3 Mid-Cap Stocks Set to Smash Earnings Estimates
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Few surprises are as ugly for investors as an earnings miss.
One of the reasons why is the flexibility of GAAP accounting itself: while there's no such thing as a free lunch, company CFOs have considerable latitude in how earnings are presented, as well what charges to take and when.
Even trivial misses, so the thinking goes, may indicate that something is rotten in the state of Denmark, and institutional investors often drop the stock like a hot potato. On the other hand, significant earnings beats often translate into significant short term gains, presenting an opportunity for long term investors to take some money off the table by selling into strength. With that in mind, here are three mid-cap stocks that are likely to smash earnings estimates in the weeks to come.
Homebuilder MDC Holdings (NYSE: MDC) has lagged the sector over the past 3 years, with a total return on investment of 30.62% over the past 3 years vs. a 111.8% return for DR Horton (NYSE: DHI), and a whopping 138.8% return for Ryland Group (NYSE: RYL). However, between the company's low price to earnings ratio, low price to book value and ability to hike prices while keeping its fixed costs level, MDC still has more room to run than its richly-priced competitors.
MDC Price-to-Book Value vs. Competitors
MDC also has a long track record of catching analysts flat-footed, with an earnings surprise in nine out of the last ten quarters.
MDC's next earnings report date is July 30, 2013.
Sara Lee spin-off Hillshire Brands (NYSE: SLE) was the subject of M&A rumors last month, as analysts speculated on a potential friendly takeover by Smithfield Foods. With its relatively low price-to-earnings ratio (5.6), high earnings per share ($6.60), and a history of positive earnings surprises, Hillshire Brands is an attractive core holding regardless of Smithfield's intentions. The company's brands include A-listers like Sara Lee, Ball Park and Jimmy Dean.
Hillshire Brands next earnings report is due on August 8, 2013.
Table 1: Quarterly Earnings Surprise History (Hillshire Brands)
CBS Corporation (NYSE: CBS) has been on a tear since the financial crisis, returning over $3.50 in profits for every $1 invested over the last four years (with dividends re-invested).
With the advertising market roaring back and automotive companies willing to spend more, CBS looks to be in excellent shape going forward, especially as broadcasting network will end the season as #1 across all key demographics.
Investors can also look forward to increased earnings in the future, as high depreciation an amortization charges will evaporate over the next few years. CBS Corporation is expected to report earnings on July 31, 2013.
Mid-caps offer just the right mix of analyst coverage, security, and growth for positive earnings surprises to make a significant impact. By focusing on mid-caps with a competitive advantages, lagging valuations compared to competitors and history of positive earnings surprises, MDC Holdings, Hillshire Brands and CBS are ideally positioned for investors who want to position themselves one step ahead of the next big leg up in the market.
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Jessica McCann has no position in any stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!