• The Best of the AAII Journal
  • The First Cut
  • Low P/E Stocks With Positive Earnings Surprises

    by John Bajkowski

    Low P/E Stocks With Positive Earnings Surprises Splash image

    A stabilizing economy and improvement in productivity helped to usher in a wave of positive surprises this past quarter. Seventy-two percent of the stocks covered by AAII’s Stock Investor Pro screening program reported quarterly earnings that surpassed the consensus forecast—the definition of a positive earnings surprise. Contrarian investors have observed that positive surprises are even more dramatic events for value-oriented stocks since the surprise often triggers a change (for the better) in the market perception of a company.

    This issue’s First Cut screens for stocks with below-average forward price-earnings ratios (price divided by expected earnings per share) that have reported a positive earnings surprise and upward revisions in future earnings expectations.

    While there is an immediate market reaction to a surprise or an earnings revision, there is often a long-term price impact as well—supporting the notion that it may not be too late to buy an attractive company after a better-than-expected earnings report. Studies indicate that a positive effect can persist for as long as a year after the announcement.

    The stocks that made this issue’s First Cut are exchange-listed companies tracked by at least four analysts that had a significant positive quarterly surprise since the beginning of September with a below-average forward price-earnings ratio. These companies have also seen at least a 5% increase during the last month in their consensus earnings estimates for their current and following fiscal years, and they are expected by analysts to have positive earnings. Only the top 30 stocks with the largest percentage surprise made the First Cut.

    The listing also includes the percentage change in the consensus fiscal-year estimate, to indicate how analysts have adjusted their expectations; the consensus long-term earnings growth rate estimate; and the 13- and 52-week relative price strength ranks, to highlight short- and long-term price momentum.

    Company (Exchange: Ticker) Quarterly EPS Current Fiscal-
    Year EPS
    P/E
    Ratio
    (Est
    EPS)
    (X)
    EPS
    Growth
    Rate
    Est
    (%)
    Price
    Strength
    Rank
    Share
    Price
    (11/13)
    ($)
     
     
    Ann'l
    Est
    ($)
    Monthly
    Change
    (%)
     
    Report
    Date
    Est
    ($)
    Surprise
    (%)
    13-Wk
    (%)
    52-Wk
    (%)
     
    Description
    OSI Systems, Inc. (M: OSIS) 10/27 0.07 91.8 1.21 8.9 16.1 19.2 55 75 19.38 electronic systems
    Service Corporation Int'l (N: SCI) 11/4 0.07 85.7 0.48 19.5 15.6 8.8 39 54 7.48 funeral homes & cemeteries
    99 Cents Only Stores (N: NDN) 11/4 0.08 84.2 0.63 8.8 20.8 13.8 46 43 13.18 general merchandise
    NewMarket Corporation (N: NEU) 10/22 2.15 80.5 11.09 28.4 9.7 15.0 88 92 107.87 chemicals & prop holding co
    Innophos Holdings, Inc. (M: IPHS) 11/2 0.38 80.2 3.34 18.2 7.1 -5.0 84 61 23.56 specialty phosphates
    Fuel Systems Solutions (M: FSYS) 11/5 0.43 79.9 2.43 44.5 19.6 22.4 91 58 47.67 alternative fuel components
    Par Pharmaceutical Co. (N: PRX) 11/6 0.49 57.5 2.36 19.6 9.7 51.6 85 81 22.83 drug holding co
    HEALTHSOUTH Corp. (N: HLS) 11/3 0.24 55.7 1.52 15.9 11.6 15.2 70 70 17.59 rehab healthcare servs
    Genoptix, Inc. (M: GXDX) 11/5 0.34 55.0 1.63 10.8 22.0 25.8 83 30 35.80 hematology diagnostics
    Cabela's Incorporated (N: CAB) 10/27 0.18 53.0 1.24 6.7 10.5 11.4 19 81 12.98 direct market outdoor merch
    NVR, Inc. (N: NVR) 10/21 7.60 52.5 30.41 21.9 22.4 12.5 63 77 681.38 home construction
    Schweitzer-Mauduit Int'l (N: SWM) 11/3 0.93 50.3 4.08 8.8 15.3 20.0 86 96 62.50 paper & tobacco prods
    AllianceBernstein Hold'g LP (N: AB) 10/29 0.45 48.2 1.70 21.5 16.0 9.0 80 67 27.12 financial research holding co
    A. O. Smith Corporation (N: AOS) 10/16 0.69 44.1 2.66 14.3 15.9 -8.0 53 60 42.45 water heating equip
    TeleTech Holdings, Inc. (M: TTEC) 10/28 0.23 39.1 1.20 13.1 16.4 19.8 73 86 19.66 business process outsourcing
    Odyssey HealthCare (M: ODSY) 10/28 0.25 38.9 1.17 12.4 12.6 13.3 75 71 14.77 hospice care provider
    Micrel, Incorporated (M: MCRL) 10/22 0.08 37.5 0.30 22.6 23.7 5.0 28 41 7.21 integrated circuits
    Corinthian Colleges (M: COCO) 10/29 0.28 34.1 1.58 17.7 10.0 24.1 37 39 15.78 post-secondary education
    Western Digital Corp. (N: WDC) 10/22 0.94 33.5 4.58 25.9 8.4 8.3 79 90 38.50 hard drive manufacturer
    Polo Ralph Lauren Corp. (N: RL) 11/3 1.31 33.4 4.16 9.3 19.4 12.8 79 80 80.84 apparel & accessories
    Invacare Corporation (N: IVC) 10/22 0.39 33.3 1.53 7.0 15.6 na 77 67 23.80 home medical equip
    Perrigo Company (M: PRGO) 11/2 0.50 33.1 2.42 15.0 16.6 13.7 91 48 40.19 pharmaceuticals
    Bristow Group Inc. (N: BRS) 11/4 0.66 32.4 2.96 11.7 11.5 7.0 67 74 34.18 helicopter servs
    Eaton Corporation (N: ETN) 10/19 0.92 32.0 2.47 23.8 26.1 10.1 76 70 64.53 diversified power mgmt 
    Werner Enterprises (M: WERN) 10/19 0.20 30.7 0.78 15.8 25.1 8.2 61 35 19.46 truckload shipment hauling
    Bio-Rad Laboratories (N: BIO) 11/3 1.06 30.4 4.96 5.9 19.8 12.3 74 64 97.96 life sciences analysis prods
    Lincoln Educational (M: LINC) 11/5 0.39 29.5 1.69 13.2 13.2 24.2 36 73 22.23 post-secondary education
    iGATE Corporation (M: IGTE) 10/20 0.13 28.0 0.52 13.7 17.8 16.0 83 79 9.29 information technology
    Fossil, Inc. (M: FOSL) 11/10 0.42 23.8 1.89 10.7 17.0 16.0 81 82 32.06 consumer accessories
    Steris Corporation (N: STE) 11/3 0.44 23.3 1.99 5.4 17.5 15.0 78 45 34.73 surgical support servs

     


     

    John Bajkowski is president of AAII.


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