2010 – Shaping Up as a Promising Year for Companies

Monday, November 30, 2009

x-716350_abstract_lightingThe third quarter earnings reports are now in, and the implications for 2010 are good. In addition, the economic leading indicators continue to signal improvement ahead. And yet investors are still selling their stocks and buying bonds. This week, we’ll discuss why it’s a great time to consider tuning up your portfolio by doing the opposite.

Last month, I discussed why “It’s Time To Watch the Earnings Reports.”  With Hewlett-Packard reporting last week, we now can look at how the Dow Jones Industrial Average’s (DJIA’s) 30 company earnings affected next year’s expectations. The table below shows the 2010 (calendar year) forecasts before and after the third quarter earnings reports:

DJIA EPS table

There are a number of observations:

  • All companies are earning profits
  • Earnings forecasts rose for 26 companies, showing broad, underlying improvements
  • There is a wide differentiation among companies, even within the same industry (e.g., financial services: American Express, Morgan-Chase, Travelers and Bank of America), showing that analysts are focusing on individual companies, not applying blanket, economy-caused changes
  • The companies affected most by the economy are among the highest gains (Caterpillar, Alcoa, 3M and DuPont)
  • Technology company projections increased well (Intel, Cisco and Microsoft)
  • Consumer company outlooks increased nicely (Disney, McDonalds, Coca-Cola, etc.)

Therefore, 2010 earnings forecasts mostly improved as companies reported their third quarter results. These broad-based increases are just the thing to support stock market valuations and growth expectations. Tomorrow, we look at future growth rates and then get into pricing.

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John Tobey on Seeking Alpha

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November 2009