Let's See Who's Moving

 | Jul 15, 2013 | 2:00 PM EDT
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As we move into the heart of second quarter earnings season, now is the time to check on which companies have the near-term earnings momentum. These are the names likely to have upside surprises, which is a great way to capture near-term price appreciation. These are also good intermediate-term long candidates, as earnings momentum tends to be somewhat long-lived.

The table below shows names over $500 million market cap in which the second quarter earnings per share estimate has been raised over 10% in the last month.

 Key observations:

  • This list is very short, considering there are at least a thousand publicly-traded companies in the market cap range. Even worse, if you only look at "large-cap" names over $5 billion market cap, there are only six companies whose estimate was recently revised up meaningfully. That is a pathetic showing, and indicates that earnings (and thus economic conditions) are not improving materially at the moment. This fits my "nothing much going on" economic thesis at the moment.
  • The list probably still overstates the momentum, because several names here are only up a penny or so, which I don't consider that important. They have small earnings so the penny covers the 10% threshold I put on the screen (and I eliminated many 1c to 2c adjustments!)
  • Investors are worried about housing due to the rise in mortgage rates, but three names still show up with good earnings prospects. My thesis  on housing is that rates could/should affect housing demand, but the rapid rise in rates last month actually accelerated activity, so the indicators will actually look good for the next couple months before slowing down.
  • The "fear trade" may be off if you look at gold, but not if you look at guns.  Smith & Wesson (SWHC) is still seeing strong momentum. Who would have thought?
  • Investors are concerned about tech, given the poor fundamentals the group is showing, but it still appears to be the best group out there, based on this list. There are more tech names than any other, and the upside adjustments look real, for example, Micron's (MU) earnings estimate was doubled in the last month, that reflects real optimism.
  • Financials are a close second, but keep in mind that the groups have hundreds of names. The names are mostly REITs, so use some caution as these names are highly sensitive to moves in rates, as they are universally owned for the yield.
  • You have to love the symbol for Scorpio Tankers (STNG)!



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