Stockpickr: Two Stocks With Stellar Earnings

The most important rule in investing is to look forward, not backward.

If, for instance, a company is trading at a price-to-earnings ratio of 10 based on last year's earnings but next year will be at 50, its stock might be expensive. And yet this presents the obvious challenge -- how do you know what next year's earnings will be?

You can't know it. That's where the analysis begins -- you talk to sellers or users of the company's products. You look at the past successes of analysts covering the stock. You look at the hedge funds that own the stock -- are they reliable?

One portfolio on Stockpickr, Top Earnings Champions, offers a list of more than 30 stocks that have 10 consecutive years of earnings growth. If a company grew earnings through the bubble and bust, through peace and war, boom and recession, every year for the past 10 years, then it's reasonable to believe it will continue to grow in the next year.

Let's look at two names from the list.

First up, Expeditors InternationalEXPD. Forgetting all about its 10 straight years of earnings growth, this logistics company is remarkable because of the brutal honesty in its Securities and Exchange Commission filings. It compiles a Q&A based on inquiries it gets from shareholders and publishes the results in an 8-K filing. Here's the first question from the company's most recent 8-K:

[Question] 1. Operating income combined in the Far East and Australia/New Zealand declined by about 4% [...] Discuss the drivers of the deteriorating operating performance. When do you expect to see positive year-over-year EBIT in the Far East again?

[Answer] "Drivers of deterioration" seems to us to be kind of an overstated use of alliteration. However, your question about Asia and Australia/New Zealand's comparable fourth-quarter performance in 2006 versus 2005 is certainly worthy of comment...

The next thing to notice about Expeditors is its pristine balance sheet: $512 million of cash in the bank and zero debt.