Aluminum giant Alcoa Inc. (AA) reports fourth-quarter earnings after the close tomorrow and we all know what that means: Earnings season will begin. I take earnings season very seriously and that’s because this is the time when companies can’t hide behind fancy public relations campaign: The quarterly results speak for themselves. When a company blows past sales and earnings estimates, the payoff can be big, but the reverse is true as well.
And the way things are looking, it’s going to be a messy quarter: Analysts forecast just 3.1% earnings growth for the S&P 500. But while the overall market is suffering from anemic earnings, there are going to be some outliers. So on the eve of the earnings season kickoff, let’s cover the notable exceptions.
Banking stocks are expected to continue to mend this quarter, with analysts forecasting 10% bottom-line growth. That’s because we’re seeing an uptick in commercial and mortgage loans as well as improvements in credit quality. Here are the earnings estimates for the nation’s largest financial instructions:
- Bank of America Corp. (BAC): +26.7%
- Citigroup Inc. (C): +219.4%
- JP Morgan Chase & Co. (JPM): +34.4%
- Morgan Stanley (MS): +307.1%
- Wells Fargo & Co. (WFC): +21.9%
However, sales are still expected to remain largely flat, so I wouldn’t rush out to buy into the financial sector just yet.
There’s a reason why tech stocks rallied after the fiscal deal was passed. Fiscal Cliff uncertainty did a number on business confidence, so IT budgets dried up as corporate clients waited on the changes to come in 2013. Now that a deal is passed, clients should be more willing to shell out for new technology and services.
However, the damage has already been done for the fourth quarter. Just a few months ago, analysts expected 9.4% earnings growth from the tech sector. Today, they expect that earnings will fall 1%, with these major players in the red:
- Apple Inc. (AAPL): -3.9%
- Dell Inc. (DELL): -23.5%
- Hewlett-Packard Co. (HPQ): -23.9%
- Intel Corp. (INTC): -29.7%
- Microsoft Inc. (MSFT): -2.6%
The Bottom Line
This earnings season is going to be a tough one, so it pays to prepare. Even though Alcoa reports tomorrow, there is still a little time because the real rush doesn’t start until the end of January. If you’re a member of any of my newsletter services, your best bet is sticking with the premium stocks I have on our Buy List.
For everyone else, I recommend that you use Portfolio Grader as your guide. Run each of your current holdings through my stock screening tool and take note of any companies you may want to trim before earnings. Pay particular attention to the current grades for “analyst earnings revisions” and “earnings surprises”: This will give you a good sense of whether that company’s upcoming earnings announcement should be strong or weak.
Starting tomorrow I’ll start covering fourth-quarter earnings regularly in this daily blog. So good luck and be sure to stay tuned!