I was skeptical when Yahoo! announced that Jeff Macke would be co-hosting its new online show "Breakout." I'll admit I made a few wisecracks. But tuning in to the show for the first time yesterday, I have to say, I was impressed.

Granted, it was just a two-minute segment, but Macke made a pretty interesting observation. First he trotted out the chart for SUPERVALU (NYSE: SVU) -- the Acme and Albertsons owner that isn't exactly in stellar shape. The company reported earnings yesterday, and its earnings per share topped analysts' estimates by $0.10. Investors rewarded the company by boosting the stock 17%.

Next, he looked at Hasbro (NYSE: HAS). The company reported first-quarter earnings per share of $0.12, 70% lower than the prior year and $0.05 short of what analysts were estimating. That stock fell 3%.

So we've got SUPERVALU with a significant beat and a 17% pop and Hasbro with a significant miss and a 3% drop. Something doesn't quite add up here.

Macke connected the dots by suggesting that there is still too much pessimism out there among investors. That an earnings beat would cause that kind of excitement, while a miss would be basically shrugged off seems to show that investors have prepared themselves for a disappointing earnings season.

My take
Macke's a trader. I'm not. So I'm not going to run with an idea like that and "buy into earnings season" or anything like that.

However, this is a great reminder of the power of expectations in general. When Christmas rolls around, I like to tell everyone that I'm boycotting giving gifts. That way, they'll likely be happy with whatever I get them. Even if it's second-hand Yanni CD (OK, maybe that's an extreme example).

With stocks, we can get a pretty good gauge of investor expectations based on valuation. For instance, when I look at a company like Netflix (Nasdaq: NFLX), whose stock carries a forward price-to-earnings ratio of 54, I can easily infer that investors have high hopes for the company. And I mean high hopes. Excellence is expected and mediocre -- forget about poor -- results will likely be met with a very extreme negative reaction.

On the flip side, we've got a company like Cisco (Nasdaq: CSCO). The stock currently trades at less than 11 times fiscal 2011 earnings estimates. Further, it's tough to find much of anybody willing to say something nice about Cisco. Neutral comments have become the new "good" for this stock. Because of plummeting expectations, though, investors are more likely to shrug off not-so-impressive results in the future, while surprises to the upside may be met with a big positive reaction.

To be sure, most companies on investors' bad side have earned their way to that spot. But given the potential for gains that these stocks have, if investor sentiment starts to change for the better, they are a prime hunting ground for many value investors.

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