Be Ready for Surprises

 | Jan 30, 2012 | 10:15 AM EST  | Comments
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As we move into the heart of earnings season, let's review this week's important reports and see who is poised to surprise to the upside or downside. As I wrote last week, a surprise in and of itself is not necessarily an indicator of performance in the sense that if you buy after the surprise, you may get no excess performance in subsequent weeks. However, anticipating surprises can sometimes be fruitful, especially if the exercise is to avoid negative surprises. Earnings misses are rarely good for stocks, so if you own some that are at risk of a miss, perhaps it's better to move on now, rather than later.

Below is a table with this week's reports along with the revision trend over the past quarter. Unlike previous posts, I modified the period so that instead of covering the full fourth quarter, I am looking at the more-recent trend. Let's face it, how analysts modified the earnings-per-share estimate back in November is not so relevant -- what they've done in the last four weeks or so counts for a lot more.

While most of the reports look benign, with little change in sentiment this past month, there are a few standouts. Foremost, the analysts are getting incrementally more bearish on energy. The refiners' EPS estimates were slashed, with names such as Exxon Mobile (XOM) and Cabot Oil (COG) taken to the woodshed as well. Acme Packet (APKT) and Vertex Pharmaceuticals (VRTX)  also seem primed for a negative outlook. On the plus side, Blackstone (BX) and Whirlpool (WHR) could give better-than-expected forecasts for 2012.

If you are not involved in any of them, you can watch and wait. If you are playing them on the wrong side of the trend, now is the time to take action, not after the reports.

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