So far in the third-quarter earnings season, results have suggested that corporations are chugging along despite significant headwinds. Most importantly, there appears to be no sign of economic collapse. The most recent good news came Monday before the market opened, when Caterpillar (NYSE:CAT) reported results that beat expectations and issued positive guidance for the future. The news sent the stock higher at the open and the gains are likely to hold.
An interesting note about action thus far: Stocks across the board are moving higher, with the S&P 500 up nearly 7% in the first two weeks of earnings season. But companies reporting positive earnings are only seeing modest gains — there have been fewer “pops” on positive earnings news or guidance.
The biggest moves with respect to earnings are coming on the downside. Companies that are missing expectations or reducing guidance for the future are seeing share values slashed as a result. For example, Harley-Davidson (NYSE:HOG) lost more than 8% after reporting disappointing operating results last week.
The path of least resistance this earnings season is on the downside. Such is the nature of the Wall Street earnings game. Early in a business cycle, analysts are too conservative or fearful of missing the mark when projecting profits. As a result, companies will blow out the numbers, often followed by huge gains in share price immediately thereafter. Later in the cycle, estimates catch up to reality, and companies find it more difficult to beat. Case in point: Apple (NASDAQ:AAPL). Analysts finally called for too high a number, and the company missed expectations for the first time in many quarters.
The bar is too high. As such, if you are looking to trade stocks of companies reporting earnings, the fertile ground would appear to be on the short side of the market. Here are five companies reporting results that might slide on disappointing news:
Large trucking and logistics company C.H. Robinson (NASDAQ:CHRW) could be in for a rough ride when it reports third-quarter results after the market closes Tuesday. The company missed second-quarter estimates by two cents per share. Q3 estimates are only slightly lower since that report was released. Share value has recovered since falling significantly in July. Still, at around $76, CHRW stock is richly priced, trading for 28 times current-year estimated earnings. With Wall Street looking for 15% profit growth in 2012, any disappointment in results could bring shares down.