January 18, 2012 at 08:56 AM

BY Dennis Hobein - Contributor, Stock Traders Daily

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Our Trading Reports in this Article:

• IBM
• ISRG
• LUV
• UNP

Although fourth quarter earnings season “unofficially” began a week ago, the week of January 17 represents the first week in which corporate earnings will truly be at the forefront of investors’ and traders’ attention. In recent earnings seasons, it has seemed almost a foregone conclusion that most companies would surpass the Street’s expectations.

However, following several prominent warnings from large caps, across a spectrum of industries, this earnings period is much more in doubt. In a recent note to subscribers, Tom Kee, Jr., President & CEO of Stock Traders Daily, commented, “Earnings season will start in earnest this week, and with it I expect a number of concerns. We have had a few very concerning reports already, but the market has been resilient…” He continues to say that a break above 1,300 in the S&P 500 could trigger a wave of short-term buying, but, this strength could wane as investors’ focus returns to Europe.

If you are interested in learning more about what Mr. Kee expects from the stock market/economy this year, and/or want to learn about our proactive trading strategies, click here.

Of course, much will also depend on how corporate earnings shake out. With that in mind, here are a few widely-followed stocks that are expected to report earnings on Thursday, January 19.

Soft IT Spending Could Spell Blues For Investors
After the close on Jan. 17, IBM (NYSE: IBM) is expected to report its fourth quarter results with analysts expecting EPS of $4.62 on revenue of $29.7 billion, which would equate to y/y growth of 10.5% and 2.4%, respectively. IBM has struggled to generate significant top line growth for quite some time, and has recently turned the M&A spigot on in an attempt to stimulate better growth. On the positive side, IBM has a high level of recurring revenue from its IT Services segment, giving investors’ a certain level of comfort that they won’t be blindsided by a massive miss. This stability is coveted in uncertain times like these, and is one reason why the stock is up ~20% y/y.

Operating at a High Level
Intuitive Surgical (Nasdaq: ISRG) has been one of the strongest stocks since the beginning of 2011, soaring by ~80% since that time. In fact, ISRG is trading just below all-time highs. The company is the maker of the ground-breaking “da Vinci Surgical System”, which allows for surgery that is far less invasive. Sales of these systems have been hot, with the company selling 133 systems last quarter compared to 105 during the same period a year ago. For this quarter, the Street is predicting its EPS and revenue to increase by 11% and 24%, respectively. While its growth has been solid, and it has a track record of beating expectations, its valuation is lofty. ISRG currently trades with a trailing P/E above 40x and a P/S nearing 11x.

LUV Navigating Through Turbulence
It’s been a rough ride for shareholders of Southwest Airlines (NYSE: LUV) as the stock, and other airliners, have been hit by a combination of softening revenue passenger miles, weak global economic conditions, and escalating fuel costs. Most recently, LUV’s December traffic results, which showed y/y traffic growth of 1.9% and capacity of 80.5%, lagged the industry averages. This could be a headwind heading into its Q4 report on Jan. 19, making it difficult for it to exceed the $0.07/$4.13 billion estimates.

UNP Chugging Along
Union Pacific (NYSE:UNP) has been on fire since early October, up 35% since then. Driving shares higher has been strength in the energy, auto, and industrial sectors, which are key to its business. A positive indicator for UNP’s upcoming earnings is that industry car-loadings were up a solid 3.5% in Q4. To meet analysts’ expectations, UNP will need to report EPS of $1.80 and revenue of $5.02 billion.

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