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Encouraged by Blue Chip Performance, Investors Lay their Bets

When the Durable Goods Orders report was released yesterday morning, I must admit that I was interested to see how the market would react.

In a nutshell, March orders for U.S. durable goods fell by 4.2%—the most in three years. Meanwhile, economists expected them to dip just 2.5%. However, when the opening bell rang, the major indices didn’t miss a beat—opening up as much as 2%, and closing with a bang and ending up 89.46 at 13,091.02.

And that’s because investors are starting to focus on what really matters: earnings season.

Before I dig into the details, I will tell you this: The S&P 500 companies that have reported earnings so far have posted an average of 12% earnings growth—beating analyst forecasts by 9.4%. It is clear that analysts couldn’t hit the broad side of a barn this quarter and this makes me very bullish for the rest of earnings season.

So, today I’m going to highlight which companies made out like bandits yesterday and re-energized investor sentiment this morning.

Of course, the first stock I want to cover is Apple (NASDAQ:AAPL), who reported blowout top- and bottom-line growth for the first quarter. Compared with the same quarter last year, Apple’s net profits boomed 94% to $11.62 billion, or $12.30 per share. Analysts forecast earnings of just $10.06 per share, so Apple posted a 22% earnings surprise! Over the same period, sales jumped 59% to $39.2 billion, also handily beating the $36.8 billion consensus estimate by 7%.

According to management, Apple sold over 35 million iPhones in the first quarter, 11.8 million iPads and 4 million Macs. Each of these products is enjoying booming sales growth; the only exception are iPods, which declined 15% year-over-year. Investors were clearly pleased by this earnings announcement as shares of APPL opened up 10% yesterday morning and never looked back, closing up over 8% on the day, over the $600 mark.

And we had a few other blue chips that topped expectations:

  • Boeing (NYSE:BA) posted 30% sales growth and 56% earnings growth—earnings trumped analyst estimates by a whopping 30%. BA finished up AT $77.08
  • Caterpillar’s (NYSE:CAT) top line climbed by 23% and its bottom line rose by 29%, topping earnings estimates by 12%. Despite the news, CA finished down nearly 5%
  • Harley-Davidson’s (NYSE:HOG) sales jumped 20% and net income advanced 44% in the first quarter. Earnings topped the consensus by 3%. HG finished up over 6%.

These bellwethers join the growing list of first-quarter earnings surprises, a list that includes Xerox (NYSE:XRX), Google  (NASDAQ:GOOG), Coca-Cola (NYSE:KO) and several more.

Even though it is getting increasingly difficult for companies to trump their sales and earnings versus the same quarter of last year, several major players are still managing to pull it off.

I’m very pleased with these results, and will continue to monitor earnings as they are released. In the next week or so, we’ll start to see the first major wave of small- to mid-cap earnings announcements.

Usually, the smaller players wait until most of the blue chips have announced earnings, so we’ll find out if they are able to replicate the success of their larger competitors.

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