Strong Buy Stocks for Today's Stock Market

Sam Subramanian PhD, MBA

The third quarter earnings report season is nearly a third of its way through, since Alcoa (AA) kicked it off on October 7. Once again, Corporate America has shown it is adroit in managing earnings expectations. About 80% of S&P 500 companies reporting third quarter earnings have exceeded analysts' forecasts.

As for revenue, the story is different. Revenue has trailed analysts' estimates by nearly 1% after declining 2% from the year-ago period.

So, how have stocks prices responded to earnings reports?

Stock prices as measured by the S&P 500 index are up just 2%, in sharp contrast to double-digit gains recorded at a comparable point in the second quarter earnings report season. Sectors like energy and technology have fared better than the benchmark index while others like telecom and financials have lagged.

Why the subdued performance this time?

Up nearly 62% from the March 6 intra-day bottom, the S&P 500 now trades at almost 20 times reported operating earnings. While investors have bid up share prices expecting a robust recovery, corporate revenues are not supportive of such optimism. Forecasts for a gradual recovery from railroads Burlington Northern Santa Fe (BNI) and Union Pacific (UNP) have also given investors pause.

Strong Buy Stocks for Today's Stock Market

Today's stock market looks tired after rallying for seven straight months. A correction of sorts can be in the offing. And, if a correction does materialize, it can give prepared investors an appetizing opportunity to get into shares of companies that are executing exceptionally well. Here is a sample of three large-cap companies that have beaten analysts' earnings forecasts by more than 25%. Not needing a lot of help from the U. S. economy, they are performing well on the revenue front too.

Amazon.com (AMZN): The online retailer continues to amaze, despite intense competition from the likes of Wal-Mart (WMT). In its most recently completed third quarter, Amazon smashed analysts' profit forecasts earning 45 cents a share. Revenue growth of 28% too exceeded analysts' 18% forecast. The company has managed to double its annual free cash flow through the recession to nearly $2 billion. Kindle, Amazon's top-selling product, has enabled the company to take an early lead in digital reading.



Apple (AAPL): The technology company's products are in-demand. Essentially unscathed by the recession, Apple just posted its sixth straight double-digit positive earnings surprise. The company set quarterly records for its Mac and iPhone sales selling 3.1 million and 7.4 million units respectively. Apple grew its quarterly revenue by an astonishing 25% to nearly $10 billion. Apple's faster iPhone called 3GS released earlier this year is a hit with customers. The iPhone is also set to go on sale in the world's largest cell phone market China by October 31.

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Freeport-McMoRan Copper & Gold (FCX): Freeport-McMoRan Copper & Gold is benefiting from China's economic growth and demand for metals. The world's largest publicly traded copper producer increased its top line by over 12% from the second quarter. The company slashed operating costs by more than 60% and earned $2.07 a share in the recently completed third quarter to beat analysts' earnings estimate by a wide 54% margin. Freeport has raised its 2009 copper and gold output forecast and reinstated its 60 cents a share annual cash dividend.

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