Follow The Earnings

12/5/2011


With stocks gyrating on the sovereign debt woes gripping Greece, Italy, and other European countries, investors would do well to heed the advice of legendary fund manager Peter Lynch. More than 20 years ago, in his popular book One Up On Wall Street, Lynch wrote "People may wonder what the Japanese are doing and what the Koreans are doing, but ultimately the earnings will decide the fate of a stock."

Given the uncertain backdrop and tepid economic outlook, companies with earnings momentum stand the best chance of rewarding investors with higher stock prices. And given the recent market slump, many such stocks are reasonably valued. With that in mind, we screened for stocks with high scores for Quadrix Overall and Earnings Estimates. In addition, we focused on stocks that exceeded consensus profit estimates in each of the last three quarters and have positive revisions for current-year and next-year earnings. All seven are reasonably valued.

Fertilizer maker CF Industries ($144; CF) is benefiting from high farm income, favorable crop prices, and tight global supplies. September-quarter earnings per share were $5.16, up from $1.10 and above the consensus of $4.74. Revenue surged 53%, while cash flow jumped 75%. Healthy industry fundamentals and robust demand could allow for price increases and keep sales rising. Wall Street sees per-share profits of $22.61 in 2011 and $22.85 in 2012. Last year, the company earned $8.05. CF, with an Earnings Estimates score of 98 and Overall score of 100, is a Focus List Buy and a Long-Term Buy.


Intel ($24; INTC) has posted three straight quarters of at least 16% per-share-profit growth and 21% or higher sales growth. The bellwether microchip maker, buoyed by strength in emerging markets and demand for notebook computers, has exceeded consensus profit estimates in four straight quarters by an average of 11%. December-quarter earnings per share are projected to increase 17%. Full-year earnings per share should rise nearly 21%. For 2012, the consensus projects 5% growth, a target that sounds conservative. Intel is a Focus List Buy and a Long-Term Buy.


MasterCard ($358; MA) is pushing to have its payment technologies, including the popular PayPass, built into more mobile devices. In mid-November, the company and Intel agreed to collaborate on enhanced online-shopping security and payment options. MasterCard has topped consensus profit estimates for seven consecutive quarters, and the estimate for 2012 has climbed more than 4% in the last 90 days, now implying 16% growth to $21.67. MasterCard earns an Overall score of 93 and an Earnings Estimates score of 95. The stock is a Focus List Buy and a Long-Term Buy.

EARNINGS MOMENTUM LEADERS
Quadrix Scores
Current-Year Est.
Next-Year Est.
2011 EPS Surprises
Company (Price; Ticker)
Quality
Earns.
Ests.
Overall
EPS
($)
Growth
(%)
3-Mo.
Revision
(%)
EPS
($)
Growth
(%)
3-Mo.
Revision
(%)
Sept.
Qtr.
(%)
June
Qtr.
(%)
March
Qtr.
(%)
Aflac ($41; AFL)
72
76
97
6.37
15.2
1.3
6.67
4.6
2.2
3.9
1.5
7.7
AGCO ($43; AGCO)
83
82
99
4.30
85.4
4.5
4.62
7.4
2.6
15.2
17.1
124.2
CF Industries ($144; CF)
100
98
100
22.61
180.9
7.9
22.85
1.1
21.9
7.3
15.3
21.9
Google ($583; GOOG)
98
79
96
36.83
24.4
3.9
43.83
19.0
4.6
11.0
11.7
0.1
Intel ($24; INTC)
92
73
100
2.47
20.5
5.5
2.60
5.3
5.5
11.5
15.2
29.2
MasterCard ($358; MA)
99
95
93
18.67
32.2
5.8
21.67
16.0
4.6
16.9
12.6
5.2
Wyndham ($34; WYN)
75
81
92
2.45
22.7
2.4
2.87
16.8
5.2
6.5
14.9
10.8
Note: Quadrix scores are percentile ranks, with 100 the best.

 


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