6/1/2011 7:12 PM ET|
5 all-star stocks that keep winning
Companies that beat expectations on sales, exceed profit estimates and also raise guidance for future performance are the market's superstars.
Hitting a baseball, they say, is the most difficult feat in sports. No wonder players who hit safely just three times out of 10 at-bats are considered stars. In the corporate world, the elite consists of companies that routinely knock it out of the park during earnings season.
Investing pros refer to these companies as triple plays. They surpass analysts' estimates for profit and sales, and then they raise expectations about future results.
Less than 10% of companies pulled off triple plays in the earnings season that ended this winter, according to Bespoke Investment Group.
The least-common component of the triple play is raised guidance, which occurs when a company signals to investors that it will continue to top expectations. Company executives often indicate that they're optimistic by using words like "robust" and "healthy" when talking to Wall Street about demand for their products. This happens less often in uncertain economic climates.
"There are very few companies that are sticking their necks out going forward," says Ron Muhlenkamp, manager of the $635 million Muhlenkamp (MUHLX) fund.
By many measures, however, corporate America has never looked healthier. The country's largest nonfinancial companies hold hundreds of billions of dollars in cash on their balance sheets. When the economy tanked, companies slashed spending to make a profit. Today, more of them are earning profits the old-fashioned way: by increasing sales. By the end of 2010, corporate profits had surpassed the heights they'd reached before the recession.
And now revenue is rebounding too.
During the slowdown, companies with sales growth tended to be those, like Family Dollar Stores (FDO, news), that catered to budget-conscious consumers. But sales are now closing in on their prerecession peaks, says Aaron Smith, senior economist at Moody's Analytics.
"It's growing at a ridiculous clip," says Michael Sansoterra, manager of the RidgeWorth Large Cap Growth (STCAX) and an Apple shareholder.
There are questions about how long Apple can keep creating products that consumers think they can't do without and whether the iPad will start to cannibalize Apple's laptop computer sales. For now, though, many investors think the stock is a bargain, given its growth prospects.
"Can the stock go up another 50%? Sure," says Jerry Jordan, the manager of the Jordan Opportunity Fund (JORDX) fund and an Apple shareholder.
Many investors would contend that Apple is in a category of its own.
For most companies, the ability to beat Wall Street's estimates involves psychology as much as business chops. Investors punish companies that fail to meet estimates. Knowing this, managers often offer conservative guidance (or none at all).
That's why it's noteworthy when executives raise guidance. In effect, they're saying, "Have I got news for you," says Sandeep Dahiya, associate professor of finance at Georgetown University's McDonough School of Business.
Rather than focusing on whether companies beat estimates, investors should use a company's earnings report as a starting point, the pros say.
Many professional investors create their own earnings models for the companies they hold and then compare their own projections with those of analysts and company management. There's often a herd mentality among analysts, some critics say. "By the time everyone upgrades Netflix (NFLX, news) to a "buy," it's too well known" to offer great growth prospects, says Bob Auer, the manager of the Auer Growth (AUERX) fund, whose holdings include the triple play Altera (ALTR, news), a maker of microchips.
A company's earnings can offer a hint about where its share price is headed. Research on so-called "post-earnings-announcement drift" shows that stock prices generally continue to move in the direction of the earnings surprise for up to a year after the announcement.
"The companies that beat expectations continue to do very well," Dahiya says.
VIDEO ON MSN MONEY
From a local news article, "The firm, its employees and political arm contributed at least $83,000 to state legislators in 2010., almost all Republicans. The contributions are a small part of the $1 million-plus the company gives to elected leaders nationally". Keeping the palms greased, you scratch my back and I scratch yours. Caterpillar remains a US company, and reaps all the rewards of tax breaks and incentives, yet how much of it is actually here, besides corporate headquarters and white collar jobs? My plan would be to eliminate those tax breaks and incentives, create personal and corporate flat tax of about 35%, off the top, with no deductions, no hiding places, and no exemptions. Any companies who outsource would face a 1000% tax on their own goods, which are now declared as 'imports'. If you want to be a US based company, then be HERE, lock, stock and barrel, or else.
Be careful when these stories start coming out there helping to manipulate the market for some selling off and dropping the stock. Board of directors and the elite know how to manipulate there earnings drop prices and then them back. It's good old boy's and inside trading.
Jack **** website keeps blocking me saying Im blogging
I'd pay more attention to some of these critiques, particularly that of Calily griping about Gumball, if he didn't resort to name-calling and/or took a crash course in grammar. Just because you're emailing doesn't mean you should commit the crime of murdering the King's English.
P.S. Tarpaper: How does big business making record profits help the common man? If greedy corporations aren't rehiring at least some of those people who have been laid off in the last five years I don't give a hoot about them stashing away greenbacks. If record profits come at the expense of the middle class they become a long-term recipe of disaster.
But, for example, CAT here is said to "keep on winning" yet it's annual earnings from 2004-10 are: $4.15 $1.43 $5.66 $5.37 $5.17 $4.04. It's not even making what it was in 2004 and it "keeps on winning?"
APKT has seen its share price fall from $20 at the end of '06 to $3 at the end of '08 and then fairly steadily grow to $67 and a P/E of nearly 100. Of the 17 analysts covering it, 0 say strong buy, 9 say weak buy, 6 say hold, and 2 say sell. Based on Harry Domash's analysis of what buy-sell signals really mean to insiders: that's 0 buy, 9 hold, and 8 sell. And if it is worth buying, it's not because it "keeps" doing anything for any considerable period.
AAPL, ALTR, and TPX have, at a glance, Buffett-type "keep winning" credentials, though TPX has an awful lot of debt.
My strategy: Just track the flow of money between the markets before picking your stocks or going to long/short position.
I saw the smart money movement 4 weeks ago and bought LVLT at May 1(Up by 45%).
There are some algorithmic systems (for example “I Know First” system ) that tracking the flow of money daily.
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