Earnings, It's All About the Bottom Line

NEW YORK (TheStreet) -- As the third quarter earnings season began I warned it was important for companies to beat estimates on the revenue line. This awareness came to a head mid-day Thursday and continued into the pre-market on Friday. Here, I profile six stocks who report quarterly results after the close Monday and on Tuesday.

The Dow Industrial Average traded as high as 13,588.73 Thursday morning, then Google ( GOOG) inadvertently released its earnings report at 12:30 p.m. with a huge miss in earnings-per-share and on the revenue line.

Then after the close on Thursday Microsoft's ( MSFT) also disappointed. Weaker-than-expected earnings reports continued pre-market on Friday with Dow components General Electric ( GE) and McDonald's ( MCD).

The Dow declined 245 points from the week's high to end the week at 13,343.51, below both its 50-day simple moving average at 13,352.83 and its five-week modified moving average at 13,356.29.

The weekly chart for the Dow shifts to negative with a close this week below the five-week MMA at 13,358.29, only if the 12x3x3 weekly slow stochastic reading declines below 80.00 from the current 83.99.

The downside risk is to the 200-week SMA at 11,008, which held on weakness between August and September 2011. My annual value level is 12,312 with a monthly pivot at 13,506 and weekly, annual and quarterly risky levels at 13,649, 14,032 and 14,192, which are below the October 2007 high at 14,198.10.

Chart Courtesy of Thomson/Reuters

At www.ValuEngine.com we show that 56.8% of all stocks are undervalued with 43.2% overvalued with 12 of 16 sectors overvalued. The five most overvalued are; construction by 16.4%, medical by 13.3%, consumer staples by 12.1%, retail-wholesale by 12.1%, utilities by 11.6% and finance by 11.6%.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the Table are projected to move higher by that percentage over the next 12 months.

Value Level: The price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC limit order to sell on strength.

Texas Instruments ( TXN) ($27.81): Releases their earnings report after the close on Monday. The stock has a buy rating according to ValuEngine with a reasonable P/E. TXN is below its 200-day simple moving average at $30.17. The stock traded down from a 2012 high at $34.24 on March 27 to a 2012 low at $26.06 on July 17. The weekly chart is negative with the 200-week SMA at $27.01. Investors and traders should employ a buy-and-trade strategy between the value level and risky level.

Stocks reporting earnings pre-market on Tuesday

DuPont ( DD) ($49.34): Has a buy rating according to ValuEngine with a favorable P/E and is below its 200-day SMA at $50.45. The stock set its 2012 high at $53.98 on May 1 and set a second half 2012 low at $46.16 on July 11. The weekly chart profile is negative with the 200-week SMA at $41.67. Investors and traders should reduce positions on strength to my monthly pivot at $50.45 and then employ a buy-and-trade strategy between the value level and risky level.

3M ( MMM) ($92.94): Has a hold rating according to ValuEngine with a reasonable P/E. The stock is above its 200-day SMA at $88.84. MMM set its 2012 high at $95.46 on Oct. 8. The weekly chart profile is positive but overbought with the 200-week SMA at $80.18, but shifts to negative on a close this week below its five-week MMA at $92.88. Investors and traders should book profits on strength to my monthly pivot at $93.03 and then employ a buy-and-trade strategy between the value level and risky level.

United Parcel Service ( UPS) ($72.30): Has a buy rating according to ValuEngine with a reasonable P/E and is below its 200-day SMA at $76.31. UPS declined from a multi-year high at $81.79 on March 19 to a year to date low at $71.18 on Sept. 21. The weekly chart is negative but oversold with the stock above its 200-week SMA at $65.35. Investors and traders should employ a buy-and-trade strategy between the value level and risky level.

United Technologies ( UTX) ($77.99): Has a hold rating according to ValuEngine with a favorable P/E and is below its 200-day SMA at $78.45. The stock set its 2012 high at $87.50 on March 15 and its 2012 low at $70.71 on June 5. The weekly chart is negative with the 200-week SMA at $70.79. Investors and traders should employ a buy-and-trade strategy between the value level and risky level.

Earnings Reporting After-Hours Tuesday:

Netflix ( NFLX) ($64.98): Has a strong sell rating according to ValuEngine with an extremely elevated P/E and is below its 200-day SMA at $83.19. Netflix traded to a parabolic high at $304.79 on July 13, 2011, before the bubble popped. The stock set its 2012 low at $52.81 on Aug. 3. The weekly chart turned positive the week of Oct. 5 with its 200-week SMA at $109.98. Investors and traders should employ a buy-and-trade strategy between the value level and risky level.

Norfolk Southern ( NSC) ($65.64): Has a buy rating according to ValuEngine with a favorable P/E and is below its 200-day SMA at $70.24. NSC set a multi-year high at $78.50 on Jan. 12 then a 2012 low at $62.82 on June 4. The stock has a negative weekly chart profile with the 200-week SMA is $58.97. Investors and traders should employ a buy-and-trade strategy between the value level and risky level.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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