Divining the Earnings Winners

 | Jan 06, 2012 | 10:00 AM EST  | Comments
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Stock quotes in this article:

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dell

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celg

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unh

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aet

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dal

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cci

It's that time of the quarter again, when investors great and small start prognosticating who will surprise to the upside -- and to the downside -- when companies report their quarterly earnings later this month. As a long-only investor, I am looking for upside surprises, and my divining rod is the change in the consensus earnings estimate over the course of the quarter. In other words, I'm focused on names whose estimates have seen regular upward revisions. It can be surmised that these have something going for them that is not fully appreciated by the Street, and that they are likely to produce more of the magic when they report. "Cockroach theory" goes in both directions, of course.

In order to narrow down my focus, I ran a screen that looked for the biggest percentage change in the consensus fourth-quarter earnings-per-share estimate, among the large-cap U.S. stocks. The results are in this table.

Our old friend Apple (AAPL) is back on the list, after having falling into bad graces after last quarter's miss. That may well have been a product transition issue, as advertised, and this bluest of the blue chips seems to have its groove back. Also, in tech, I ran our screen too late to catch Seagate (STX), which gave word of big revenue upside Thursday. However, Dell (DELL) is moving in the right direction and should report strongly next month.

Potash play CF Industries (CF) looks solid, and momentum should carry into the spring planting season. I like Celgene (CELG) as a larger-cap play, but the momentum in Vertex (VRTX) is astounding, so that one gets the nod in pharmaceutical space. Healthcare in general looks good, with both Aetna (AET) and Unitedhealth (UNH) creeping upward. Delta (DAL) earnings look to come in stunning, but the stock is commanding no respect -- which is probably unsurprising, given that its biggest competitor is going Chapter 11. CenturyLink (CTL) looks great, too, as it reaps synergies from the Qwest merger, and you can collect a fat 8% dividend on top of it.

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