Stock Recommendations Amid Revenue Season

According to a Wolfe Research report, stocks that have failed to meet analyst expectations this revenue season may be good candidates for selling. Generally, the second quarter revenue season exceeded Wall Street predictions. So far, about 94% of S&P 500 companies have reported their earnings, with 82% surprising analysts positively. However, some stocks drag down the overall performance.

Wolfe’s analysis includes a list of companies that investors might want to offload. This includes those that didn’t meet revenue forecasts for the quarter and showed a negative revenue revision for 2025. One of the stocks mentioned has experienced an 8% decline this year. For instance, Southwest Airlines announced an adjusted earnings of 43 cents per share with revenues of $7.24 billion for the last quarter. Analysts had estimated earnings of 51 cents and revenues of $7.3 billion, according to FactSet. Following this, Evercore ISI downgraded the airline’s rating from “outperform” to “inline.” Nevertheless, analyst Duane Pfennigwerth has set a $40 price target, suggesting that Southwest shares could rise by 28% from their closing price on Wednesday. Pfennigwerth commented that the stock is nearing fair value as it trades at 36 times the expected earnings for 2025 and 11 times for 2026. He expressed confidence that the company’s active share buybacks could sustain its year-to-date performance.

Another stock flagged by Wolfe for potential selling is Align Technology, known for its Invisalign products. The company saw a 32% decline in forecasted revenues for 2025. In July, Align’s second quarter results fell short of analyst expectations, with current quarter revenues projected between $965 million and $985 million. Consequently, Morgan Stanley downgraded Align from “overweight” to “equal weight,” cutting its 12-month price target from $249 to $154 per share. This new estimate implies a potential 7% upside from Wednesday’s close. Analyst Erin Wright noted that the prior overweight rating was based on Align’s leadership in a high-growth sector, but growth has become increasingly challenging.

Additionally, Lockheed Martin shares have also decreased by 8% this year, and some analysts suggest caution with these stocks moving forward.