We are now entering earnings season, and I think this will the quarter that separates the gold from the fool’s gold. This rally has started to thin out as the big money that can move stocks higher is abandoning the garbage stocks and focusing on those with the very best fundamentals.
Last quarter, many of the large funds bet on earnings recoveries form companies with poor fundamentals, but the strategy didn’t work. Only the truly exceptional companies that were able to provide growth and fundamental performance escaped the morass of a slowly recovering economy and moved higher. The big money got the message, and as we begin to see earnings from the third quarter, they will focus on those superior companies.
We can use Portfolio Grader to examine fundamentals and get ahead of earnings-related stock jumps. The stocks that score an “A” on our fundamental ranking should shine the brightest this quarter.
One company that has really been noticed so far is Rock-Tenn (RKT), which makes container board, recycled paperboard, bleached paperboard, packaging products, and merchandising displays. The company manufactures everything form shipping containers and merchandise displays to mailing envelopes and has operations in the United States, Canada, China and throughout Latin America. Business is booming for this company — last quarter, it reported a 30% earnings beat, and for the year so far RKT is up 45%. The company has exceeded analysts’ expectations for four quarters in a row, and I expect it to bring that streak to five quarters.
Rock Tenn should start attracting attention for the big buyers this quarter, and I expect the stock to move higher when it does. The stock gets an “A” for fundamental ranking but just a “C” for quantitative measures, bringing it to an overall grade of “B,” or “buy.” When the funds and institutions recognize the strong fundamentals, I expect that to change and see the stock upgraded to a “strong buy.”
Federal Signal (FSS) is another company that could attract increased attention for the big hedge funds and pension plans this earnings season. The company makes equipment used by fire and police departments as well as industrial and commercial companies. The company’s products include light bars, sirens, first responder communication system, street sweepers and vacuum trucks.
Business has been steadily improving thanks to a great deal of pent-up demand. Earnings are up more than 60% so far this year, and analysts expect them to double again next year. This excellence has been noticed by Portfolio Grader, and the stock is currently an “A” stock in nearly every category of our rankings. The stock is a “strong buy” at the current price.
This is going to be the earnings season that separates winners from pretenders. Using Portfolio grader can keep you in the right stocks at the right time just as they prepare to blast higher based on superior fundamentals.
Louis Navellier is the editor of Blue Chip Growth.