3 Top U.S. Stocks to Watch in May

Earnings season 2020 kicked off (unofficially) with the April 14 release of earnings reports from America's big investment banks, JP Morgan and Wells Fargo. Three weeks later, we're still less than halfway through the season, and earnings news will continue to dominate throughout the month of May.

Which companies -- meaning which earnings reports -- should you be watching out for this month?

Well, this being the first earnings season in the Age of Coronavirus, I suspect we'd all be well-advised to focus on bellwethers of how things are progressing in the broader economy. The faster we figure _that _out, the better prepared we'll be for the direction the entire market is going.

Luckily, two such reports are due out just two days from now, and one more not long after.

Image source: Getty Images.

The Middleby Corporation

Restaurants have been hit hard by the coronavirus. Between government directives that they not seat patrons, to stay-at-home orders that would keep customers away in any case, the National Restaurant Association estimates restaurant sales were down 50% year-over-year in March, and three percent of _all _restaurants _in the country _went out of business permanently because of the pandemic.

Just how bad is the damage among those restaurants that remain in business, and how quickly might restaurateurs recover as the states cautiously begin reopening for business?

Thursday's earnings report from restaurant kitchen equipment purveyor Middleby (MIDD 2.76%) could give us a clue. As recently as last quarter, things were still going well for Middleby, with sales rising 4% and profits up 15%. But Wall Street worries that the slowdown that's hurting its customers will hurt Middleby, too, and analysts forecast single-digit declines in both sales and earnings on Thursday.

That's not the worst of it. Last month, short-seller Prescience Point Capital Management warned that restaurant kitchen equipment sales could fall 85% this year -- and Middleby's share price could tumble 50%. Such damage is decidedly _not _baked into current analyst estimates. Thursday's news should tell us whether the situation is really as bad as Prescience predicted... or if the short-seller was just hyping a story in the hopes of making a quick buck.

Square, Inc.

May 7 (or possibly late on May 6) should bring a second report with even broader implications for small business -- not just mom-and-pop restaurant shops, but small business in general -- as point-of-sales credit card-reader-maker Square (SQ 1.53%) reports its Q1 2020 results.

Like Middleby, and _many _companies right now, Square was doing great before COVID-19 struck. According to data from S&P Global Market Intelligence, Square's Q4 sales ended 2019 on a high note, with revenue up 41% year over year, and the company reported its first-ever full-year GAAP profit.

In March, however, Square went online to warn investors of what's coming up this week. "In January and February, gross profit increased 47% year over year," said the company, and Square was enjoying "momentum across both its Seller and Cash App ecosystems." But "starting in March, the effects of COVID-19 began to impact the company's growth." Hurt by small brick-and-mortar shops closing all across the country, Square's ecosystem of sellers using Square hardware and software to rack up sales "has basically ground to a slow crawl," in the words of my fellow Fool Anne Burdakin.

Now, not all the news is bad. Square's Cash App for peer-to-peer payments may still be growing -- and might even be thriving as house-bound Americans use it to transfer payments from a safe social distance. And at last report, Square was still hoping to record "total net revenue" in excess of $1.3 billion, profitably.

Even if Square does pull off an earnings beat, however, I think the primary import of its report will be to help us gauge the health of the Square "Sellers." The numbers Square reports in that business will give us the greatest insight into the health of small businesses in America as a whole.

Walmart

But what about _big _business, you ask? Well, you won't have to wait long for the answer to how big businesses are thriving. In the retail industry, there are few businesses bigger than Walmart (WMT +1.89%), and Walmart reports its Q1 numbers just two weeks from now, on May 19.

In contrast to smaller rivals, many of which have had their businesses deemed "nonessential" and their doors summarily locked, the "essential" business that is Walmart appears to be doing pretty well in the Age of Coronavirus. After racking up modest 2% sales growth and 12% profits growth a quarter ago, the past few weeks have been filled with stories of how business is booming at the retail giant. With online shopping numbers "doubling," Walmart has been hiring new workers by the tens of thousands -- and rolling out new services such as two-hour Express Delivery to capture more market share from its harried rivals.

Analysts expect this all to translate into huge sales growth (or relatively huge, for an already huge business) of 5%. At the same time, however, all the new costs Walmart is taking on to fulfill its essential role -- everything from paying new workers, to outfitting them with masks, to cleaning and recleaning its stores to keep the virus at bay -- could take a toll on the profitability of these sales. Analysts forecast profit growth of only 3.5% in comparison to last year's Q1.

Depending on how Walmart's bottom line number actually looks come May 19, we should get a good idea of how much more it is costing even dominant companies to do business under the new reality. For investors, this information could be even more valuable than knowing how profitable Walmart, itself, has become.