Two Ways to Play the Earnings Surge

02/24/2010 1:00 pm EST

Focus: STOCKS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Louis Navellier, editor of Blue-Chip Growth, says earnings reports will continue to be strong, and he likes two stocks that have beaten analysts’ expectations.

The market's rebound after a rough start to February has proven that this bull market still has some legs. But not all stocks are set to share in the profits. We are in the middle of a rotation from "junk stocks" into higher-quality stocks. In the long run, that's good because it means profits are based on real numbers.

What's more, fourth-quarter earnings have largely been positive. Those actually watching the numbers have had reason to be excited, and now that the market has stabilized we are seeing optimism return to Wall Street.

Approximately 80% of the companies have beaten analysts' consensus estimates during the fourth-quarter earnings announcement season! The first-quarter earnings announcement season is also shaping up well, since the Standard & Poor’s 500's operating earnings are expected to rise 61.5%.

Citrix Systems (Nasdaq: CTXS) is an innovative leader in telecommunications and networking. Its cutting-edge, high-tech products allow anyone with a computer to hold live meetings even on the other side of the world. Through applications such as its flagship software GoToMeeting, the company is keeping businesses connected without spending thousands of dollars on flights and lodgings. In this era of cost cutting, that makes CTXS a great investment.

In the fourth quarter, Citrix Systems' sales rose 8.5% to $451.2 million. During the same period, its earnings rose 42.4% to $88.1 million or 47 cents per share. Adjusted for expenses related to acquisitions, restructuring and stock-based compensation, the company said its operating earnings were actually $123 million or 66 cents per share. Citrix posted a 26.9% earnings surprise and a 4.6% sales surprise. This stock is clearly doing everything right and is an excellent buy. (It closed below $44 Tuesday—Editor.)

Intuitive Surgical (Nasdaq: ISRG) is an industry leader in microsurgery, developing space-age instruments that allow doctors to perform robotically aided surgery from a remote console. Its ground-breaking da Vinci system faithfully reproduces the doctor's hand movements in real time, with surgery performed by tiny electromechanical arms and instruments inserted in the patient's body through small openings to lessen the risk of infection and speed healing times. Intuitive Surgical is a global powerhouse, and sells its products in the Americas, Asia, Australia, and Europe.

But don't think ISRG isn't making a handsome profit with its cutting-edge devices. In the fourth quarter, Intuitive Surgical's sales rose 39.5% to $323 million, due primarily to the rapid growth in sales of the da Vinci system. During the same period, the company's earnings rose 53.5% to $77.6 million, or $1.95 per share. The analyst community was expecting earnings of $1.71 per share and $292.7 million in sales, so Intuitive Surgical posted a 14% earnings surprise and a 10.4% sales surprise.

Looking forward, the company said it expects sales to grow 25% in 2010, up from 20% in 2009, [suggesting] that Intuitive will post about $1.32 billion in sales, significantly higher than analyst expectations of $1.24 billion. The stock is a great buy. (It closed below $343 Tuesday—Editor.)

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