Earnings season is almost over. Morgan Stanley has some picks to play the end

Morgan Stanley highlighted a basket of MSCI U.S. stocks that are expected to report between May 7 and June 2 and screen well for earnings surprises, signaling potential post-results upside. Ulta Beauty was upgraded to buy with a $685 target, implying 29% upside; Applied Materials had its target raised to $454, implying nearly 11% upside. Target kept a neutral rating but had its target lifted to $133 from $117, while Nvidia and Deere were also named as candidates.

Analysis

The setup is less about “good earnings” and more about dispersion: when a basket has already screened for positive estimate behavior and analyst support, the market tends to reward only the names that can convert upside into forward guidance or margin inflection. That favors businesses with operating leverage and visible reinvestment payback, while punishing companies where the stock has already rerated into perfection. In practice, the highest convexity sits in the names where expectations are still anchored to prior-cycle weakness, not the obvious winners already up sharply.

ULTA is the cleanest example of a post-investment reacceleration trade. The market has been focused on capex drag, but the second-order effect is that store refreshes and digital improvements can widen the productivity gap versus smaller beauty peers that lack the balance-sheet capacity to match. If management shows any evidence that those investments are lifting traffic or basket size, the multiple can expand quickly because the market has already de-rated the stock to a “prove it” level.

AMAT is a different animal: it trades more like a forward semiconductor beta expression than a pure single-name earnings event. With the stock already having rerated, the risk is not earnings miss so much as a guide that confirms the cycle without extending it — which can create a “good but not enough” reaction. NVDA likely acts as the market’s barometer for AI capex durability; if AMAT or NVDA merely validate spend, leadership stays intact, but any sign of digestion or customer pauses would hit the crowded AI complex first.

TGT is the most asymmetric contrarian short-term setup because improved sentiment has likely pulled forward a lot of the upside. The bar is no longer absolute performance, it is acceleration versus an elevated baseline, and that creates a narrow path to a clean beat-and-raise reaction. If the company cannot expand the forward outlook, the stock can give back several weeks of gains quickly, especially if discretionary demand looks stable but not improving. The broader losers in that scenario are adjacent mass merchants and consumer discretionary names that have already been trading on the same “soft landing” premise.

Key Decisions for Investors

• Go long ULTA into the print, sized for a 2-4 week event window; best risk/reward is on a beat-plus-guidance raise that confirms investment payback. Use a defined-risk call spread if implied volatility is rich, since the stock can re-rate fast on any evidence of traffic/margin leverage.
• Fade TGT into earnings with a short or put spread, targeting a 1-3 week catalyst horizon. The trade works if results are merely good rather than meaningfully better, because the setup appears crowded and consensus is already leaning constructive.
• Stay long AMAT only if paired against a weaker semi-capex basket; otherwise take profits into the print. After a 66% YTD move, the incremental upside is lower unless guidance clearly extends the cycle, so the trade should be treated as momentum with tight risk controls.
• Use NVDA as a hedge for the AMAT/semicap equipment view: long NVDA against a partial short in higher-beta equipment names if you want AI capex exposure with less multiple sensitivity. This reduces single-name earnings risk while keeping exposure to the spend cycle.
• If you want a cleaner portfolio expression, run a consumer pair: long ULTA / short TGT for the next earnings window. That captures the difference between a stock with still-depressed expectations and a stock where upside is already largely in the price.