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Playing the Coming Earnings Surge
02/01/2010 1:00 pm EST
Louis Navellier, editor of Blue Chip Growth, says corporate earnings are poised to take off, and he says a mining company’s stock will be a big beneficiary.
I know I get riled up every earnings season, but we are currently on the cusp of one of the most exciting earnings seasons of my entire career. The massive earnings growth and stunning surprises we could see have the potential to send our stocks soaring to new heights.
The Standard & Poor’s 500 index's operating earnings are estimated to come in at $16.21 for the fourth quarter, compared with a nine-cent loss in the same quarter a year ago! The switch from a modest loss to a huge profit like that is a simply amazing turnaround for the broader market.
In the first quarter, operating earnings are expected to "decelerate" to a 63.5% annual pace and then grow 33.2%, 24.9%, and 27.2% for the remaining quarters of 2010!
Sales growth is also expected to be positive all year, aided by easy year-over-year comparisons, plus "windfall currency conversions" that help to boost sales for many multinational and global-based companies thanks to a weak US dollar. In other words, 2010 is expected to be an ideal environment for both sales and earnings.
This month's new buy Freeport-McMoRan Copper & Gold (NYSE: FCX) could very well be the first of many commodity-based stocks that we add to our portfolio to take advantage of [the weak dollar].
FCX is profiting from high copper and mineral prices. The company's 91%-owned subsidiary, PT Freeport Indonesia, operates the vast open-pit Grasberg mine in Indonesia, where gold, copper, and silver are mined. Freeport-McMoRan controls proved and probable reserves of about 100 billion pounds of copper, 40 million ounces of gold, and 2.5 billion pounds of molybdenum. Freeport-McMoRan is the world's second-largest copper company behind government-run Codelco.
So what's so great about copper in 2010? Well for one thing, while the dollar remained weak last year and US Treasury securities fell out of favor with investors, many nations like China increasingly stockpiled copper, gold, and other strategic materials instead.
While gold tends to move inversely [to] the US dollar and prosper during uncertain times, copper correlates more to the worldwide recovery, since it is actually used in industrial applications like wiring and pipes. That means copper demand is expected to continue rising throughout 2010. As a result, Freeport-McMoRan's outlook is very promising.
The analyst community expects that company's fourth-quarter sales to surge a whopping 99.3%, and its earnings to be $1.57 per share, compared with a loss of 85 cents in the fourth-quarter of 2008. In the third quarter, Freeport-McMoRan's earnings were 54.5% better than analysts' consensus estimate, and I expect another big earnings surprise.
The stock is a great buy to benefit from commodity inflation and the broader economic recovery in the months ahead. (It closed below $67 Friday—Editor.)
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