2012 is off and running and the bulls begin with a determined effort to move stocks higher. 2011 could not have ended any sooner. It was a difficult year to say the least. Amateurs and professional investors all struggled to make heads or tails of a market with significant cross currents.
I guess it makes sense that stocks ended last year essentially flat or does it?
Corporate earnings were very strong last year with little reward in the stock market. That means valuations from a profits perspective have come down. Economic activity was stronger than many expected at the end of the year.
To the extent such performance continues it will be hard to keep stocks down. That doesn’t mean the bears won’t try.
Already we are pivoting to the next tail risk event. Will it be conflict in the Middle East, political tension in Washington D.C or more trouble in Europe that brings stock values lower? Any number of external events could derail what was a nice start to 2012.
Fortunately the natural bias of stocks is to move higher. It may not seem so given the tumult of the last decade, but keep in mind things gravitate to the mean. What was a great year for bond investors last year is likely to be reversed in 2011.
Whatever the case may be, the single best way to capture gains in the market in the short term is to keep an eye on corporate earnings. These significant events allow investors to rejigger valuations often resulting in big stock price swings in the immediate aftermath of a profit report.
This week earnings season begins in earnest with the release of numbers from Alcoa (AA). There are other names reporting as well.
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Here are items to keep an eye on with five stocks reporting results next week:
Alcoa (NYSE: AA)
The giant aluminum company reports results for the period ending December 31, on Monday after the market closes. Wall Street expects the company to report a loss of 2 cents per share in the period. 90 days ago the average estimate was for a profit of 21 cents per share due in part to a big earnings miss in the last quarter. Prior to that miss, Alcoa had met or exceeded estimates in the three prior quarters. Shares of Alcoa have dropped by 44% over the last 12 months. In 2012, analysts are looking for profit growth of only 9%. Shares currently trade for 11 times 2012 estimated earnings.
Lennar (NYSE: LEN)
The homebuilding company reports results for the quarter ending November 30, 2011 on Wednesday before the market opens. Wall Street expects a profit of 17 cents per share. The estimate has slipped by 1 cent per share over the last 90 days. Lennar has exceeded estimates in each of the last four quarters. Shares of Lennar are up 7% over the last year on continued hopes for a housing recovery. Analysts expect the company to grow profits by 59% in the current fiscal year ending November 30, 2012. At current prices Lennar trades for 26 times forward earnings estimates and 1.4 times book value.
SuperValu (NYSE: SVU)
The grocery store operator reports results for the quarter ending November 30, 2011 on Wednesday before the market opens. Wall Street expects the company to make 24 cents per share in the period. That estimate is a penny per share lower than where the number stood 90 days ago. The company has beaten the number in each of the last three quarters. Shares of SuperValu have slipped by 10% in the last year. Analysts expect profits to be flat in the current fiscal year ending February 28, 2013. At current prices shares of SuperValu trade for 6.5 times forward estimated earnings.
Washington Federal (NASDAQ: WFSL)
The regional bank reports earnings for the quarter ending December 31, 2011 on Thursday before the market opens. Wall Street expects the company to make 29 cents per share in the period. That estimate is slightly lower than the 32 cents per share expected 90 days ago. The company has missed estimates in two of the last four quarters, but only by a slight margin. Shares of Washington Federal are down 14% over the last year. Analysts expect the company to grow profits in the current fiscal year ending September 30, 2012 by more than 20%. At current prices shares of the company trade for 12 times current fiscal year estimated earnings.
JP Morgan (NYSE: JPM)
The large financial services bank reports results for the period ending December 31, 2011 on Friday before the market opens on Friday. Wall Street is calling for a profit of 93 cents per share in the quarter. That estimate is down significantly from the $1.13 estimate 90 days ago. The company has exceeded estimates in each of the last four quarters. Shares of JP Morgan are down 20% in the last year. Analysts are expecting 7% profit growth in 2012. At current prices shares trade for 7 times earnings.