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3 Stocks Show: ‘It’s Earnings, Stupid’


You can worry about everything in the world, but when it comes to investing, it’s always better to stay focused on a few tried-and-true measures of a company’s value, writes Richard Moroney of Dow Theory Forecasts.

With stocks gyrating on the sovereign debt woes gripping Greece, Italy, and other European countries, investors would do well to heed the advice of legendary fund manager Peter Lynch.

More than 20 years ago, in his popular book One Up On Wall Street, Lynch wrote, “People may wonder what the Japanese are doing and what the Koreans are doing, but ultimately the earnings will decide the fate of a stock.”

Given the uncertain backdrop and tepid economic outlook, companies with earnings momentum stand the best chance of rewarding investors with higher stock prices. And given the recent market slump, many such stocks are reasonably valued. With that in mind, we screened for stocks with high scores for Quadrix Overall and Earnings Estimates.

In addition, we focused on stocks that exceeded consensus profit estimates in each of the last three quarters and have positive revisions for current-year and next-year earnings. All are reasonably valued.

CF Industries (CF)

Wall Street sees per-share profits of $22.61 in 2011 and $22.85 in 2012. Last year, the company earned $8.05. CF Industries is a Focus List Buy and a Long-Term Buy.

Intel (INTC)

December-quarter earnings per share are projected to increase 17%. Full-year earnings per share should rise nearly 21%. For 2012, the consensus projects 5% growth, a target that sounds conservative. Intel is a Focus List Buy and a Long-Term Buy.

MasterCard (MA)

MasterCard has topped consensus profit estimates for seven consecutive quarters, and the estimate for 2012 has climbed more than 4% in the last 90 days, now implying 16% growth to $21.67. MasterCard is a Long-Term Buy.

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