Screens by Jack Hough (Author Archive)
Just over half of S&P 500 members have reported financial results that count toward the index's first quarter. More than three-quarters of them have topped earnings forecasts. As I wrote here recently, upside earnings surprises are the norm these days because investors reward companies that over-deliver by chasing their stock prices higher, and so managers and analysts have come to chronically under-forecast. (Two of the three companies highlighted in that story have since reported earnings, each producing upside surprises of more than 25%.)
The three S&P 500 members listed below did something slightly less common than beating earnings estimates in their recent quarterly results. They beat sales estimates, too -- and they increased their earnings and sales over the past year. About 44% of reported companies have done that, so I selected ones whose sales growth also exceeded 30%. Long-term studies show that, although companies that surpass earnings estimates tend to go on to provide larger stock returns than those that don't, those that beat earnings and sales estimates do even better.
Freeport-McMoRan Copper & Gold
Sales growth, most recent quarter: 68%
Copper prices have been remarkably volatile in recent years. Five years ago, a pound of the stuff could be bought for around $1.50. That price briefly topped $4 in 2008, then plunged back to $1.50 in early 2009. Now, it's over $3. Profits for the world's largest publicly traded copper producer, Freeport McMoRan Copper & Gold (FCX: 70.44, -0.05, -0.07%), have been understandably erratic over the past year. Last quarter the company earned more than $2 a share, versus 11 cents a year ago. If the days of $1.50 copper are passed, Freeport shares at just eight times earnings might prove a bargain. If prices fall again, the company's low-cost copper operations in Indonesia will give it an advantage over competitors, but profits and the stock price will surely fall. In late 2008, shares sold for less than one-third today's price.
Corning
Sales growth, most recent quarter: 57%
If you grew up in a household that never replaced its television but you have bought at least two new sets over the past decade, you're not alone. Replacement cycles are shortening, according to Jefferies & Company, a New York investment bank, and Wall Street might be underestimating future demand for new flat-panel TVs. That bodes well for Corning (GLW: 18.67, -0.27, -1.42%), an upstate New York company that used to make television tubes and cookware but now specializes in high-tech glass, including the kind used in modern television displays. Its profits are expected to jump 48% this year. Management reckons global demand for glass substrate used in screens will rise 18% to 27%. Shares sell for less than 10 times the 2010 earnings forecast.
Amazon.com
Sales growth, most recent quarter: 46%
Last year, just over half of Amazon's (AMZN: 130.93, +1.10, +0.84%) sales came from media -- books, music, movies and games. Morningstar Equity Research forecasts that media will contribute less than 30% of the company's sales five years from now. That's promising, because it helps protect the company from digital media distribution cutting into sales of paperbacks and discs, but media sales are lucrative for Amazon, so overall margins might decline from today's levels. There's much to like about Amazon's asset-light business, customer loyalty and rapid growth. Stockholders have made a killing, twice -- when the shares multiplied more than 45 times in value over 18 months ended December 1999, and again, when they multiplied more than 20 times in value from their dotcom-crash low point reached in 2001. However, therein lies the troubling part for those eyeing a purchase of shares today. They sell for 44 times this year's forecast profit, about three times the valuation of Wal-Mart (WMT: 54.77, +0.75, +1.38%), a company with larger profit margins, 15 times Amazon's sales and a rapidly growing online store of its own.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."