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The second-quarter earnings season has officially begun. Very soon we’ll get a handle on how well Corporate America fared during the second three months of the year. So far, we’ve had good earnings reports from companies like Google (GOOG) and Yum Brands (YUM). If all goes well, this earnings season will mark a new all-time record for corporate profits.

The current earnings record was set during the second quarter of 2007 when the S&P 500 (SPY) earned $24.06. Not long after, things fell apart in a serious way. The good news is that we’ve recovered strongly. Wall Street’s current consensus for this year’s Q2 is $24.13, which would be a new record although not by much (and less than inflation over the last four years). Still, it’s nearly a 75% increase over the Q2 earnings of 2009. More importantly for us, the S&P 500 is over 15% lower than it was four years ago today despite earnings being higher.

Let me explain what’s happening: The earnings outlook is still very favorable for most companies. The S&P 500 has a shot of earning $100 this year and perhaps as much as $112 next year. However, earnings growth is decelerating—meaning that earnings are growing but at a slower rate. Second-quarter earnings will probably come in around 15% higher than last year’s Q2.

This slowing rate of growth is concerning many money managers and that’s part of the reason why the market has been jittery lately. Consider that every day this week, the S&P 500 has closed more than 1% below its high for the day. Simply put, the very easy money has been made. Now folks are madly searching for bargains and anything less than perfection gets tossed aside.

I’ll give you an example of what I mean: DuPont (DD) will probably earn close $4 per share this year. At the low from 2009, the stock was going for just over $16 per share. In other words, DuPont’s stock was going for just four times earnings from just two years into the future! And we’re not talking about some unknown pink sheet listing. This is a Dow component and one of the largest industrial companies in the world. It was a stock screaming to be bought (and yes, I missed it).

Now let’s look at what’s been happening to DuPont. Three months ago, the company reported very solid earnings for Q1 (15 cents higher than the Street) and raised expectations. So what did the stock do? It went down. Two months after the earnings report, DuPont was trading 10% lower than before its earnings report.

Don’t get me wrong: I don’t mean to pick on DuPont, it’s a fine company. But I want to show you just how nervous investors have become—especially about cyclical stocks. Since mid-February, the Morgan Stanley Cyclical Index (CYC) has trailed the S&P 500 by roughly 3.5%. When a stock that’s delivering on earnings is getting smacked around, you know something’s up. The lesson here is that investors have been scared and they’ve been looking for reasons to sell. When the problems in Europe came along, that seemed like as good a time as any.

What investors need to understand is that the earnings are still out there, but they’re not nearly as easy to find as they used to be. Another example is JPMorgan Chase, (JPM) a Buy List stock, which reported very good earnings on Thursday. For last year’s Q4 and this year’s Q1, I was highly confident that JPM was going to beat the Street’s estimate, and I was right both times. This time around, I wasn’t nearly as certain. Many financial stocks are in rough shape. I’m particularly leery of companies like Citigroup (C), Bank of America (BAC) and Morgan Stanley (MS). I’m afraid their earnings reports will not be pretty.

The good news is that JPM came through once again. The bank earned $1.27 per share for Q2, which was six cents higher than Wall Street’s consensus. Although Thursday was a down day for the broader stock market, shares of JPM closed higher by 1.84% (and were up as much as 4% during the trading day).

Similar to the story at DuPont, JPMorgan’s business has been doing well but investors have been skittish of the stock. In this case, the focus is on the bank’s exposure to Europe, although CEO Jamie Dimon has tried to calm those fears. One of the fears going into Thursday’s earnings report was that fixed-income trading had plunged. Fortunately, this was not the case.

I was especially impressed by the news that JPM is going to float a 30-year bond. No major bank has done that in six months. Bloomberg noted that the market is becoming more convinced of JPM’s creditworthiness. In October, the bank floated 30-year bonds that were 165 basis points higher than similarly-dated U.S. Treasuries. Now that spread is down to 115 basis points. That’s a good sign, so it’s smart to take advantage of the market’s judgment and raise some cash.

Although JPM has been a poorly performing stock for the last three months, I still like the shares. I would like them a lot better if the company could double its dividend (the Fed would need to sign off on that). The bottom line is that money is cheap, the yield curve is wide and the stock is down. All of that combines for a good case in owning JPM. I’m keeping my buy-below price at $44 per share.

I don’t know yet when all of the companies on our Buy List will report Q2 earnings, but I do know that three of our healthcare stocks are due to report next week. Both Stryker (SYK) and Johnson & Johnson (JNJ) will report on Tuesday, July 19, and Abbott Laboratories (ABT) will report on Wednesday, July 20th.

Of the three, Stryker is the most compelling buy right now. The company impressed Wall Street earlier this year when it gave very strong full-year guidance of $3.65 to $3.73 per share. Importantly, they’ve reaffirmed that guidance since then. Even though Stryker beat earnings by a penny per share in April, the stock hasn’t done much of anything. The Street expects 90 cents per share for Q2. That sounds about right though maybe a penny or two too low. I don’t think SYK will have any trouble hitting their optimistic range for this year. Stryker is a good buy up to $60.

After doing nearly everything wrong, Johnson & Johnson is finally on the right path again. The company recently raised its quarterly dividend for the 49th year in a row. In April, JNJ gave us a strong earnings report and upped its full-year forecast to $4.90 to $5 per share. Wall Street expects $1.23 for Q2; I think $1.30 is doable.

At the current price, JNJ yields 3.37% which is more than a 10-year Treasury bond. The stock has been in a mostly losing battle with the $70 barrier for more than six years. If next week’s earnings come in strong, then I think JNJ will finally burst through $70 for good. Just to be ready, I’m raising my buy price on JNJ to $70.

Wall Street expects Abbott Labs to earn $1.11 per share for its second quarter. The company has topped Wall Street’s forecast by one penny per share for the last six quarters. I don’t like surprises on my Buy List so let’s make it seven in a row. The company has already forecast full-year earnings of $4.54 to $4.64 per share. That’s a big number and if it’s right (which I think it is), that means that ABT is going for just 11.6 times the mid-point of that forecast. The shares currently yield 3.61%. I’m raising my buy on Abbott from $52 to $54.

Disclosure: Long SYK, ABT, JPM

Source: Q2 Earnings Outlook Still Favorable for Most Companies