Rules of the Game: The Quest for Fat Profits

 | Dec 14, 2012 | 12:00 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

tm

,

cmcsa

In the past couple of columns I have focused on revenue growth, which is one of my favorite fundamental metrics.

However, it always boils down to earnings. That said, be aware that profit can be affected negatively one-time charges, for instance, and it can be bumped higher by such things as cost-cutting. That had been a prevalent phenomenon a few years back.

At any rate, I did a more traditional "earnings growth" scan for today's column. As with revenue, it's informative to sort companies here by market capitalization, as younger and smaller outfits often sport the best levels of bottom-line growth. The reasons for that are pretty clear: Among other things, tese firms often have enthusiastic and creative management, and they may have new products or services that enjoy robust demand.

Still, when I'm building a portfolio of individual stocks, I like to start with the large-caps as the anchors.

The biggest company that jumped to the top of my earnings scan was Toyota (TM), which grew income at triple-digit rates in the past three quarters. I like to see earnings growth that's revenue-driven (no pun intended), and that is the case with Toyota.

The company has suffered through a number of high-profile and embarrassing product recalls, but sales remain robust, and profit has picked up its decline in 2011.

Most recently, earnings came in at $2.09 per share for a year-over-year gain of 212%. In the current quarter, analysts expect earnings of $1.36, more than double the year-earlier results.

Toyota's dividend yield is 1.6%. On Wednesday, the stock rallied within $0.15 of its 52-week high, $87.15.

Here, as well, is a bullish technical note: The stock's 50-day average crossed above its 200-day line earlier this week. That type of crossover often precedes further price gains.

Comcast (CMCSA) is another big-cap earnings leader. Earnings growth at this company has ranged between 19% and 39% in the past four quarters, and profit has increased over the past six years.

This year, analysts expect the company to deliver per-share income of $1.96 per share for a year-over-year gain of 24%.

This stock has been consolidating along its 10-week average, having pulled back from an all-time high of $37.96 Nov. 2. On Thursday, shares fell 1.3%. Volume was heavier than in Wednesday's session, but still below average levels.

Turning to the dividend, when you are looking at big-cap names as portfolio mainstays, this metric is important, but it's not the end-all, be-all. In Comcast's case, the payout yield is 1.8%. That's OK, but keep in mind: The dividend trade has become crowded as investors have shifted to equities to seek yield. In addition, mid-year malaise in the S&P 500 has sent many investors into the dividend stampede.

Comcast stock far outpaced the benchmark index this year, achieving a gain of 55% so far for 2012. It declined 0.9% last month, and is down 0.7% so far in December, having closed Thursday at $36.94.

The current pullback has been fairly shallow, and the stock is currently about 13% above its 200-day moving average. Because of the lengthy run-up prior to November's retreat, it would not be out of the question to see a steeper or lengthier consolidation at some point soon. However, for the moment, with the earnings picture remaining strong, Comcast is a viable candidate as a large-cap anchor to a portfolio of individual stocks.

Columnist Conversations

TSLA is trading $256.11, down small with IV30™ down 3.6%. TSLA stock is up 1,068% in three-years and i...
q's didnt bite on the bull move, the russell 2k was doggie and the close was suspect. and i have the short ter...
Lang:
Besides the fact the chart looks great, someone came in with the heavy artillery today in the Oct 22 calls - o...
S&P 500 right at all time closing high as we head towards thee final 45 minutes of trading. Interestingly...

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.