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Welcome to Profit Confidential • Wednesday, May 23, 2012

Keep an Eye Out for Earnings Cuts

Wednesday, October 22nd, 2008
By George Leong, B.Comm. for Profit Confidential

With the third-quarter earnings season set to pick up, there is cautious optimism. However, we do expect some nasty numbers out there with the blame fully on the condition of the economy. Just try reading some of the recent headlines on the wires and you’ll understand the concerns.

 ”US Bancorp 3Q falls 47 percent” DuPont 3Q profit falls on charges, cuts 2008 view” Caterpillar’s 3Q profit falls 6 pct” Nissan to cut production due to US slump” Freeport McMoRan profits fall by nearly a third”

 The bad news on the earnings front may only be the beginning and could surely lead to earnings downgrades from Wall Street in the upcoming weeks. The consensus is calling for a weak third quarter

and, unless we see some positive remarks going forward, stocks could edge lower over the next few weeks. Watch out for upcoming guidance cuts followed by downward revisions in analysts’ EPS estimates.

 The current valuations appear to be attractive at this time given the selling, but should there be earnings cuts, stock prices would be vulnerable, as the valuation of stocks will be higher. We believe it is only a matter of time before Wall Street crunches its numbers and spreadsheets and determines that the earnings assigned to companies are too high and need to be adjusted down. This would not be a surprise, as we have seen very little as far as downgrades despite the slowing economy in the U.S. and worldwide.

 But perhaps the recent downward move in the stock markets is just factoring in the expected cuts in earnings that are to come. Over the next few weeks, watch for earnings to be cut, as we see no other option for Wall Street.

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Profit Confidential AuthorGeorge is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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