9 stock picks to buy, 9 to avoid during Q4 earnings season: BTIG - Business Insider

Julian Emanuel of BTIG says he's found some big potential winners and losers this earnings season. His methodology combines recent stock moves, the direction of Wall Street expectations, and options market data.That forms the basis of his advice for investors as they try to get a handle a market where stocks are at record highs and are expected to keep rising, but earnings forecasts look weak.Broadly, Emanuel says investors should play offense with cyclical and inexpensive stocks in the energy, financial, and healthcare sectors.Click here for more BI Prime stories.US stocks have been going pretty much straight for about a year, and that makes it uniquely challenging to pick the biggest winners in the earnings season that's getting underway.Julian Emanuel, the chief equity and derivatives strategist at BTIG, notes that the task is that much more complicated because stocks have been rallying, but overall S&P 500 earnings are expected to decline. And he doesn't think the broad rally is going to fade.“Given the extended near-term nature of the market's rally, selectivity, along with an expectational edge and a proven track record of prior reporting success will be key to alpha generation during earnings season,” he wrote in a note to clients.Taking that into account, he's come up with a list of nine stocks that could make good buys, and a list of nine stocks to avoid. The first group is made up of stocks that underperformed the S&P 500 from January 1 through August 30 of last year, and have outperformed since then even though analysts are reducing their earnings estimates.Read more: A tech investor who crushed 97% of his peers in 2019 gives us his top 5 stock picks for the next 5 yearsThat means the stocks are somewhat inexpensive and face lowered expectations that will be easier to surpass. Further, there's reason to believe they could beat those expectations, as the stocks in that group have beaten consensus earnings and revenue estimates for seven of the last eight quarters.The second group is essentially the opposite, as they lagged the market for the first eight months of 2019 and have outperformed since. Meanwhile, Wall Street estimates for those companies are going up, and there's reason to think they could disappoint because their results have fallen short of expectations at least twice in the last eight quarters.Emanuel has evaluated the implied earnings move for each stock based on options market prices, and the stocks are ordered from lowest to highest based on the size of those potential moves.