Analysts have been cutting back their earnings forecasts going into the fourth quarter of 2011, and especially in the first quarter of 2012.
It can't be said that companies haven't prepared themselves for volatility in the market -- companies hoarding cash have been a prevalent indicator -- but have companies prepared for such length and severity? According to analysts, that's not an easy feat, and it's nearly time that economic woes impact corporate profits.
According to CNNMoney, amid uncertainty of the market's future, high unemployment, a stalled economy, and the growing international financial crisis, "the target growth rate for S&P 500 earnings fell to 12% in the past week. That's down from 17% a year ago."
A 12% growth rate would "mark the slowest growth pace for earnings since the recession officially ended in 2009."
Other analysts, according to CNNMoney, suggest that it is too soon to make these assumptions. "The market is overacting," said Kate Warne, chief investment strategist with Edward Jones, "stocks have sold off dramatically, but the business climate hasn't changed all that much."
Still, many companies have been the first to admit there may be trouble ahead by cutting their own sales forecasts in anticipation of the year's market volatility.
Yet no matter what happens, as always, some winning companies will come out of market changes unscathed.
To help you identify these outliers, we searched for the top 10 rallying stocks that have seen a raise in their EPS estimates for the current year while also seeing a drop or smaller rise in price (i.e., these companies may be undervalued):
The logic of this technique is as follows: If the price/earnings per share ratio is equal to some constant k, it reasons that there should be a linear relationship between price and earnings per share. In other words:
If P/E = K
then P = (K)(E)
If there is a mismatch between growth rates in projected earnings per share values and price, a mis-pricing may have occurred, presenting an opportunity to value investors.
Yes, this approach isn't 100% accurate. There is no reason to believe that P/E should be equal to a constant at all times (that is, after all, a simplifying assumption to build a screen). But the goal here is to give you a starting point in finding potentially undervalued stocks.
Analysts think earnings are going to drop, but here are a few companies with rising earnings that may even be undervalued. Do you think they have more value to cash in?
Use the list below as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Liquidity Services (Nasdaq: LQDT): Operates an online auction marketplace for wholesale, surplus, and salvage assets primarily in the U. The stock is 33.05% above its SMA20, 27.56% above its SMA50, and 64.78% above its SMA200. The EPS estimate for the company's current year increased from 0.77 to 0.84 over the last 30 days, an increase of 9.09%. This increase came during a time when the stock price changed by 6.3% (from $28.27 to $30.05 over the last 30 days).
2. Green Mountain Coffee Roasters (Nasdaq: GMCR): Engages in the specialty coffee and coffee maker business. The stock is 4.58% above its SMA20, 6.76% above its SMA50, and 59.12% above its SMA200. The EPS estimate for the company's current year increased from 1.51 to 1.65 over the last 30 days, an increase of 9.27%. This increase came during a time when the stock price changed by -6.67% (from $110.96 to $103.56 over the last 30 days).
3. Sturm, Ruger & Co. (NYSE: RGR): Engages in the design, manufacture, and sale of firearms in the United States. The stock is 4.61% above its SMA20, 19.19% above its SMA50, and 53.92% above its SMA200. The EPS estimate for the company's current year increased from 1.48 to 1.73 over the last 30 days, an increase of 16.89%. This increase came during a time when the stock price changed by 12.19% (from $27.8 to $31.19 over the last 30 days).
4. Cabot Oil & Gas (NYSE: COG): Engages in oil exploration, development, exploitation, and production. The stock is 1.22% above its SMA20, 3.1% above its SMA50, and 37.01% above its SMA200. The EPS estimate for the company's current year increased from 1.27 to 1.46 over the last 30 days, an increase of 14.96%. This increase came during a time when the stock price changed by 1.5% (from $73.14 to $74.24 over the last 30 days).
5. CVR Energy (NYSE: CVI): CVR Energy,, together with its subsidiaries, refines and markets transportation fuels in the United States. The stock is 5.65% above its SMA20, 4.78% above its SMA50, and 31.42% above its SMA200. The EPS estimate for the company's current year increased from 3.2 to 4.04 over the last 30 days, an increase of 26.25%. This increase came during a time when the stock price changed by 2.81% (from $25.62 to $26.34 over the last 30 days).
6. First Majestic Silver (NYSE: AG): Engages in the production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The stock is 6.29% above its SMA20, 6.91% above its SMA50, and 30.84% above its SMA200. The EPS estimate for the company's current year increased from 1.14 to 1.35 over the last 30 days, an increase of 18.42%. This increase came during a time when the stock price changed by 0.41% (from $24.28 to $24.38 over the last 30 days).
7. Domino's Pizza (NYSE: DPZ): Operates as a pizza delivery company in the United States and internationally. The stock is 1.58% above its SMA20, 2.04% above its SMA50, and 30.29% above its SMA200. The EPS estimate for the company's current year increased from 1.6 to 1.61 over the last 30 days, an increase of 0.63%. This increase came during a time when the stock price changed by 0.22% (from $26.8 to $26.86 over the last 30 days).
8. SFN Group (NYSE: SFN): Operates as a strategic workforce solutions provider in the United States and Canada. The stock is 0.37% above its SMA20, 13.47% above its SMA50, and 22.21% above its SMA200. The EPS estimate for the company's current year increased from 0.59 to 0.61 over the last 30 days, an increase of 3.39%. This increase came during a time when the stock price changed by 0.43% (from $13.94 to $14 over the last 30 days).
9. Cardtronics (Nasdaq: CATM): Operates automated teller machines (ATMs) and financial services kiosks. The stock is 5.06% above its SMA20, 3.12% above its SMA50, and 18.97% above its SMA200. The EPS estimate for the company's current year increased from 1.23 to 1.3 over the last 30 days, an increase of 5.69%. This increase came during a time when the stock price changed by 5.34% (from $23.02 to $24.25 over the last 30 days).
10. Nu Skin Enterprises (NYSE: NUS): Develops and distributes anti-aging personal care products and nutritional supplements worldwide. The stock is 3.39% above its SMA20, 3.18% above its SMA50, and 18.65% above its SMA200. The EPS estimate for the company's current year increased from 2.39 to 2.48 over the last 30 days, an increase of 3.77%. This increase came during a time when the stock price changed by -1.25% (from $40.69 to $40.18 over the last 30 days).
List compiled by Eben Esterhuizen, CFA.
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.
Kapitall's Becca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. EPS data sourced from Yahoo! Finance, all other data sourced from Finviz
