If you’ve used my Portfolio Grader tool or have kept up with this blog, you know that I put a lot of weight on what analysts are saying about any given stock. And an effective way to judge how the analyst community feels about a stock is tracking their earnings estimates for the quarter.
Upward revisions are an important indicator of a company’s future success. You see, analysts are paid to estimate a company’s earnings outlook. If an analyst makes a wrong estimate that ends up costing investors money, that analyst could be out of a job. If a number of Wall Street analysts start to move their forecasts higher, it’s a good bet that the stock will outperform expectations and deliver market-beating returns to investors since positive revisions are never made lightly.
I know that I usually focus on sales and earnings growth when these reports come out. But now that we’re on the cusp of second-quarter earnings season, we’re seeing interesting analyst activity regarding some of the hottest names on Wall Street. While the market may have not reacted to these upgrades just yet, I want you to be prepared for what’s to come for the impending earnings season.
To get to the point, here are four companies that have the analyst community buzzing, and they should be on your radar as well.
- Facebook Inc. (FB) is a sales and earnings heavy hitter, with a tremendous track record of earnings surprises. Over the past 90 days, analysts have hiked up their consensus EPS estimates by 10% to $0.96 per share. Facebook is expected to post 68.4% annual earnings growth, while the rest of the industry is expected to see earnings fall 27%. FB is also one of my rare "AA" stocks in Portfolio Grader. Look for Facebook’s Q3 report on November 2.
- MeetMe Inc. (MEET) is a lesser known social network company—but not for long. For the most recent quarter, analysts have increased their earnings projections by 30% to $1.00 per share. This represents a substantial improvement from a year ago—when MEET posted a loss of $0.04 per share. MeetMe is also known for its double- and triple-digit earnings surprises, so I’d keep an eye out for its third-quarter report in late October. In the meantime, MEET is an A-rated Strong Buy.
- NVIDIA Corp. (NVDA): In the past three months, the consensus EPS estimate has risen from $0.44 to $0.56. Analysts are now estimating 27.3% annual earnings growth and 29.3% sales growth. Then again, NVDA has posted earnings surprises for the past several quarters running, so it’ll likely do even better. NVDA is one of my top stocks in my Blue Chip Growth newsletter, and it earns an A-rating in Portfolio Grader. NVIDIA is expected to release third-quarter results on or around November 10.
- Smith & Wesson Holding Corp. (SWHC) is a promising mid-cap growth play. Over the past 90 days, the consensus EPS estimate has jumped a whopping 77.4%. Analysts are now estimating 120% annual earnings growth and 58.5% sales growth. To put this into perspective, the rest of the industry is headed for 25% bottom-line growth. SWHC is another "AA" stock in Portfolio Grader. Smith & Wesson isn’t expected to report until early December, but I think the wait will be well worth it.
To put these earnings estimates into perspective, analysts forecast that year-over-year earnings growth for the S&P 500 will decline by 2.1% this quarter. This means that each of the four buys above are outperforming the majority of stocks in the market and are well-positioned to continue to beat the odds in the third quarter, which started yesterday with Alcoa Inc.’s (AA) earnings report.
If you want to see how the analyst community feels about one of your holdings, feel free to run it through my Portfolio Grader screening tool. After hitting "submit," you’ll see that one of the components of the stock’s Fundamental Grade is "Analyst Earnings Revisions."