January 18, 2012
Tomorrow, there are no fewer than 76 companies reporting earnings, and analysts and investors are going to be scrambling to keep up with all the reports.
But I've looked at each company and what I've found is that it's all going to come down to seven critical reports. These seven big-name companies will have the biggest impact on the market and your future wealth.
The expectations for International Business Machines Corp. (IBM) aren't very high this quarter. Analysts are expecting just 2.5% sales growth because of cuts in IT spending. But IBM has many divisions that are ramping up and should more than offset declines in IT. I could spend a week talking about all the major initiatives the company has in the works, but the key to understanding the success of IBM is knowing that this 100-year old company has made it a priority to diversify and meet customers where they are with products they want right now.
Expectations are for earnings to come in at $4.62 per share. With the company's focus on innovation and sales, I expect they'll meet, if not beat by a few cents, and shares will continue to move on the solid trajectory higher than they have been on since September 2011.
Here's another big-name company I bet you didn't expect to see in my list of earnings studs: Intel Corp. (INTC). It has been a volatile year for the semiconductor company. But I think this will work in investors' favor. Even a small surprise for the company could get shares moving in a hurry, and that's exactly what I expect to see tomorrow. Analysts are expecting just 3% earnings growth over last year and 19% sales growth. INTC's margins are among the best in the business, and the company is converting more sales to profits than anyone else. This is not fully being accounted for, and given the incredibly optimistic comments from company leadership, I think they have a trick up their sleeve and are positioned to meet, but more likely, beat earnings this quarter.
Intuitive Surgical Inc. (ISRG) is in a business that sounds like it comes straight from a science-fiction novel: Surgical robotics. But this technology has been used in the real world for more than a decade thanks to ISRG's da Vinci surgical system. For the upcoming year, analysts expect that Intuitive Surgical will grow earnings by 25.2%–over double the 11.7% rate expected for the rest of the industry. Analysts also predict 17.5% sales growth in 2012. Given that the company has beaten earnings estimates in each of the last four quarters and that operating margins and return on equity are both in excess of 21%, this is a healthy company with excellent profit potential.
UnitedHealth Group Inc. (UNH) is another major player in the healthcare industry and is my final pick for earnings studs for January 19th. This company is the largest single health carrier in the United States. It serves more than 75 million people worldwide. The company has successfully negotiated countless acquisitions that have added value and patients to the UNH universe. Plus, you can't fight demographics. The first baby boomers (born in 1946) turned 65 in 2011; analysts expect that insurers who manage Medicare plans will reap $10 billion in additional revenue over the next five years! UNH wants to grab the biggest share of this market and its recent plans to buy XLHealth Corp. will add $2 billion in sales to the bottom line and earnings.
For tomorrow's report, analysts are expecting $1.03 in earnings per share: This is nearly 12% higher than estimates from 90 days ago. When you see analysts raising estimates on a big blue chip company, it's a great sign that the company will report even better numbers. UNH is doing a great job of increasing patients in its network, and I fully expect to see the company talk about higher costs but likely meet or beat current estimates.
Now not every company can succeed in the tough economic environment we're in. And the next four companies I'm going to tell you about are prime examples of what to watch out for this earnings season. Weakness in their core operations will keep me from putting any of them on my buy list anytime soon.
I have taken a lot of grief because I refused to recommend Google Inc. (GOOG). There are die-hard fans out there that curse my name, but the best I can say about this company is that it is on the bubble. It could really go either way with the upcoming earnings release. Analysts have been raising and lowering earnings estimates trying to get a grasp on the profit potential of the Internet giant, operating margins have been lackluster and buying pressure (the heartbeat of any stock) is dwindling.
I think earnings could go either way. If the company does report the 31% sales growth and 20% earnings growth everyone is expecting, the stock could see a boost. But it's just too much of a gamble when there are better stocks out there with superior fundamentals and strong buying pressure. To my critics I say get off the GOOG bandwagon. The stock is down 2% over the last 52 weeks, and I think that's the best you can expect for at least the next six months.
Finally, I can't say it enough–avoid financial stocks at all costs. They do not have the fundamentals, buying pressure or earnings momentum to make any serious money for investors. Here are two prime candidates: Morgan Stanley (MS) and Bank of America Corp. (BAC).
The charts for both of these companies represent a long, painful journey for investors. Both are trading at least 40% lower than one year ago, and I don't see a turnaround anytime soon.
Morgan Stanley has had some stellar earnings announcements that surprised Wall Street in 2011, but it wasn't enough to get the stock moving in the right direction. And this quarter will be no different. Analysts expected the company to post $0.30 per share in earnings just 30 days ago. But they have quickly changed their tune and are now expecting at $0.57 per share loss for the quarter.
And analysts are lowering estimates for Bank of America as well. Expectations are down 28% in the last week, and I don't see how the company can hit the $0.15 per share of earnings.
If you want to look into a crystal ball for what's in store for Morgan Stanley and Bank of America, just look at Citigroup's (C) earnings. That financial company announced that profits fell 11% from a year ago–worse than analysts expected.
Tomorrow is going to be a busy day. I'll be watching these seven stocks closely and will follow up right here with their results.