5 Stocks That Laugh at Wall Street

In these dour economic times, Mr. Market seems to enjoy dogpiling on any stock that dares to fall short of analysts' estimates. To defy that trend, we're here to celebrate stocks that didn't merely meet Wall Street's predictions, but laughed in analysts' faces by leaving their miserly forecasts in the dust. The companies below have all soundly trounced earnings estimates by 20% or more in the last quarter:

Source: Yahoo! Finance; NA=not available; LT = long-term.

Nonetheless, beating estimates isn't enough to make a stock a winner. Analysts are notoriously lousy at forecasting results, and one-time items can sometimes push earnings over the top. Wall Street professionals typically don't include such extraordinary events in their forecasts.

Rather than focusing only on the past, we'll check whether analysts have a bead on future performance. With help from Motley Fool CAPS, we'll see which of the top companies listed above will have the last laugh.

The joke's on them
The huge exploration opportunities revealed in Interoil's Antelope-2 natural gas reservoir discovery haven't yet played a part in its earnings, but analysts are quickly warming to the story. Last month the company shook things up when it reported that drilling at the well in Papua New Guinea hit the top of the reservoir much higher than anticipated, causing the company to increase its estimates of just how large the pocket is. With at least one analyst urging investors to buy the stock because of the tremendous potential the company now possesses, the market responded and bid shares up by 50% over the past month.

CAPS member skeptic86 tried to put into perspective the orders of magnitude of change the discovery represented:

I am very curious how this well is performing. 382 mmcfpd is huge though. To put this into perspective, the average Barnett shale wells' initial production (IP) is around 1.5 to 3.0 mmcfpd. I think the very best Barnett wells came online at 10 mmcfpd. I am not saying these wells are going perform the same, but im just trying to explain how large this well is.

XTO Energy (NYSE:XTO), for example, reported initial production rates of nine wells in the core Barnett area ranging from 4.1 million cubic feet equivalent per day to 5.5 million cubic feet equivalent per day. While at least one industry study thinks companies and analysts should be more circumspect in how they report rates and reserves, because there seems to be little correlation between initial production rates and ultimately recoverable reserves, even at significantly reduced recovery rates Interoil's discovery would appear to have the makings of a fairly large development.

And we're off!
Aluminum producer Alcoa kicked off the third-quarter earnings season yesterday with a strong report that will be a challenge to duplicate. That's borne out by estimates showing companies comprising the S&P 500 are expected to report earnings that are on average 20% below what they reported a year ago. That means investors will have to pick and choose carefully those stocks they want to own.

While Alcoa's cost-cutting initiatives were paying off, it was also able to improve pricing across all segments. But a $520 million payment it received for its stake in Rio Tinto (NYSE:RTP) didn't hurt either.

Highly rated CAPS All-Star member Calegro believes Alcoa's willingness to spend on future developments ensures it will be a contender to reckon with:

Super-competitive manufacturing powerhouse with huge R&D budget ... this should be a 3M-style defensive play that will rake in profits in time to come!

Foolish takeaway
Thus far, the market's rally has been mostly fueled by low-quality stocks. Got a different take on Interoil or Alcoa? If you think there's some funny business afoot, let us know -- head over to Motley Fool CAPS and sound off.