logo
  Join        Login             Stock Quote

7 Mid-Cap Stocks That Consistently Crush Earnings

 February 07, 2013 04:18 PM
 


Earnings season is the most dangerous time of the year for companies and investors alike.

The Street frequently punishes companies that fall short of expectations, with investors quickly bailing on stocks that show even a glimpse of weakness.

Take Apple Inc. (Nasdaq: AAPL) for example. Even though the company's recent fourth-quarter results beat analyst estimates, because sales and margin year-over-year growth slumped in key areas, Apple was hit with a 10% loss just hours after the release.

It's a simple lesson, but also one that reinforces just how important it is to invest in companies that consistently beat expectations. Companies that consistently beat earnings expectations are sending a big message to the market.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

At the highest level, an earnings surprise says a lot about management. It demonstrates management's ability to identify new investment opportunities to drive return on equity. It also means the company's leadership effectively manages analyst expectations. Letting the analyst community get too bullish and missing overly optimistic estimates is a cardinal sin for a good management team.

It's also important to recognize that earnings surprises are driven by earnings growth. A company with a consistent record of beating estimates is demonstrating its ability to grow earnings in all different stages of the economic cycle. Consistent earnings growth also helps on the valuation front, still the single most important factor affecting a company's share price.

[Related -Apple Inc. (NASDAQ:AAPL): Why Gross Margins Will Expand In 2014 and Beyond?]

As you can see, a company that consistently beats expectations has a few things to brag about.

But when it comes to large caps, heavy analyst coverage makes it hard to sneak up on the Street with anything new, even an earnings surprise. On the other side of the spectrum, small caps have so little analyst coverage that can it can lead to extreme volatility. 

That's why I look to mid caps when I want to find companies that consistently beat earnings. Mid-cap stocks offer a great blend of growth, stability and the perfect amount of analyst coverage to set the foundation for an earnings surprise that will push shares higher. 

I built a list of seven mid caps that consistently crush earnings. In fact, each one of the stocks listed has had an average earnings surprise of more than 50% in the last nine quarters. 

Of the seven, two companies stand out: Hillshire Brands, because it operates in the bullish food and agriculture industry and Atmos Energy because of its leverage to natural gas.

1.Hillshire Brands Co. 

Hillshire Brands is a food manufacturer with an impressive portfolio of brands that includes Jimmy Dean, Ball Park and Sara Lee. With the food and agriculture stocks jumping higher in the past few years, Hillshire Brands has been on the move, up a market-beating 33%. These gains have been driven by solid earnings growth, with analysts looking for 17% earnings growth in the fourth quarter of 2012 and another 6% in 2013. 

This has lifted Hillshire Brands to an average earnings surprise of 59% in the last nine quarters. The company also carries a solid dividend yield of 1.7%, which is almost on par with the 10-Year Treasury note's 1.9% yield.

2.Atmos Energy

This utility company stores and distributes natural gas in the United States. This places the company in an excellent position to capitalize on the secular growth trend in the consumption of natural gas. Atmos is up 17% in the past year, almost directly in line with the S&P 500. As a utility, this stock offers high barriers to entry, consistent growth and a solid dividend yield of 3.5%. But in spite of its status as a utility, growing demand for natural gas has lifted Atmos to an average earnings surprise of 56% in the last nine quarters.

Risks to Consider: Actual earnings are important but forward guidance is as well. Companies that beat earnings expectations can still trade lower if guidance comes in below expectations.

Action to Take --> These seven mid caps have averaged more than a 50% earnings surprise in the last nine quarters. And with Hillshire benefitting from the bullish trend in food and agriculture, and Atmos in position to gain on the natural gas boom, these are two mid-cap stocks with strong histories of earnings surprises to keep an eye on this earnings season.

--Michael Vodicka

P.S. -- Have you heard about the $1.7 trillion "Dividend Vault"? Simply put, it's the easiest way we know to collect thousands of dollars in dividends each month for the rest of your life. To learn more, click here.

Michael Vodicka does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageGold Slides On Perfect Storm For Dollar

For all the anticipation surrounding the delivery of the Fed’s statement in the run-up to the September read on...

article imageForward Guidance Now A Nightmare For Fed.

Janet Yellen is probably sorry Ben Bernanke ever embarked on his program of the Fed providing read on...

article imageThis Once-Broken Social Media Stock Is Back On The Warpath

In the brief history of social media stocks, history is repeating itself. Both Facebook (NASDAQ: FB) and read on...

article imageItalian Workers Were Too Productive For 20 Years

The 2008 crisis has resulted in significant downward revisions of potential growth for most advanced read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.