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Two New Buys for Earnings Season

07/26/2010 1:30 pm EST


Louis Navellier

Editor, Growth Investor, Breakthrough Stocks & Accelerated Profits

Louis Navellier, editor of Blue Chip Growth, finds a software firm and a retailer he says should show strong growth in earnings this quarter and beyond.

My first new buy this month is VMware (NYSE: VMW), [which] develops computer programs used to create and manage virtual machines, the super-hot area of "cloud computing."

Cloud computing allows businesses to use applications without actually installing them, which helps companies reduce operating costs, especially those related to computing resources. Users of Yahoo email didn't have to download any special software or install a server to use it—they simply needed an Internet connection. The software is all on the "cloud" (which is the Internet) and, in this case, managed by Yahoo (Nasdaq: YHOO).

VMW is a growing leader in the cloud computing field and has strong marketing relationships with computer hardware vendors, like Dell (Nasdaq: DELL), Hewlett-Packard (NYSE: HPQ), and IBM (NYSE: IBM).

For the second quarter, [analysts anticipate] that VMW's sales will rise 43.4% and its earnings will soar 60%. In the past three months, [they have revised their] consensus earnings estimate 15% higher for the company. These revisions could indicate that the company will post a sizeable earnings surprise. So stay tuned!

VMware is a conservative stock with a “buy below” price of $78. (It closed just above $78.50 Friday—Editor.)

Limited Brands (NYSE: LTD) is a retail company that operates roughly 2,970 stores throughout North America under the Victoria's Secret, Bath & Body Works, and La Senza (Canada only) brand names. The company also has a robust online and catalog sales business.

Originally, the company focused on apparel, operating two clothing store chains—the Limited and Express—but sold those ventures to focus on its core businesses, Victoria's Secret and Bath & Body Works. Limited Brands also owns luxury department store operator Henri Bendel. Both Victoria's Secret and Bath & Body Works have become popular mainstays in shopping districts and malls across the country.

As a whole, the retail industry experienced same-store sales increases of 3.1% in June, but Limited Brands [posted] an incredible 6% increase in same-store sales in the same period! This is an obvious indicator that consumers continue to demand this company's products, even at the expense of other purchases.

Recently, the government reported that retail sales dropped 0.5%. However, the primary weakness came in durable goods, not "soft" goods, like women's undergarments and personal hygiene products, which, by contrast, experienced strong sales growth. I expect sales for this company to continue to grow as Limited increases its presence in Canada where the economy is rebounding must faster than it is here in the US.

Limited Brands is scheduled to report earnings August 18. When it does, due to the company's strong cash flow, [analysts anticipate] a sales increase of 6.4% and an earnings jump of 78.9%. During the past three months, [analysts have] revised these estimates higher by 6.7%, so the actual gains could be even greater.

Limited Brands is a moderately aggressive stock with a “buy below” price of $26. (It closed below $26 Friday—Editor.)

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