Psst — Don’t Tell Anyone But Earnings Have Been Great This Quarter

Lost in all this talk of QE2 and elections has been the fact that this has been a great earnings season. (No, really. It has.)

We’re more than two-thirds done and this season is on track to have one of the best “beat rates” ever. The media earnings surprise has been 4.9%. Normally, surprises run around 3%. As of Monday, there have been 255 positive surprises and just 56 misses. That’s really good.

There is a downside, though. Most of the good news has been due to higher margins. The sales beats have been nowhere near as impressive as the earnings beats. Higher margins are good, but the catch is that margins can only go so high. Eventually, you have to have sales growth. We’ve also seen that analysts haven’t been raising estimates for next year.

The overriding fact is that the market is still cheap on a valuation basis. The S&P 500 is probably on track to make $84 this year, give or take. Assuming there are no meteor strikes next year, we’ll probably make $95.

The S&P 500 closed just shy of 1200 today, so we’re talking about a forward P/E Ratio of 12.6. Flip it over and that’s an earnings yield of 7.9%. Last I checked, yields aren’t anywhere close to that.

As I’ve said before, the Fed is telling everyone to shift up the risk ladder. They want all those companies to use their cash hordes to hire people. They’ll do whatever it takes.

Posted by on November 3rd, 2010 at 10:27 pm


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