3 Companies That Will Define the Week

With 451 out of 500 companies in the S&P 500 (INDEX: ^GSPC  ) having reported, the earnings season is drawing to a close. However, three Dow Jones Industrial Average (INDEX: ^DJI  ) components report this week -- and they're doozies. On Tuesday, we'll hear from Cisco Systems (Nasdaq: CSCO  ) and Home Depot (NYSE: HD  ) ; on Thursday, it's retailing supersaurus Wal-Mart Stores' (NYSE: WMT  ) turn. Each company indicates the strength of a different pillar of the economy, so they will be closely watched.

  • Wal-Mart and consumer spending: Wal-Mart's top line is an indicator of consumer sentiment and of shoppers' propensity to choose the low-cost option.
  • Home Depot and housing: The retailer's fortunes are tightly linked to the state of the housing market.
  • Cisco and corporate investment: The networking-equipment supplier's activity is highly dependent on businesses' willingness to spend on technology.

On the basis of estimated earnings over the next 12 months, Home Depot trades at a significant premium to the S&P 500, Wal-Mart is roughly in line with the index, and Cisco trades at a significant discount.

In his premium report on Cisco published in September, Fool technology analyst Tim Beyers wrote: "Shares of Cisco are priced for near-zero growth. Only the most apocalyptic of pessimists could take that sort of valuation seriously, especially when you factor in how fast Internet traffic is growing." Cisco's average price-to-earnings multiple (based on the next 12 months' earnings estimate) during September was 9.84. Since then, the shares have gotten roughly 10% cheaper: At Friday's closing price, the multiple stood at 8.85.

If you want to know the key areas to watch at Cisco, click here to request our premium report. You'll also receive a full year of updates -- including a full rundown of next week's earnings report.


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