There's No Place Like Home

 | Apr 23, 2013 | 11:30 AM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

epl

,

arii

Once again, investors find themselves in the middle of earnings season. This week brings about a third of S&P 500 companies delivering quarterly results. So far, the season has been unimpressive. More than 60% of reporting companies so far have beaten earnings estimates, but less than 45% have beaten revenue estimates. I tend to look more at how a company is doing on revenue than expectations on the earnings side. Earnings can be tweaked by additional stock repurchases, delaying costs and various accounting measures. Revenue is far less subject to manipulation.

One trend that is apparent early this season is how large American multi-nationals are struggling to deliver results from overseas operations. General Electric (GE) delivered mixed results, including a mid-single-digit sales decline in its Industrial divisions. Most of the problem centered on Europe, where revenues were down not quite 20% year over year. IBM (IBM) reported significantly below expectations and the stock was subsequently pummeled by investors for its worst day in almost a decade. Among the many disappointments was a $0.07 a share currently loss contained in the report due to the free-falling Japanese yen. Given current Japanese policy of devaluating the yen to help bring the country out of a deflationary spiral, this will not likely be a one-time event.

One theme I wrote about previously and have played with in my portfolio this year is keeping companies that have little or no exposure to Japan or Europe. The U.S. economy seems to be the best of the lot among major developed economies and growth in the emerging markets, although slowing, is certainly better than moribund Europe. In recent columns, I have profiled domestic retailing plays like Macy's (M), which continues to deliver solid results. Domestic manufacturers, such as American Railcar (ARII), which I have highlighted before, provide results that consistently beat estimates. Domestic plays benefitting from the growing housing market, energy expansion or the robust auto manufacturing are also good bets.

One domestic exploration-and-production company I like is EPL Oil & Gas (EPL), an independent oil and natural gas exploration-and-production company. It primarily focuses on the Gulf of Mexico shelf off Louisiana. EPL beat on the top and the bottom lines the last time it reported in early March. Consensus earnings estimates for both 2013 and 2014 have been revised upward sharply since then. At the end of 2012, the company reported probable reserves were up more than 65%. Analysts expect revenues to be up more than 60% this fiscal year and the stock is selling around 8x 2013's expected earnings. The stock sells at about $31 a share. Capital One recently upgraded the shares to a Strong Buy and upped its price target to $38 from $32 a share. Brean Capital also chimed in mid-March that it thought the company was approximately 45% undervalued based on reserve estimates.

Columnist Conversations

If this market has taught us one thing over the past 5 years, it has been to not be dogmatic in our views. Th...
Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
Market recovers a bit from early losses after European Bourses close at 11:30am EST. Upwardly revised Q2 GDP ...
When I do an article on a stock I do my best to define the risk on the trade. Sometimes I get to follow up an...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.