Good, Bad and Ugly This Earnings Season

The Good

Now, fourth-quarter earnings won't be all gloom and doom. I expect to see some bright spots in the health care sector. I'm particularly looking forward to earnings from Abbott Labs(ABT Quote) on Wednesday, Jan. 21. The health care giant has remarkably stable earnings growth; the company hasn't missed expectations since I don't know when. For last year's fourth quarter, Abbott earned 93 cents a share. For this year, I expect something close to $1.10, which is higher than what analysts expect. In tough economic times, I am impressed by consistency, and I expect to be impressed by Abbott yet again.

Another health care company to watch is Baxter International(BAX Quote), which reports Jan. 22. Both Abbott and Baxter are current "buys" on my Blue Chip Growth Buy List.

And ... We're Off

Today is the official start of earnings season, and while it may get a bit bumpy, here's what you need to keep in mind: When the economy is in rough shape, as it is right now, high-quality earnings are extremely important. That's why, in this earnings season, it's crucial for you to focus on companies that aren't just beating expectations, but are also guiding Wall Street higher for future quarters.

A company's earnings report isn't just history. If you look carefully at the numbers, as I do, you can often spot signs of what the future holds. A strong earnings report isn't like a star athlete who's on a "hot streak." Rather, there are often very definite variables that have altered the business landscape in the company's advantage. Perhaps a new product has been well received or a competitor has legal troubles. Furthermore, when a company's quarter comes in above expectations, the surplus of funds can be used to build on and accelerate the company's business advantage. This can range from paying down debt to acquiring a business rival.

The lesson is that success tends to breed success, and those clues can be found in an earnings report. Remember, I expect we'll see two good examples this quarter from ABT on Jan. 21 and BAX on Jan. 22.