The Good News in Earnings Season

With nearly all of the companies in Standard & Poor's 500-stock index having reported, second-quarter earnings season is just about over. When the next round begins the week after the Fourth of July, shareholders should expect festivities but little in the way of financial fireworks.

That’s because the stock market forgets its jitters during the weeks when a raft of companies issue their periodic profit reports and comments about the business outlook. During earnings season, stock prices move with corporate news, as opposed to what may be going on in the Middle East or Greece. And the bottom line is that corporate bottom lines represent a bright spot in an otherwise sluggish economy.

See Our Slide Show: 12 Earnings Reports That Always Matter

U.S. corporations are making piles of money. With 96% of S&P 500 companies’ first-quarter results in, overall net income is up 17.2% from the same period in 2010, according to Zacks, a firm that tracks earnings numbers. In the first quarter, Zacks says, positive surprises outnumbered negative ones -- the earnings “misses”-- by three to one. Even with the caveat that bosses have ways to fudge the numbers, this was a good quarter.

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Provided there’s no financial shock over the summer -- one obvious worry is the chance, however slight, that Congress will fail to lift the debt ceiling, forcing the Treasury to default on its debt -- shareholders should make out just fine. (Kiplinger’s expects the stock market to continue to rise over the rest of the year and wind up with a low double-digit return for all of 2011).

Switching from the big picture to individual companies, let’s take a look at my list of 12 Earnings Reports That Always Matter. So far, the stocks have done okay since the earnings reports they issued in April and May. Intel (INTC), which until this past quarter has disappointed its shareholders, issued an unusually upbeat report on April 19 and has since climbed 14.2% (figures are through May 25), compared with 0.6% for the tech-heavy Nasdaq Composite index.

Shares of three banks -- BB&T (BBT), PNC (PNC) and SunTrust (STI) -- have held steady since their last reports, which suggests banking in general is in a holding pattern -- out of danger, but not booming. Depressed dividends are still weighing on bank stocks.

Shares of Costco Wholesale (COST), whose results reflect both big-ticket consumer spending and serious economizing on food, gas and staples, fell 1.3% on May 25 after the warehouse giant reported earnings for its third fiscal quarter that disappointed Wall Street. Sales and membership growth were fine, but investors are worrying that rising costs are putting pressure on Costco’s profit margins.

The rest of the stocks to watch, including Fastenal (FAST) and Expeditors (EXPD), have mostly been moving sideways, despite good business trends, or have fallen a shade. General Electric (GE) has sunk 3.7% since it issued results on April 21, and is now trading for less than $20.

We’ll be back with an expanded forecast before the Fourth of July holiday and suggest a couple of additional companies whose earnings reports beg watching for signs about the condition of the overall economy and stock market.

See Our Slide Show: 12 Earnings Reports That Always Matter