An Earnings Road Map to Buried Treasure

Next came U.S. Steel(X), which said on its earnings call that there are signs that the destocking cycle has ended in North America and Central Europe as customer orders have increased. The company added that it was going to bring some capacity back on line.

This is a good sign for the troubled steel industry. While everyone knows that the Chinese infrastructure stimulus machine is picking up steam, indications of pickups in North America and Central Europe were a pleasant surprise. If other industrial companies experience similar demand pickup, then a bottom in the economy could be confirmed.

Finally, Bank of America(BAC) mentioned that its Countrywide mortgage unit was profitable and is or will be accretive to earnings.

This is a positive for BofA shareholders, but the real message is that if a profitable mortgage lending unit would imply one or more of the following:

The mortgage business is picking up either through refinancing or new home purchases.

The U.S. Treasury and FOMC monetary policy is working.

Mortgages that were previously thought to be impaired or worthless may indeed have more value than currently stated.

These conditions could also extend beyond BofA to other troubled mortgage units at companies such as JPMorgan Chase(JPM), Wells Fargo(WFC) and Citigroup(C). Furthermore, this might be an indication that homebuilders such as Toll Brothers(TOL), Centex (CTX), Hovnanian(HOV) and D.R. Horton(DHI) are finally seeing an improvement in business.

Be on the lookout for these little earnings-call Easter eggs. Though they might seem irrelevant to an individual company, they could have broader economic and investing implications.

>To order reprints of this article, click here: Reprints