Back to main

5 Blue Chip Studs & 5 Duds

Posted
4/26/2011 8:01:00 PM
By: Louis Navellier
Referenced Stocks:ARMH;BIDU;CAT;COP;MCO

Earnings season is what makes or breaks a company and is the key indicator of how a stock will perform in the coming months. If you've followed earnings seasons in the past, you know that the larger companies normally report their results earlier in the season, and that means we have several big-name companies announcing results this week.

Some investors think that the big profits are only found in volatile small-cap stocks. It's true that there's money to be made there as well, but when you ride the growth trend of a powerful blue-chip stock that is dominating its market and posting strong earnings results, the profits can be significant.

So I'm going to give you the names of five blue chips that are reporting this week and explain the profit opportunities in each. Plus, I'll also give you the names of five blue chips that you should stay away from this week and in the coming months.

Blue Chip Stocks to Buy

The companies listed below are among the highest-rated in Portfolio Grader and are expected to post spectacular earnings and sales results for the first quarter of this year.

ARM Holdings PLC (ARMH)

ARM Holdings PLC (NASDAQ: ARMH ) is slated to have an outstanding earnings report when it announces today. ARM makes microprocessors for popular devices like Apple's (NASDAQ: AAPL ) iPad. Apple announced spectacular earnings results last week, so I'm expecting ARM to follow that trend. Analysts are expecting 22% year-over-year earnings growth and a 21% increase in sales. These predictions have been on the rise over the past few months, however, and this makes it very likely that ARM will report earnings in excess of these estimates and send its shares soaring.

Baidu Inc. (BIDU)

Baidu Inc. (NASDAQ: BIDU ) is another big tech stock that is likely to take off this earnings season. The Chinese Internet market has been red-hot over the past few weeks, and I think this is setting the stage for a spectacular rally in this sector. Baidu is expected to report 100% year-over-year sales growth and earnings growth of 125%! These numbers are spectacular for a company so large. My money is on BIDU this earnings season, and I think we could see a nice pop when it announces on Wednesday.

ConocoPhillips (COP)

ConocoPhillips (NYSE: COP ), like many other oil plays, is rising to the top of analysts' lists this earnings season. Oil companies are reaping windfall profits from the rising price of oil, and this is making analysts crazy trying to accurately predict what these companies will earn for the first quarter. Current expectations are for 35% earnings growth, but these expectations have risen by nearly 30% over the past three months. It's become nearly impossible for analysts to keep up with this company's profits, and this is a good sign that ConocoPhillips will outperform expectations this earnings season. COP is expected to announce results on Wednesday.

Moody's Corp. (MCO)

Moody's Corp. (NYSE: MCO ) is a ratings company, and I think there are several people out there in the market that would like to put Moody's under the microscope. This is the company that every central bank chief is afraid of, as a downgrade from them can spell disaster on the bond market. Moody's, however, seems to be in great shape as a company, and analysts are expecting big things this earnings season. The company is predicted to report sales growth of 10% and earnings growth of 15% when it announces on Wednesday.

Caterpillar Inc. (CAT)

Caterpillar Inc. (NYSE: CAT ), the construction and mining equipment company, is scheduled to report results on Friday and, like the rest of the stocks on this list, its numbers are expected to be fantastic. As last week's housing starts and building permits report showed, construction is starting to ramp up again, and mining has been on a heavy clip for the past few months. Analysts are expecting 40% year-over-year sales growth from this A-rated company and earnings growth of nearly 300%! Expectations have been getting revised higher for the past several months, and it is very likely that CAT could issue an earnings surprise.

Blue Chip Stocks to Sell

Just because companies are big doesn't mean they're strong and will return investors big profits, and the following list of earnings laggards proves that point. You will likely be familiar with each of these companies, but you may be surprised by how poorly they are performing right now and how unlikely a blowout quarter is for these household names.

Here are five blue chip stocks reporting earnings this week that I want you to stay away from this earnings season:

Boeing Co. (BA)

For a lot of air-travel related companies, the skies aren't so friendly these days. Boeing Co. (NYSE: BA ) is one company that is suffering from decreased revenues related to problems in the industry. In addition, Boeing has been dogged by safety concerns stemming from an in-flight rupture of one of its aircraft's fuselages. For the first quarter, analysts are expecting a sales drop of nearly 1%. Earnings growth is expected to be anemic and earnings could actually fall as analysts have been downwardly revising their estimates over the past three months. This blue-chip company will announce on Wednesday, and I'm not expecting good things.

Dow Chemical Co. (DOW)

Dow Chemical Co. (NYSE: DOW ) is another company with a household name that makes our list of stocks to stay away from this week. The company produces a number of chemicals that are incorporated into products that we use every day. Still, Dow doesn't quite make the grade in Portfolio Grader . It gets a C overall, and its earnings momentum grade is an F. This stock might hit estimates on Thursday, but the numbers are not strong enough to add any value to your portfolio at this time.

Raytheon Co. (RTN)

Raytheon Co. (NYSE: RTN ) is a government contractor and a terrible stock to own right now. The stock gets a D in Portfolio Grader, and expectations for the company's performance this earnings season are not high. Analysts are currently predicting an earnings drop of 8% and a sales decrease of 1%. Earnings estimates have also been lowered over the past few months, and this is usually a precursor to an earnings miss. If you own shares of this stock, be sure to get rid of them by Thursday!

Aflac Inc. (AFL)

Aflac Inc. (NYSE: AFL ) may serve you right in times of need, but the only way you can ensure that you'll profit this earnings season is by staying away from AFL shares. The company gets a D in Portfolio Grader and heading into earnings season, analysts aren't expecting many big surprises from this company. Earnings expectations have been flat and, in fact, have decreased slightly over the past week, and the company's sales growth is nothing to write home about. Not even the most creative advertising campaign is going to save this company's stock come its earnings announcement on Wednesday.

Expedia Inc. (EXPE)

Expedia Inc. (NASDAQ: EXPE ) isn't expediting its way to big profits this quarter. The company gets a D on my screens and has a poor history of earnings surprises. Over the past two months, analysts have downgraded their earnings estimates on this stock by 19%, and the only surprise I'm expecting for this company's earnings is to the downside. The online ticketing industry has been hit by a number of different setbacks, including refusals by airlines to provide schedules and the purchase of a major ticketing software provider by Google Inc. (NASDAQ: GOOG ). Some companies are able to navigate the new landscape, but it doesn't seem like Expedia is one of them. Make sure to get out of this stock by Thursday when Expedia reports.