Nearly all of the members of the Dow Jones Industrials
With the Dow at multiyear highs, investors are optimistic. Any contrary news from these four stocks could be a big surprise. Let's take a closer look at the four companies reporting earnings early this week.
At first glance, Wal-Mart seems to be on top of the world. Analysts expect it to report its 12th straight quarter of growing earnings per share, with estimated profit of $1.45 per share representing a potential record for the company.
But despite its good earnings record, Wal-Mart has struggled to keep sales up. Just last quarter, the retailer broke a long streak of declining same-store sales. What investors will look for, though, is exactly how the holiday season went and the extent to which Wal-Mart had to make sacrifices on profit margin to move its merchandise. Without strong numbers, Wal-Mart could continue to worry investors for the foreseeable future.
By contrast, you might expect Home Depot to be coming out of a long stretch of bad performance. With the housing market having been in the dumps for years, home improvement might seem like a bad place to be.
But Home Depot appears poised to post its ninth straight improvement in quarterly earnings, and its stock has already put in some stellar performance in recent months. As often happens, the stock appears to have anticipated the recent turnaround in the housing market, and as positive data starts to pour in, the company could see even more success. In particular, the settlement between states and mortgage lenders could clear the way for thousands of foreclosures to go forward, putting more supply on the market and driving up demand for materials to renovate those properties after they're sold. An economic reversal could destroy that bull argument, but for now, Home Depot looks pretty compelling.
Kraft can't claim a long string of better earnings results, but it can expect decent growth from year-ago levels. Analysts expect earnings of $0.57 per share Tuesday, up from $0.46 in 2010's fourth quarter.
But more important than its coming earnings will be whatever news Kraft gives about its upcoming spinoff. The recent Diamond Foods scandal has thrust snack companies into the limelight, which puts Kraft's global snacks business in an extremely strong position to try to make strategic moves to keep up with its competitors. Meanwhile, the higher-margin U.S. grocery business could get some attention from investors who prefer a more conservative play on domestic growth. Shares are already up sharply in advance of the spinoff, so bad news could bring swift retribution to the stock.
HP comes into earnings season expecting to post greatly reduced earnings. The big question for HP, however, is how the latest in a long string of CEOs is doing in her turn at the reins.
Meg Whitman has tried to reassure investors and customers alike that the company will be there to stand behind its products. HP won't stop selling computers, but it is interested in figuring out how to boost its growth by trying to make the most of its software business. More than anything, Whitman needs to act like the leader that HP simply hasn't had for a while. With the stock at bargain prices, even minor successes should bring rewards to patient shareholders.
Looking beyond the next quarter
Even after all the Dow companies post their earnings, it won't be time to give up. Often, what happens between quarterly reports holds the key to understanding whether a company will succeed or fail in the long run.
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Fool contributor Dan Caplinger always keeps moving. You can follow him on Twitter. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended buying shares of Wal-Mart and Home Depot, as well as creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy tells it like it is.