Earnings Will Push Stocks Higher

09/21/2009 1:00 pm EST

Focus: STOCKS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Louis Navellier, editor of Blue Chip Growth, says the worst earnings reports are over, and he finds a stock he thinks will profit from earnings surprises and a weaker dollar.

The upcoming third-quarter earnings will likely represent the first positive earnings for the Standard & Poor’s 500 in ten quarters!

Over the next two months, [they] will light a fire under the stock market. Even the worst companies should show some improvement over last year, since massive cost cutting, layoffs, and inventory reductions have been par for the course. These cutbacks will mean better year-over-year numbers for [most] firms.

In the second quarter, only 25.7% of the companies in the S&P 500 posted positive sales growth, but somehow the market managed to rally strongly in July on optimism that the worst was behind us. Almost every stock on our Buy List posted a jump in revenue—with the average sales growth totaling almost 6% even in the midst of a recession [and showing] annual earnings growth of about 74%! This is the recipe for some big earnings surprises in the third-quarter reporting season.

On top of all this, a weak US dollar is helping to boost the earnings of foreign companies and multi-nationals due to favorable currency exchange rates.

Companhia de Bebidas das Americas (NYSE: ABV) is translated [as] "the American Beverage Company" and commonly known simply as AmBev. This company dominates the Brazilian beer market with brands such as Antarctica, Brahma, and Skol.

Additionally, the company sells Pepsi brands, Lipton iced tea, and other beverages that include mineral water and sports drinks. Along with Brazil, AmBev sells its products in some 13 other countries, including the South and Central American countries of Argentina, Peru, Ecuador, Uruguay, and Venezuela.

This [stock] is a great buy for two reasons: First of all, beer and soft drinks are consumer staples that have seen strong sales even during tough times. And secondly, AmBev is benefiting from the fact that the Brazilian real has appreciated dramatically against the US dollar since March. The fact that Brazil's currency has surged over 20% compared to the greenback means that this company's sales and profits have been boosted significantly simply due to favorable exchange rates.

The numbers speak for themselves. In its latest quarter, ABV posted 4% sales growth and 35% earnings growth compared to the same quarter a year ago. This represented a 33% earnings surprise and prompted the analyst community to revise their consensus earnings estimate 22% higher over the past three months. This bodes quite well for AmBev's next quarterly earnings announcement, and this stock is a great buy in anticipation of third-quarter earnings season.

(It closed just under $80 Friday, slightly below its 52-week high—Editor.)

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