Strong Earnings Will Lift Stocks

09/22/2008 12:00 am EST

Focus: STOCKS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Louis Navellier, editor of Blue Chip Growth, says third-quarter earnings will be surprisingly good and he finds two stocks he thinks will gain.

Obviously, we haven't seen the end of the credit crisis. But at least when the next financial failure rears its ugly head, the market will have already started its restructuring thanks to the recent shake-ups.

Investors are ready to move past the credit crisis instead of lingering on it. These investors have been sitting on a whopping $3.5 trillion in money market mutual fund assets. 

But there's another reason we're going to see buying pressure push up our stocks—because the earnings season that starts in mid-October is going to be incredible!

Forecasts are all over the place for the third quarter. Just look at earnings predictions for the Standard & Poor’s 500, which range between an increase of 3% and 13%. This will certainly cause Wall Street to underestimate fundamentally superior stocks.

Even better, when fourth-quarter earnings are announced early next year, they are supposed to be up 50% to 60% due to dramatic write-downs in financials for the fourth quarter of 2007.

As a result, the earnings environment is anticipated to improve considerably in the upcoming quarters thanks to easy year-over-year comparisons, regardless of what happens to the overall US economy. All this adds up to increased buying pressure pushing up our stocks in the short term and phenomenal earnings surprises that will sustain those gains well into the first half of 2009.

General Mills (NYSE: GIS) is the second-largest cereal maker in the world (behind rival Kellogg) and fills America's cupboards with its recognizable brands of delicious treats—Cheerios, Betty Crocker cake mixes, Green Giant veggies, and Yoplait yogurt. You might think that with the soaring cost of grains like corn and wheat that this stock would be hurting, but General Mills is a master of marketing and has been profiting from its vast international operations, a competitive US dollar, and its dominant brands.

Sure, money is tight in households across America, but there are many General Mills brands shoppers just won't skimp on. The company's return on equity is an impressive 21%, yet it trades at barely 16x forecasted earnings. This conservative stock is a great buy below $74 that should continue to appreciate steadily thanks to its huge reach and economy of scale. (It closed at around $70 Friday—Editor.)

Northern Trust Corporation (Nasdaq: NTRS) is the trick play in our playbook! I know I've been telling you to steer clear of financials, but I'm going to make a very rare exception for this great stock. Why? Because Northern Trust doesn't have any exposure to the problems that are sinking other banks and brokerages! Northern Trust is a leading personal trust manager in the US, [with] $3.6 trillion of assets under its custody, and manages corporate pension plans for institutional clients. In the second quarter, Northern Trust's earnings were 28.6% higher than analysts' consensus estimates, and its return on equity is an impressive 19.9%—yet it trades at barely 17x forecasted earnings. Buy this conservative stock below $93. (It closed around $76.50 Friday—Editor.)

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