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Looking to trade the upcoming earnings season? To create the list below we started with a universe of stocks that are reporting in April.

To find names with strong profitability we performed the DuPont analysis. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components. If the ROE is unsatisfactory, the DuPont analysis helps target the part of the business that is underperforming. Learn more about the equation here.

Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.

A Closer Look

Would you buy stocks based only on valuation? For those looking to analyze the fundamental risks before investing in these names, we drilled through the balance sheet of the undervalued companies to find at least one fundamental risk, namely, troubling sales trends.

We found 3 stocks that had declining top-line growth. These were companies with negative trends in revenue relative to accounts receivable, with slower growth in revenue year-over-year than growth in accounts receivable, as well as receivables comprising a larger portion of current assets.

Receivables represent the portion of revenue not yet collected, so the smaller the portion of revenue and current assets, the better.

For an ‪interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Do you think it's worth investing in these companies while keeping a close watch on the fundamental risk of troubling sales trends?

These trends certainly aren't new information, so we wanted to see what "smart money" investors think the risk is worth while. So you'll notice that we also looked at the 13F's to find the top 2 institutional holders of the stocks below.

Use this list and accompanying data as a starting point for your analysis.

1. AO Smith Corp. (NYSE:AOS): Engages in the manufacture and sale of water heating equipment to the residential and commercial markets in the United States and internationally.

  • Market cap at $3.29B, most recent closing price at $69.03.
  • MRQ net profit margin at 7.5% vs. 6.75% y/y. MRQ sales/assets at 0.231 vs. 0.203 y/y. MRQ assets/equity at 1.897 vs. 2.163 y/y.
  • Revenue grew by 10.19% during the most recent quarter ($524.3M vs. $475.8M y/y). Accounts receivable grew by 15.47% during the same time period ($425.4M vs. $368.4M y/y). Receivables, as a percentage of current assets, increased from 30.48% to 38.42% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • The company is expected to report earnings on April 22nd, 2013.
  • The 2 top holders of the stock are The Vanguard Group, and Suntrust Banks.

2. AZZ Incorporated (NYSE:AZZ): Manufactures electrical equipment and components for power generation, transmission and distribution, and industrial markets primarily in the United States and Canada.

  • Market cap at $1.17B, most recent closing price at $46.28.
  • MRQ net profit margin at 10.26% vs. 8.6% y/y. MRQ sales/assets at 0.222 vs. 0.196 y/y. MRQ assets/equity at 2.06 vs. 2.136 y/y.
  • Revenue grew by 28.48% during the most recent quarter ($149.67M vs. $116.49M y/y). Accounts receivable grew by 44.23% during the same time period ($94.4M vs. $65.45M y/y). Receivables, as a percentage of current assets, increased from 20.91% to 37.44% during the most recent quarter (comparing 3 months ending 2012-11-30 to 3 months ending 2011-11-30).
  • The company is expected to report earnings on April 8th, 2013.
  • The 2 top holders of the stock are Royce & Associates, and FMR, LLC.

3. CBRE Group, Inc (NYSE:CBG): Operates as a commercial real estate services company worldwide.

  • Market cap at $8.04B, most recent closing price at $24.28.
  • MRQ net profit margin at 8.62% vs. 4.52% y/y. MRQ sales/assets at 0.257 vs. 0.244 y/y. MRQ assets/equity at 5.074 vs. 6.269 y/y.
  • Revenue grew by 13.73% during the most recent quarter ($2,005.85M vs. $1,763.62M y/y). Accounts receivable grew by 25.52% during the same time period ($2,329.01M vs. $1,855.43M y/y). Receivables, as a percentage of current assets, increased from 52.26% to 57.02% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • The company is expected to report earnings on April 22nd, 2013.
  • The 2 top holders of the stock are ValueAct Holdings, and Goldman Sachs Group.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 3 Stocks Reporting In April With Strong Profitability Sources And Troubling Sales Trends