To distract you from the building melodrama of our executive and legislative branches playing chicken with the budget, let's turn our attention to earnings, which are all that ultimately matter for stocks. Last week we waved some red flags around names with recent cuts in earnings per share estimates, which could signal a looming negative earnings surprise. This week will be the heart of preannouncement season, with companies coming up short forced to 'fess up to their troubles.
On a happier note, recent increases in earnings estimates can signal growing business momentum that can translate into upside earnings surprises. That is always welcome when you are long a stock. The list below shows names whose third quarter earnings were revised up sharply over the past three weeks. While never a guarantee, this trend is a good indication that business is going well and expectations may be low for a stock.
I immediately noticed KB Home (KBH) and William Lyon Homes (WLH), because investors are generally bearish on the homebuilders due to sluggish industry statistics in the face of rising mortgage rates. These could be poised to surprise, but beware of lingering momentum from earlier in the year, which could result in a beat-but-guide-down.
In contrast, health technology names like Insys (INSY) and Pharmacyclics (PCYC) are generally completely disconnected from economic and other worries ¿ they are product cycle driven and the upward revision trend could indicate real growing momentum in their businesses.
US Airways (LCC) caught my attention as well, probably because I also recently purchased Delta Airlines (DAL) for my GARP partnership. Both are beneficiaries of moderating fuel costs and firmer pricing.
There are a ton of names in the financial group that look good, although the representation is heavily toward insurers. We had a fairly good fall in the property and casualty space -- not a hurricane in sight, for the most part -- and most companies are going to print solid earnings as a result.
These names are tough to play for earnings momentum, however, as one good late- season storm could reverse fortunes for many of them. So if you must, play them on a trading basis only.