenue and has the benefit of being exposed to devices made by both Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF), which makes Broadcom's prospects appear a lot stronger.

Meanwhile, Linear's emphasis on protecting its margins has hurt the company's ability for this sort of mobile exposure. While margin preservation is a great strategy, I don't think it works well at the expense of revenue growth.

On the other hand, Broadcom is not only well managed, but the company is well positioned for the long-term growth in mobile devices. Granted, there's also strong competition from Qualcomm (NASDAQ:QCOM) and Nvidia (NASDAQ:NVDA), but Broadcom has also shown no signs of worry.

At $34 per share, the stock is trading at just 12-times forward estimates for fiscal 2013 and at 11-times estimates for 2014, both of which are under Broadcom's historical average. And as long as cash flow continues to rise, in the mid-to-single digit range, Broadcom's stock can command a fair value of $40.

Disclosure: I am long AAPL. 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.