5 Dow stocks likely to rise after earnings

JPMorgan Chase and IBM, among others, tend to advance after reporting second-quarter results.

By TheStreet Staff Jul 6, 2011 10:23AM

the streetBy Robert Holmes, TheStreet

 

Some Dow stocks, such as JPMorgan Chase (JPM) and IBM (IBM), tend to perform better than others after reporting second-quarter earnings results.

 

That's not the case with Disney (DIS) and Microsoft (MSFT).

 

Alcoa (AA) unofficially kicks off the earnings reporting season July 11 after the stock market's closing bell. The aluminum producer's stock doesn't fare well after reporting second-quarter numbers, falling an average of 0.7% the following day, according to data collected over the past 10 years.

 

Disney, Microsoft and Exxon Mobil (XOM) typically fall an average of 2% in the trading session after the companies report financial results for the second quarter. (Microsoft owns and publishes MSN Money.)

Earnings season can involve risks because of additional volatility for many of the Dow Jones Industrial Average’s ($INDU) 30 components, especially this year, when the Dow has seesawed. The benchmark is up almost 9% this year. Last summer, shares of Bank of America (BAC) and Cisco Systems (CSCO) each plunged 10% during the trading day after reporting their respective results, while Pfizer (PFE) shares rallied nearly 6%.

 

Nothing is a sure bet, but history can be a guide. The following five Dow stocks have notched, on average, the biggest gains in the trading day immediately after posting quarterly numbers in July and August over the past 10 years. TheStreet has ranked the top five winners based on that percentage rise.

 

5. United Technologies (UTX)

 

Company Profile: Industrial giant United Technologies is the maker of Pratt & Whitney jet engines and Otis elevators.

 

Expected Reporting Date: July 18 (before market open)

 

Historical Price Performance: Shares of United Technologies have increased an average of 1.1% in the trading session immediately after the company posts second-quarter results. In six of the past 10 years, shares have climbed during that trading session. Among the biggest increases, United Technologies shares rose 5.9% on July 17, 2008, after the company beat earnings expectations.

 

Analyst Consensus: Analysts predict that United Technologies will report a second-quarter profit of $1.41 a share and revenue of $14.7 billion, according to data compiled by Thomson Reuters. That compares to year-earlier earnings of $1.20 a share and revenue of $13.9 billion.

 

United Technologies is a favorite among analysts headed into second-quarter earnings, garnering 20 "buy" ratings and five "hold" ratings, according to data compiled by Bloomberg. No analyst following the company recommends selling shares. The average price target of $98.25 represents potential upside of 8.7% from current levels.

 

Share Price Return in 2011: +14.5%

 

4. Kraft Foods (KFT)

 

Company Profile: Kraft Foods makes packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products. Kraft counts Oscar Mayer, Maxwell House, Nabisco and Cadbury among its brands.

 

Expected Reporting Date: Aug. 1 (before market open)

 

Historical Price Performance: Shares of Kraft have climbed an average of 1.1% in the trading session immediately after the company posts second-quarter results. The stock rose nearly 7% on July 24, 2006, after Kraft easily beat analysts' targets.

 

Analyst Consensus: Analysts expect Kraft to report second-quarter earnings of 57 cents a share and sales of $13.1 billion, according to Thomson Reuters. In the year-earlier quarter, Kraft reported sales of $12.2 billion and earnings of 60 cents a share.

 

Credit Suisse and Sanford C. Bernstein are among 14 research firms that rate Kraft as a "buy," and another nine say investors should hold on to shares, according to data compiled by Bloomberg. No analysts covering the stock rates Kraft as a "sell." The average price target of $37 represents potential upside of 4%.

 

Share Price Return in 2011: +12.5%

 

3. IBM (IBM)

 

Company Profile: IBM is the world's biggest computer-services provider.

 

Expected Reporting Date: July 18 (after market close)

 

Historical Price Performance: IBM is usually a gainer on second-quarter results with an average return of 1.2% in the trading session immediately after the company reports. Seven of the past 10 years have seen IBM shares rise on second-quarter numbers. The stock rose 4.3% on both July 17, 2009, and July 19, 2007; in both cases, IBM beat the average analyst target for earnings per share.

 

Analyst Consensus: IBM should report a quarterly profit of $3.03 a share on revenue of $25.4 billion, according to a poll of analysts by Thomson Reuters. That compares to a year earlier, when IBM posted earnings of $2.61 a share and sales of $23.7 billion.

 

Big Blue nets 18 "buy" ratings from research firms including Collins Stewart and FBN Securities, according to Bloomberg. Another 13 analysts say investors should hold on to shares. No firm rates IBM as a "sell." The average price target of $179.47 represents a potential gain of only 2.6% from current levels.

 

Share Price Return in 2011: +19%

 

2. AT&T (T)

 

Company Profile: AT&T provides wireless and wireline telecommunications services and equipment.

 

Expected Reporting Date: July 21 (before market open)

 

Historical Price Performance: Shares of AT&T have climbed an average of 1.3% in the trading session immediately after the company posts second-quarter results over the previous 10 years. Six of those 10 years brought gains for AT&T. The largest gain came July 25, 2001.

 

Analyst Consensus: In the second quarter of 2010, AT&T reported earnings of 61 cents a share on revenue of $30.8 billion. This year, analysts predict that AT&T will report a profit of 60 cents a share on revenue of $31.7 billion, according to Thomson Reuters.

A majority of the researchers following AT&T recommend buying shares of the telecom shop. Nineteen firms, including Nomura and FBR Capital Markets, rate AT&T as a "buy," and another 14 analysts say investors should continue holding shares. No analyst recommends selling AT&T shares, according to Bloomberg. The average price target of $32.48 represents upside of 2.4% from current levels.

 

Share Price Return in 2011: +7.8%

 

1. JPMorgan Chase (JPM)

 

Company Profile: JPMorgan Chase is a global financial-services company that provides investment and retail banking in the U.S. with operations worldwide.

 

Expected Reporting Date: July 14 (before market open)

 

Historical Price Performance: Shares JPMorgan of have climbed an average of 1.7% in the trading session immediately after the company posts second-quarter results over the past decade, although the stock has managed to book a gain in five of the past 10 years. The biggest increase for JPMorgan, which skews the overall number higher, came on July 17, 2008, when shares rallied more than 13% after the bank reported a second-quarter profit of 54 cents a share.

 

Analyst Consensus: JPMorgan should post a second-quarter profit of $1.22 a share and revenue of $25.2 billion, according to a poll of analysts by Thomson Reuters. That compares to earnings of $1.09 a share and revenue of $25.6 billion in the second quarter of 2010.

 

JPMorgan garners a whopping 31 "buy" ratings from research firms, including Wells Fargo, RBC Capital and Raymond James. The only other six analysts following the bank say investors should hold shares. The average price target of $55 implies upside potential of 33.5%, the most of any stock on this list.

 

Share Price Return in 2011: -2%

 

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