The companies in the S&P 500 index have surpassed analysts' profit expectations for eight straight quarters, according to a recent article on CNBC.com. And several analysts expect companies to continue beating their earnings targets during the upcoming earnings season.
"The longer it persists, the more meaningful it is," said Adriana Posada, senior portfolio manager with American Beacon. "There's a lot more confidence that the economy is in fact improving when earnings continue to surprise" with better-than-expected results.
But is the U.S. economy truly recovering fast enough to justify current stock market valuations? And more importantly, is most of the good news already priced into the stock market?
The upcoming earnings season may not be the time for investors to buy aggressively, because this year's winners already reflect earnings optimism, reports Caroline Valetkevitch at Reuters.
"Some gains have been in anticipation of a strong earnings season, particularly for the energy and other cyclical sectors, raising questions about whether this quarter's reports will be enough to keep the recent uptrend intact."
That may set up a situation similar to the previous quarter's reporting period, when only companies that far surpassed expectations rose substantially after reporting results.
So how do you identify the companies that might report significant earnings surprises? One way is to look at what insider executives are doing -- if they are using their own money to buy the shares of their employers, it may signal that they think earnings estimates are too pessimistic.
To compile this list, we started with a universe of 400 stocks reporting earnings next week. We then collected data on insider transactions, and identified the companies that have had the largest increases in insider ownership over the last six months.
These insiders seem to think their companies are being underestimated -- will upcoming earnings result reflect insider optimism? (Click here to access free, interactive tools to analyze these ideas.)
List sorted by the change in insider ownership.
1. Tyco Electronics (NYSE: TEL): Diversified Electronics Industry. Over the last six months, insiders purchased 119,500 shares on a net basis, representing a 20.4% increase in insider ownership. The stock has lost -3.77% over the last year. The company is scheduled to release earnings on 4/21.
2. ITT Educational Services (NYSE: ESI): Education & Training Services Industry. Over the last six months, insiders purchased 374,000 shares on a net basis, representing a 3.3% increase in insider ownership. The stock has gained 20.96% over the last year. The company is scheduled to release earnings on 4/21.
3. Huntington Bancshares (Nasdaq: HBAN): Regional Bank. Over the last six months, insiders purchased 167,600 shares on a net basis, representing a 3.2% increase in insider ownership. The stock has lost -1.9% over the last year. The company is scheduled to release earnings on 4/20.
4. General Electric (NYSE: GE): Conglomerates Industry. Over the last six months, insiders purchased 85,553 shares on a net basis, representing a 2.4% increase in insider ownership. The stock has gained 11.18% over the last year. The company is scheduled to release earnings on 4/21.
5. VMware (NYSE: VMW): Technical & System Software Industry. Over the last six months, insiders purchased 1,621,764 shares on a net basis, representing a 1.2% increase in insider ownership. The stock has lost -6.91% over the last year. The company is scheduled to release earnings on 4/19.
6. Associated Banc-Corp (Nasdaq: ASBC): Regional Bank. Over the last six months, insiders purchased 15,658 shares on a net basis, representing a 0.8% increase in insider ownership. The stock has lost -3.04% over the last year. The company is scheduled to release earnings on 4/21.
*Insider trading data sourced from Yahoo! Finance.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen does not own shares of any companies mentioned.
