All alone on the phone
So whassup with that noise?
The wife’s at work and I’m no jerk
And I just left my boys
at school and I’m no fool
and I got no time to waste
So you get up and call, don’t trip and fall
Go outside and leave the place
Now it’s no dream because you been seein
A shadow in the night
But we will come and get it done
So don’t worry save your fright
Now there’s a group who likes to troop
And you know you can trust us
So don’t get nervous 'cause at your service
The local Earnings Busters! – GhostBusters Theme Song
What better day to be conjuring up stories about ghosts than Friday the 13th. Of course, the song goes on to say that “We ain’t afraid of no (earnings)!” and as a matter of fact, the more, the better. Mix in a nice growth rate and don’t charge too much for it and it makes a nice recipe for Earnings Busters. Most of the stocks that we have recommended long exposure to have components of this recipe. But the last recommendation off this exact theme was Arrow Electronics (ARW) on November 4, 2010 at $30.55. We reiterated the long exposure to ARW on February 3, 2011 at $40.62 after the company beat earnings forecasts and guided higher. Today ARW is trading at $46/share which is just a tad over 50% higher than the original recommendation on November 4. But, this article isn’t about ARW so I apologize for digressing.
This article is about two new positions that meet the same criteria used in identifying ARW as an Earnings Buster. Delphi Financial Group (DFG) is a stock that we believe “will come and get it done” and here is why. Delphi Financial Group, Inc. is a holding company whose subsidiaries - Reliance Standard Life Insurance Company, Safety National and Matrix Absence Management, Inc. - offer integrated employee benefit services. Services include group insurance coverage for long-term and short-term disability, life, excess workers’ compensation for self-insured employers, large casualty programs including large deductible workers’ compensation, travel accident, dental, and limited benefit health insurance.
Why DFG is an Earnings Buster: DFG has modest earnings growth expectations for 2011 (+6%), but it is expected to grow at +10.3% per year for the next five years. Moreover, the company had positive earnings surprises in every quarter of 2010, beating fourth quarter estimates by 11.6%. The current P.E is 9.7, but the forward P/E drops to 7.6. The company has a respectable CGR of 1.36 and is rated as conservative for its accounting and governance practices. Sabrient rates DFG rated a Strong Buy. Just yesterday the company announced an increase in the dividend to 12 cents.
The second stock that warrants our recommendation as a Earnings Buster is Amthech Systems, Inc. (ASYS). Amtech is a technology company that provides products and services to the semiconductor and solar industries, the latter establishing it as a player in the alternative energy field. A small-cap company, ASYS sells its products primarily in the United States, Asia and Northern Europe. The company was founded in 1981 and is headquartered in Tempe, Arizona.
Why ASYS is an Earnings Buster: Amtech’s 2011 earnings are expected to increase +111.5% from its 2010 earnings and are expected to grow +35% per year over the next five years. The current P/E is 14.7, but the forward P/E is 8.8, which is very good considering the projected earnings. ASYS has an outstanding CGR of 3.89, and its accounting practices are considered conservative. Sabrient rates ASYS a Buy.
“So don’t get nervous 'cause at your service” are these two Earnings Busters. Like ARW in November 2010 we want to gain exposure to an Earnings Buster buy owning the stock without using options (although obviously you can manage the exposure however is best for your personal situation). A Buy/Write entry or Covered Call would be wise as well but the covered call would limit some of the potential upside gains from earnings busting.
Buy DFG, at the market, Friday May 13, 2011 (approximately $29.53).
Buy ASYS, at the market, Friday May 13, 2011 (approximately $23.24).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.