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Positive Surpries With Below-Average P/Es

by John Bajkowski

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When the markets are volatile, investors take comfort in stocks announcing better-than-expected earnings. Notably, 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 quarterly earnings that surpassed the consensus forecast—a positive earnings surprise.

Changes in a stock’s price resulting from an earnings surprise may be immediate, but the surprise may also have a long-term price effect. This means that it may not be too late to buy into an attractive company after a better-than-expected earnings report is released. Studies indicate that the effect can persist for as long as a year after the announcement. Firms with a significant surprise also often have earnings surprises in subsequent quarters.

The stocks that made this issue’s First Cut are exchange-listed companies tracked by at least four analysts that have had a significant positive quarterly surprise since the end of September 2007 with a forward price-earnings ratio below the average of all companies tracked by AAII’s Stock Investor Pro. These companies are also expected by analysts to have positive earnings for their current and following fiscal year, and they have not had downward quarterly or annual earnings estimate revisions during the past month.

Only the top 30 stocks with the largest percentage surprise made the First Cut.

The listing also includes the monthly percentage change in the consensus fiscal-year estimate to indicate how analysts have adjusted their near-term expectations, and the four-week and 52-week price changes to highlight investor reaction to the announcement.

Company (Exchange: Ticker) Quarterly EPS Current Fiscal- P/E
Ratio
(Est
EPS)
(X)
Price Change Description
Year EPS
Ann'l
Est
($)
Monthly
Change
(%)
Est Actual Surprise 4-Wk 52-Wk
($) ($) (%) (%) (%)
Hutchinson Technology (M: HTCH) 0.12 0.32 166.7 1.19 3.5 21.9 -6 9 disk drive components; biomeasure
America's Car-Mart, Inc. (M: CRMT) 0.16 0.29 81.3 1.01 32.9 11.5 2 4 used car market
W&T Offshore, Inc. (N: WTI) 0.31 0.53 71 1.91 2.1 15.2 5 -11 oil & gas company
Terra Industries Inc. (N: TRA) 0.46 0.75 63 2.32 0.4 17.2 12 273 nitrogen prods for agri & indus
CF Industries Holdings, Inc. (N: CF) 0.97 1.52 56.7 5.83 4.1 16.6 14 308 nitrogen & phosphate fertilizer
Western Digital Corp. (N: WDC) 0.57 0.79 38.6 3.25 19 9.2 12 45 hard drive mfr & sales
Perrigo Company (M: PRGO) 0.26 0.36 38.5 1.38 7 23.6 8 94 pharmaceuticals & nutrition prods
SiRF Technology Holdings (M: SIRF) 0.22 0.29 31.8 1.05 1 23 -10 -8 GPS semiconductor solutions
American Physicians Capital (M: ACAP) 0.94 1.21 28.7 4.54 1.6 9.5 3 9 medical liability insurance
hhgregg, Inc. (N: HGG) 0.14 0.18 28.6 1 5.3 14 -7 0 appliances & audio/video prods
Fossil, Inc. (M: FOSL) 0.34 0.43 26.5 1.68 1.2 25.8 5 95 consumer fashion accessories
Bristow Group Inc. (N: BRS) 0.76 0.93 22.4 3.43 1.2 16.1 3 50 helicopters to offshore indus
Infinity Property & Casualty (M: IPCC) 0.82 1 22 3.82 0.5 9.6 -7 -23 auto insurance
Tech Data Corporation (M: TECD) 0.6 0.73 21.7 2.42 6.6 15.3 2 -8 distribs info technology prods
Travelers Companies, Inc. (N: TRV) 1.49 1.81 21.5 6.69 0.3 7.9 0 0 property & casualty insurance
Archer Daniels Midland (N: ADM) 0.59 0.71 20.3 2.63 1.5 14.9 3 20 agri commodities & prods
Humana Inc. (N: HUM) 1.49 1.78 19.5 4.79 0.4 15.8 4 37 health insurance coverage
Casey's General Stores (M: CASY) 0.46 0.54 17.4 1.72 8.9 16.4 -3 16 convenience stores
Verigy Ltd. (M: VRGY) 0.5 0.58 16 2.03 9.7 13.1 31 49 tests & solutions for semicond
Aladdin Knowledge Systems (M: ALDN) 0.26 0.3 15.4 1.14 0.9 23.3 7 50 network security & software rights
Plexus Corp. (M: PLXS) 0.48 0.55 14.6 1.9 0.5 14 -8 9 prod realization servs to equip mfrs
Clean Harbors, Inc. (M: CLHB) 0.57 0.63 10.5 2 0.5 25.5 -7 11 environmental services
Donaldson Company, Inc. (N: DCI) 0.48 0.53 10.4 2.05 3 22.2 13 29 filtration systems & parts
Comtech Telecomm. Corp. (M: CMTL) 0.49 0.54 10.2 2.58 1.2 20.3 5 35 sys & servs for communications
Hasbro, Inc. (N: HAS) 0.71 0.78 9.9 2.03 1 12.7 -6 -5 games and toys
Tyco Electronics Ltd. (N: TEL) 0.54 0.59 9.3 2.45 4.3 14.9 4 0 electronic components
Aircastle Limited (N: AYR) 0.45 0.49 8.9 1.76 0.6 15.1 -5 -8 aircraft leasing
National-Oilwell Varco, Inc. (N: NOV) 0.94 1.02 8.5 3.73 0.3 20.7 20 127 oil & gas drilling equip
Copart, Inc. (M: CPRT) 0.38 0.41 7.9 1.75 4.2 23.9 18 37 vehicle remarketing servs
optionsXpress Holdings (M: OXPS) 0.38 0.4 5.3 1.53 2 20.7 8 31 brokerage servs

 

John Bajkowski is president of AAII.


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