I’ve said it before and I’ll say it again: I think the return of earnings growth will be one of the main drivers of the market this year. Now, it may seem a little funny that I’m saying this today. After all, the market had a sizeable pullback today on lackluster earnings news, with the major indices closing down over 1%. Today’s biggest losers include Lululemon Athletica Inc. (LULU) and SodaStream (SODA)—both stocks are down more than 15% after management from each company cut their fourth-quarter earnings guidance.
The fact is that there’s a notable divide among analysts about how fourth-quarter earnings season: A recent FactSet report stated that bottom-up analysts (who cover specific companies) are expecting 4.8% annual earnings growth, while top-down strategists (that analyze the big-picture trends in the economy, sectors, etc.) are expecting a 2.3% earnings decline. This is creating some uncertainty out there.
What do I make of this?
Well, in my experience, the bottom-up analysts are almost always right. One of my favorite analysts, Ed Yardeni, pointed out that if you exclude JPMorgan (JPM)—which has slammed with multi-billion fines—fourth-quarter earnings for the S&P 500 are expected to grow between 8% and 9%. For all of 2014, the analyst community expects 10.7% earnings growth.
So overall, earnings are on track to improve in the fourth quarter and for all of 2014. There will be companies like Lululemon and SodaStream that don’t make the cut, but that’s to be expected. In fact, you could have guessed that these stocks weren’t going to do well this earnings season by running them through my stock screening tool, Portfolio Grader. For the past several weeks, both LULU and SODA have been stuck at D-rated sells.
On the flipside, running Wendy’s Co. (WEN) in Portfolio Grader a few days ago would have revealed this stock’s position at a B-rated buy before the company released a bullish outlook for 2014 today. WEN shares closed up over 6% for the day.
My point is that each earnings season has its share of up days and down days, but using tools like Portfolio Grader can protect our portfolios. On that note, let’s take a look at the 47 most notable upgrades and downgrades in this stock screening database over the weekend. This week, my screens picked up 11 stocks that were upgraded from hold to buy ratings, 11 that were downgraded from buy to hold ratings, 13 that were upgraded from sell to hold ratings, and 12 that were downgraded from hold to sell ratings. Let’s take a look.
Upgrades
Last Week’s Holds, Now Buys
| Symbol | Company Name | Quantitative Grade | Fundamental Grade |
| BWA | BorgWarner Inc. | B | B |
| CNA | CNA Financial Corporation | B | B |
| D | Dominion Resources Inc. | B | B |
| FITB | Fifth Third Bancorp | B | B |
| FMS | Fresenius Medical Care AG & Co. | B | C |
| GIS | General Mills Inc. | B | C |
| MJN | Mead Johnson Nutrition Company | B | B |
| SNDK | SanDisk Corporation | C | A |
| SRE | Sempra Energy | B | C |
| UAL | United Continental Holdings Inc. | B | C |
| YNDX | Yandex NV | C | B |
Last Week’s Sells, Now Holds
| Symbol | Company Name | Quantitative Grade | Fundamental Grade |
| A | Agilent Technologies Inc. | C | C |
| ABT | Abbott Laboratories | D | B |
| AES | The AES Corporation | D | C |
| CNP | CenterPoint Energy Inc. | C | C |
| ISRG | Intuitive Surgical Inc. | D | C |
| KSU | Kansas City Southern | C | C |
| MAR | Marriott International Inc. | D | B |
| NTAP | NetApp Inc. | D | B |
| PEG | Public Service Enterprise Group | D | C |
| PPL | PPL Corporation | D | C |
| RCL | Royal Caribbean Cruises Ltd. | C | C |
| SWN | Southwestern Energy Company | D | B |
| SYK | Stryker Corporation | C | C |
Downgrades
Last Week’s Buys, Now Holds
| Symbol | Company Name | Quantitative Grade | Fundamental Grade |
| BBBY | Bed Bath & Beyond Inc. | C | C |
| CLX | The Clorox Company | C | C |
| EPD | Enterprise Products Partners L.P. | C | C |
| ETP | Energy Transfer Partners L.P. | C | C |
| HD | The Home Depot Inc. | C | B |
| LB | L Brands Inc. | C | C |
| MHK | Mohawk Industries Inc. | C | B |
| MSI | Motorola Solutions Inc. | C | B |
| RYAAY | Ryanair Holdings Plc | C | C |
| V | Visa Inc. | C | B |
| WM | Waste Management Inc. | C | B |
Last Week’s Holds, Now Sells
| Symbol | Company Name | Quantitative Grade | Fundamental Grade |
| ACE | ACE Limited | D | B |
| AGN | Allergan Inc. | D | B |
| APD | Air Products and Chemicals Inc. | D | C |
| BMO | Bank of Montreal | D | C |
| CM | Canadian Imperial Bank of Commerce | D | C |
| CNI | Canadian National Railway Company | D | C |
| LINTA | Liberty Interactive Corporation | D | C |
| MUR | Murphy Oil Corporation | D | C |
| PAA | Plains All American Pipeline L.P. | D | B |
| TRV | The Travelers Companies Inc. | D | B |
| TTM | Tata Motors Limited | D | B |
| VRSK | Verisk Analytics Inc. | D | B |
Sincerely,
Louis Navellier