Fourth-quarterearnings season is almost over and the results have been pretty underwhelming.
Out of the 342 S&P 500 companies that have reported so far, representing 78% of theindex 's totalmarket cap,earnings are up a meager 2.8% from the same period in 2011. Of these companies, just 67% have beaten earnings estimates, logging a medianearnings surprise of 3.3%. Totalrevenue hasn't looked much better either, up just 2.7% from the year-ago period with only 64% of companies coming in ahead of expectations.
Those less-than-remarkable results have been driven by a number of disappointing performances from headlines companies. Apple (Nasdaq: AAPL) fell 10% after showing signs of slower revenue growth andmargin compression. General Motors ( GM ) was also under pressure after posting results that fell short of expectations.
With fourth-quarter results showcasing how many companies from different sectors are struggling with slow economic growth, the companies that actually beat expectations are generating alot of attention. But even though a big surprise is great in its own right, which is usually good for a nice pop inshares , the real effect of an earnings surprise is upward revisions in earnings estimates.
Upward revisions in estimates can have a powerful long-term effect on shares as large mutual and hedge-fund managers begin allocating capital into companies, demonstrating high levels of confidence in them despite the a slow-growtheconomy . Individual investors are an important part of this process as well, providing additional tailwinds by shifting intostocks that are getting the most attention and highest marks from the brokerage andanalyst community.
That's why companies that saw the biggest upward revision in estimates during a very slow fourth-quarter earnings season are in position to see big capital inflows in the next few months, a factor that should have a powerful effect on shares.
Here is a list of nine stocks from the S&P 500 that have seen the biggest upward revisions in estimates after reporting fourth-quarter results. Some of them have already seen big gains, but with the trend still well in play, they are in position to continue moving higher as institutional and individual investors search for high-growth companies.
From the list I have chosen to highlight Netflix Inc. (Nasdaq: NFLX) because of its incredible upward momentum and DR Horton Inc. ( DHI ) because of itsleverage against the housing recovery.
Netflix Inc.
This is an incredible example of what can happen to astock that sneaks up on the market with better-than-expected results and then sees big upward revisions in estimates. As you can see in the chart below, shares moved nearly vertically in late January, after reporting earnings that came in more than 200% ahead of expectations.
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