Q2 Earnings & Value Stock Screen Results


Second quarter earnings season is well underway and if you have been following it, you can now get a picture of how the economy is doing and what to expect.

Rather than a non economics guy like me try to explain, here is a great summary from AAII.


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Jae Jun

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Second quarter earnings season is well underway and if you have been following it, you can now get a picture of how the economy is doing and what to expect.

Rather than a non economics guy like me try to explain, here is a great summary from AAII.

The slowing economy is curtailing spending. Earlier this week, truck manufacturer Paccar (PCAR) said its customers are choosing to hold onto aging trucks for a longer period of time, rather than replace them. The stronger dollar is hurting companies ranging from PepsiCo (PEP) to United Technologies (UTX). My colleague Wayne Thorp and I both feel like each earnings report we look at has a profit number that has been adjusted to offset the impact of currency translation.

Despite this, second-quarter earnings are coming in better than forecasts. As of this morning, Thomson Reuters I/B/E/S calculates that out of the 260 S&P 500 to report so far, 67% have topped expectations, while just 22% have missed. Historically, 62% of companies beat estimates and 20% miss.

Unfortunately, the second-quarter numbers that topped estimates need a big asterisk by them. Brokerage analysts reduced their earnings forecasts throughout the second quarter and evidently lowered the bar enough. (At the start of April, Thomson Reuters I/B/E/S’ consensus estimate called for 9.2% growth in second-quarter profits; today, the blended forecast of reported numbers and current forecasts calls for just 6.1% growth. S&P Capital IQ’s numbers, which are adjusted and currently signal a decline of 0.65%, have also been revised downward over the past few months.)

Revenues don’t look great when compared to expectations either. Thomson Reuters says only 41% of reported companies topped projections, while 59% reported disappointing sales numbers.

One of things the market does have going for itself is a cheap valuation. The S&P 500 is trading at 13.2 times trailing 12-month (TTM) earnings and 12.3 times I/B/E/S’ projected profits. Using S&P Capital IQ’s numbers instead gives us a trailing price-earnings ratio of 13.3 and a forward price-earnings ratio of 12.7. The earnings yield of 7.4% also favors stocks, especially when compared to the extraordinarily low yield of 1.43% for the 10-year Treasury note.

2012 Q2 Value Stock Screen Results

From the value stock screens I track as well as from the many stocks that I’ve been looking and following personally, I too have noticed a big slowdown in the economy by both consumers and businesses.

This has been another year where value stocks are struggling while on the flip side, growth stocks are powering their way up.

Off the top of my head, stocks that were cheap have gotten a whole lot cheaper. NOK, RIMM, RSH, GME, BBY and the entire healthcare and education sector has been crushed.

We’ll see how interesting 2012 gets.

Top 10 2012 Stocks YTD Performance +9%

To finish things off, here is the update on the 2012 top 10 stocks YTD. Not Q2.

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