Recent reports out of investor conferences and management updates make it look as if the first-quarter earnings reports will rock. Here are a few news items from Honeywell (HON), Ball Corp. (BALL) and Applied Materials (AMAT) in the past week that have already caught investors’ imaginations:

Honeywell (HON) this week  raised its first-quarter guidance above consensus to the 45- to 49-cents-per-share range from the previous range of 40 to 45 cents. The outlook reflected stronger order flow in markets most closely tied to the short-term strength of the economy, including factory automation controls. In a statement, the company said, “We continue to see signs of recovery throughout our portfolio and are encouraged by improving customer order trends in Q1.” Executives cited strong productivity gains — that’s fewer workers putting out more stuff — as a key reason for the improved outlook. Honeywell is an important company to watch as a bellwether because it spans many industries, including aerospace, factory automation, transportation and materials. This should be taken as good news for our iShares Aerospace ETF (ITA) position. (See previous article about Honeywell dividend.)

Ball Corp. (BALL), a packaging maker, this week announced that its beverage can plant near Rio de Janeiro in Brazil, which began production in November last year, is already planning to add a second production line early in the first quarter of 2011. The company said production for the second line is already sold out for all of 2011, and a third line may be added in the following year. An executive said the Brazilian can market grew by around 11% in 2009 and demand continues to swell. This is a good sign of international growth from a very typical mid-cap U.S. industrial manufacturer, which reported sales of $7.3 billion in 2009. BLL is very profitable, is growing earnings in double-digits and is priced at around 10.9x earnings, which is pretty cheap. Companies like this are why my models like the iShares Midcap 400 (IJH) fund at this point in the global business cycle. 

Applied Materials (AMAT), the top manufacturer of semiconductor manufacturing equipment, told analysts that it expects net sales in fiscal 2010 to rise 60% over fiscal 2009. Its previous estimate was a 50% advance. Executives said they foresee a new multi-year expansion cycle in the chip industry. If they’re right and not just over-optimistic, the Nasdaq will finally have a chance to lift farther off the floor of its 10-year bear market. Watch the chip equipment space carefully, as these companies always lead the cycle.

These three industrial companies are good indications of the rising tide of activity, so bears are going to have a harder time getting the ball rolling downhill to support their short positions in the next three weeks. Not that they won’t try, mind you, as short-selling is already at an all-time high (excluding the depths of the bear market last year).

As we head into earnings season, expect some bad headlines here and there to keep everyone on their toes — most likely leading to a 100-point down day here and there, and a correction of up to 3% — but my expectation is more growth in technology, packaging and aerospace as demand continues to recover.  

For more ideas along these lines, check out my Trader’s Advantage newsletter.

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