By Justin Cahoon
The anticipation before earnings season makes markets uneasy. Here are 5 stocks with blowout earnings that can push markets higher. As always, use the list below as a starting point for your own due diligence.
Coca-Cola Co (KO) earnings for second quarter were better than forecasted. Earnings per share were up 18 percent. Despite turmoil in Europe, volumes rose 5% and despite turmoil in the Middle East volumes rose 7%. Last year’s acquisition of the North American bottling company, Coca-Cola Enterprises, paid off. As expected, the acquisition allowed for more efficient production. Over the last five years, KO has shown less volatility than the S&P 500 index and similar volatility to KO’s peers in the sub-industry of soft drinks. The historically low beta indicates a low risk investment for KO as the beta is unlikely to change. I would not hesitate to go long at current market price and look to hold for a long term investment. KO is a strong buy.
Bank of America (BAC), the largest U.S. based financial holding company, has been in a bear trend since March. The current market price may be undervalued but I would be hesitant to go long BAC. July was a month to clean up some lingering lawsuits from selling poor-quality mortgage bonds, an 8.5 billion dollar settlement to investors. As one would expect, CEO Brian Moynihan says the future is brighter but there are better investments out there in the banking industry and I would recommend staying away from BAC, as any improvements will be overshadowed by mortgage related issues. Investors saw a $0.90 loss over BAC’s second quarter. I expect to see the bear trend continue for now but would keep an eye on BofA over the next couple months. There are a lot of “ifs” and the stock could tumble if the company needs to raise more capital for legal expenses.
KeyCorp (KEY) has an optimistic outlook on the second half of 2011. Businesses are taking more loans (business loans are the only area of loan growth for KeyCorp) but customer lines of credit are still low and rates are still down. Bottom line, I would hold on KEY. The risk is higher than it should be for the banking industry. Since last year, commercial financial and agricultural loans were down, but did rise 3.7% from KEY’s first quarter. Like many of the major banks, KeyCorp still has an interest in poor commercial real-estate loans from before the financial crisis. The risk for a long term KEY investment is too high for the expected small value growth. KeyCorp is still in a “recovery phase” and the currently sluggish U.S. economy does not promise high returns.
International Business Machines (IBM) had a strong second quarter, which lead to record highs on July 20th. EPS of $3.09 was above forecasted earnings and I expect the EPS to still improve. The stock has performed extremely well since June, 2011. Technical indicators have been bullish and I would suggest that IBM will remain bullish. I would go long IBM and expect a high return for IBM’s third and fourth quarter. The company has done well in new markets and IBM benefits from their expectations of developing economies’ reliance on information technology. The investment is not low risk because of competition in pricing but I expect IBM to adapt well and outperform their competition with successful secular growth.
Johnson & Johnson (JNJ) is under pressure because of the current state of the U.S. economy. Medical visits are down and replacement hips can wait. JNJ’s second quarter earnings were not terrible, though, and were actually better than forecasted. Taking advantage of the U.S. dollar index, JNJ was able to boost sales overseas. Some of the industry downs can be offset by some recent products launched by JNJ. The innovation and greater market penetration are a couple factors I would consider if putting in a long order for JNJ. Its consistent new product launches and expansion into markets and acquisitions make JNJ a safe investment but without high returns. JNJ has performed well in the market but I would hold since the stock is overvalued.