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I have chosen companies that will report their earnings on July, 23 that have a positive surprise pattern in their 2Q2010 fundamentals. I have pared down that list to focus on companies with depressed share prices. These should give us the biggest bang for the buck when the company delivers the surprise on July, 23. Review the positive surprise pattern in the fundamentals of Autoliv, Inc. (ALV), Ford Motor Co. (F), Johnson Controls Inc. (JCI), NVR Inc. (NVR), Skyline Corp. (SKY).
The earnings surprise pattern at banks is similar to industrial companies but I use different factor definitions. A surprise pattern for a bank is rising asset growth, improved gross spread, lower non-interest expenses relative to assets, lower loss provisions and higher profitability. Banks with the surprise pattern that will report their 2Q2010 on July, 23 are Popular Inc. (BPOP) and United Bankshares Inc. (UBSI).
Popular Inc. (BPOP) is the more depressed share having declined significantly from the 2004 high and valuation is near the lowest in the bank record. Asset growth was up in 2Q2010 but remains negative as the bank has shrunk the loan portfolio, reduced leverage and bolstered the capital position. The gross spread increased in the 2nd quarter 2010 and with non-interest expenses and loss provisions high in the record and lower during 2Q2010, the operating spread is low in the record of the bank and rising. Shares outstanding more than doubled during 2009 from the conversion of preferred securities but profitability of the bank is up despite the larger number of shares. Depressed share price, improving top line plenty of operating leverage and improved financial condition make BPOP an attractive stock in the surprise category.
These stocks are all eligible for the Covestor Earnings Surprise model but none were selected for the model for 2Q2010. There are no companies in the current Covestor Earnings Surprise model list that will report on July, 23.
