This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

2 Stellar Stocks for Earnings Season

Another theme for many of these "estimate-beaters" is that the strong results may not last. For example:

  • Industrial conglomerate Textron (TXT) posted solid profit margins, thanks to still-strong results at its Bell Helicopter division. But the Textron's Cessna plane division is struggling for new customers, and quarterly results may weaken in coming quarters.
  • Knight Capital (KCG) strongly benefited from the stock market volatility in July and August, which created wide bid/ask spreads in its market-making business. Volatility dropped in September and the current quarter is unlikely to deliver the same upside surprise.
  • Cytec Industries (CYT), which makes a range of industrial paints and resins, saw robust demand last quarter, but has already seen business slow more recently and is hunkering down for a period of upcoming softness by closing a key plant in Brazil.

The key for "upside-surprise" plays is to find companies that can sustain their momentum. I think I've found one of them, in addition to Citigroup. That's Noble Energy (NBL).

This oil and gas driller showed strength throughout the income statement. Especially productive wells allowed Noble to produce roughly 3% more oil and gas than analysts had anticipated, and the costs to dig new wells also came in lower than expected. The current quarter should be equally impressive as new wells could come online a quarter before many analysts had expected. "It's rare that you have the combination of production, development and exploration all peaking at the same time for one company," note analysts at Sterne Agee, who carry a $107 price target on the stock.

Noble has built an impressive slate of development projects, from Israel to West Africa to U.S.-based shale plays and the Gulf of Mexico. The recent quarterly results are part of an ongoing trend: Management tends take a very conservative stance to costs and development schedules and then typically comes in ahead of plan.

That's why the company has topped the consensus earnings estimate by at least 12 cents a share in each of the last three quarters and will probably keep doing so as new energy projects start to come online later this quarter. Analysts at Citigroup figure a steady jump in cash flow per share, from $1.47 a share in 2011 to $16.50 a share in 2012 and $18.87 a share in 2013 puts fair value on the stock at $110 -- almost 25% above current levels. And that upside comes with still-depressed natural gas price forecasts.

Risks to Consider: A still-weak economy should lead you to closely scrutinize recent results as well as the assumptions built into forecasts for future quarters. It's best to avoid assuming costs can be cut much more, so future "estimate-topping" results will likely only come from company-specific growth drivers or a strengthening economy.

Action to Take: Even with the banking and natural-gas sector experiencing challenging environments, Citigroup and Noble Energy still managed to deliver solid numbers. Citigroup brings significant potential upside along with ample risk, while Noble offers decent upside with likely limited risk.

Disclosure: Neither D. Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

Also read:

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
3 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs