Wednesday, January 20, 2010

Corporate Earnings Season

The corporate earnings season is fully underway and we are tracking closely the results on a company-by-company basis. We have combed through the S&P 500 Index and the S&P 400 MidCap Index and have selected 134 stocks that meet our criteria for inclusion in client portfolios. We have similarly screened over 440 international stocks that trade with American Depositary Receipts (ADR’s) and have market capitalization of at least $1 billion, and have identified 116 stocks that merit close attention. In coming days and weeks we will review carefully the revenues and earnings progress of the 250 companies in our “universe,” together with the CEOs’ comments on business conditions and future expectations. We will also monitor the response of research analysts and the reaction of the markets. Our review will have a direct and immediate bearing on our purchase and sale of stocks in client portfolios.

Most U.S. corporate 4Q2009 revenues and earnings’ comparisons with a year before will show considerable gains in part because the economy continued its recovery from recession in the 4Q2009 and in part because the 4th quarter of 2008 was the trough in corporate earnings during the recession. For the S&P 500 companies, aggregate earnings per share are expected to climb from $12.42 in the 4Q2008 to $17.57 in the 4Q2009, according to mean estimates of Wall Street research analysts measured by First Call. Although expectations are high, corporate CEOs are experienced and adept at guiding these estimates of research analysts, and typically 65-70% of S&P 500 companies “beat the street.”

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